Rule #1 Finance Blog
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Rule #1 Homework: HOKU Scientific (HOKU)
A few days ago I got this message from a friend at a news station in Pocatello, ID:
Mr. Phil – Happy New Year!
I have a question about Hoku Scientific. Big news with them lately, plenty of talk, I am wondering if you have taken the opportunity to run them through the Rule #1 model?
Well-run company, on-sale, etc?
Not part of a story, just background. Big time analysts are leary but their funding models are strong. You don't usually see companies like Sanyo willing to commit $370m for a product that has yet to be made at a plant that yet to be constructed. Speculative? Solid? I'm interested in your thoughts if you get the chance.
Look forward to talking with you again in '07. Plenty to talk about.
All the best,
Doug
Here's my take on it:
Hi Doug,
Thanks again for the great show. I'm looking forward to doing another one.
Here's how a Rule #1 investor would look at Hoku:
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
Rule #1 a New Year’s Resolution for Blogging Stocks
More news about Rule #1 — the folks over at AOL Money & Finance’s Blogging Stocks included my book in a recent post entitled "New Year’s resolution: Read…
Happy New Year! Posting has been light the past two weeks due to the holidays, but you should expect to see some new material up on the Rule…
Rule #1 Question of the Week: Negative Calculations
Hi folks. Instead of the usual Monday a.m. Q&A, I’m posting a reminder of how to do Rule #1 growth rate calculations using negative numbers. (Please consult the…
George had asked this question about CHS recently:
i love the book; it's got the ring of truth, but i'm new and still waiting 'till i feel confident! i read the blog about CHS & when i ran the rule #1 numbers a question arose:
the 9 year equity (BVPS) rate from 1997-2006, goes 48%, 53%, 53%, 53%, 52%, 50%, 47%, 44%, 42%.
the last years you can see the growth rate descending, but the rate is so very high above the the 10% minimum for which we are looking, i just have to ask:
does this high rate every year override the principle that the growth need to be climbing each year?
thanks,
george
This is a good question. You see a business that has Meaning to you in the Rule #1 sense of the word and you want to determine the future growth rate. You do the Big Five Numbers and see that the growth rate is consistent across all numbers and it's very high. But it's also declining a bit every year.
First, is this a bad sign, and second, how do we estimate the future growth rate if the historical rates are sliding every year?
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
Rule #1 Question of the Week: Management and Pay Ratios
This week's Rule #1 Question of the Week derives from a comment Randy left on the recent "How Much Should CEOs Make?" post. Randy said, in response to pay ratios between the lowest and highest paid members of a company:
>> Something like 14 times what the lowest paid person makes. <<
I've never understood why such a ratio has any relevance at all?
If it were, shouldn't the same apply to any line of work — professional basketball player vs janitor that cleans up the stadium, headlining movie star vs set carpenter, etc.
Or, if it were, you'd be saying the CEO of a $50 million company should be making no more than the CEO of a $500 billion company, since the lowest paid employees of the two companies are probably making the same amount of money.
Or, what if the lowest paid employee of the company is the worker in a Pakistani manufacturing plant, who is only making $40 per month (I think that's the amount I saw Nike was paying overseas workers a few years ago)?
Here's how I responded to his question:
The number is relevant because of how much it has changed in twenty years — and the change reflects CEO self-interest (as opposed to leadership) and Boardroom complacency.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
Redistributing Your Investing Capital
I wrote my response to Scott's note yesterday, but didn't get around to posting it for you all until now. Read on. (And I hope you all had a great Thanksgiving.)
Phil –
Thanks for a great book and thanks for taking the time and making the effort. Your altruistic willingness to help others truly sets you apart from other market 'gurus'.
I've been a Rule #1 investor since September 6 and am already up 12.8% in just nine weeks. I'd be doing even better had I learned discipline and patience. Every time I've dabbled in a non-Rule #1 trade, I've been burned. Hopefully, I've learned my lesson.
My portfolio has grown close to $100,000 and I've been owning five companies. My question: What to do when I'm fully invested and the signals turn green for another company on my watch list of wonderful companies? Should I redistribute my investments to have an equal investment in each of the six companies? Or should I just wait until I get sell signals for one of my companies and then patiently wait to buy on the next set of green signals?
Again, thanks for all you do, Phil. You're a stand-up guy!
Scott Dwyer
Roswell, GA
My response:
Hi Scott,
It's late on Friday after Thanksgiving and I can't sleep. I stuffed myself with turkey sandwiches after watching my 12 yr old nephew play two hockey matches at the local rink against teams from Montana and St. Louis. It's great to be with family and I hope all of you had as great a Thanksgiving as I did.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
Your Homework: Paychex, Inc. (PAYX)
We haven't done a homework evaluation in a while, so here's a quick one on Paychex, Inc. (PAYX).
Phil, I heard you speak in Memphis this year, read your book, and have been doing research and practicing since then. I'm having trouble finding a wonderful company on sale. PAYX is a possibility, strong company, market leader, no debt, numbers look good. I understand the business and like their plan for future growth.
Using a conservative growth rate of 14% and current PE of 28% it looks like PAYX is pretty close to sticker. At the avg. PE of 48 it's just a little above MOS. I would appreciate your feedback if you take a look at this company.
Thanks for showing me the way.
Darwin Martin
My response:
Hi Darwin,
I do like these guys. They went through a bump and are over it. I think the avg analyst rating rounded off is conservative at 16%.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
Reader Eric Primm wrote in yesterday to ask:
"My question relates Phil Town's post about JOSB . You talk about sideways and two reds. What qualifies as sideways? Could you, please, expand upon what you mean by sideways?"
Answer:
Ahhh. The sideways price. That means the price is not going over its previous day's price for several days in succession. And that can also include a price that is dropping on a day by day basis.
Basically what's going on when the price is not moving upwards is that the big investment buyers are unwilling to go over that price. And at the same time, every time the price starts to go up, some eager beaver big guy seller is dumping some of his stock.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
Rule #1 Question of the Week: How I Got Out in 2000
Q: With the DOW at a record high and going up it comes to my mind that after Christmas, we will see a huge bear run. You mentioned in your book the tools told you to get out of market back in 2000. Was it all the stocks moving down at once which I think will be too late or Investools market forecast tool?
A: How did I know how to get the heck out in 2000 — was it a general decline or just my stocks signaled me with the tools?
Simple answer: I was as clueless as the next guy that the market had topped at the beginning of 2000… but I did two things right:
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.