Rule #1 Finance Blog

how to invest

CAN FOCUS FUNDS GET YOU RULE #1 RESULTS?

Phil Town

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Posted in how to invest

Courtesy of the Carnival of the Capitalists and The Real Returns, I saw this post about focus funds.

The site owner did some great research. Many of these fund managers are icons of Rule #1 investing – investors who first make sure they are not going to lose money.  This imperative rule came all the way down the decades from Ben Graham to Warren Buffett to Bill Ruane at Sequoia and Bill Nygren at Oakmark Select and it’s great to see the torch being carried so well by Heebner, Gopson, Berkowitz, Schoelzel, Hagstrom Miller, Hawkins, Mulholland and Goldfarb.  With results ranging from 11% to 20%, including the last several years, these funds are far and away in better shape than all but a handful of funds – and the important point is that they will continue to be in better shape no matter what the market is doing – something that can not be said for the flavor of the month funds that lead the rate of return rankings at any given moment. 

One thing, though — these rates of return, as great as they are, speak to a crucial issue no matter who is running the fund:

LLY: HOLD OR SELL?

Phil Town

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Posted in how to invest

Eddie from Grand Rapids recently wrote to me to ask advice about what to do with inherited LLY shares. See below.

From: Eddie
Date: Aug 3, 2005
To: Phil

Yesterday in Grand Rapids I told you we (my wife and I) were making 47% interest this year. She corrected me last night and said on our personal portfolio with InvesTools we are making 37%. Obviously, not disappointing at all!!   ðŸ˜‰

Question. When I returned to the hotel after the seminar my office called and said that we received a registered letter from an attorney informing us that we will receive soon $275,000 from the estate of an elderly supporter of our 501(c) nonprofit Christian ministry.

The attorney wants to know if we want it cashed out (mostly Eli Lilly drug stock), or transferred to our Ameritrade account.

All we know about the stock market is what we’ve learned from you and your program.

Question 1: Would you advise us to take stock, not have them cash it out?

Question 2: Do you have some advice on what we should do to use this "extra" income to our ministry become an income stream for the ministry?

Thanks in advance for your advice…and THANKS for InvestTools!!

Blessings,
Eddie S.

EXBD: MOAT & MANAGEMENT

Phil Town

4 comments.

Posted in how to invest

Here’s a followup 4M exchange between me and Jason, who’s started digging into EXBD’s Moat and Management. He’s done a great job so far, but there’s still more work to do. See below.

From: Jason Moore
Date: Aug 23, 2005
To: phil town

Phil,

Some tidbits that I have come across from an independent website dedicated to providing information about companies for prospective employees. This pertains to both CEB‘s management and, more importantly, its culture (what I believe to be their largest Moat).

ARE NEWSPAPERS REALLY A GOOD BUY RIGHT NOW?

Phil Town

3 comments.

Posted in how to invest

Note: I wrote the following this morning… but couldn’t find time to post it until now.

I saw an article in CNN Money about newspapers being undervalued and perhaps ripe for some mergers.   Newspapers are Toll Bridge Moat companies – if you want to advertise in a newspaper, you only have one or two choices in each city… and you have to pay to play.  I can understand that, and if I can find a newspaper that looks at the world in a way I can agree with, this industry group could be a good one to get into at the right time.   Here’s how I go about checking it out quickly.

HOW DEEP SHOULD RULE #1 INVESTORS DIG?

Phil Town

1 comments.

Posted in how to invest

I love this comment from Patty H.  She is serious about being a proud owner of whatever she is putting her money into.  Believe me, if more of us feel that way, we will change the way business works.  Read on and see more from me at the end.

From: Patty H.
Date: Aug 15, 2005
Subject: Biotech Investing
To: Phil

Dear Phil,

I have been studying your web page and have become very aware of all the moral issues associated with investing. In Sunday’s local paper I read a very interesting article stating that DuPont is now getting into the Biotech world with a green product called Sorona. The logo for the new plastic is "Clothing from a cornfield."  They will use biotechnology to convert corn instead of oil into plastic.

As a nature lover I know I want to invest in a green company so this really peaked my interest. DuPont is not nearly green enough for me so in doing some investigating I found that Sorona resulted from a long term collaboration between DuPont and a company called Genencor International. I started to research Genencor and liked everything I read. They were ranked the number one medium size company to work for the year from HR Magazine, so I knew they were good to their employees. Things started to look up because they were a very green co. too, again something I really wanted. I then found out they were recently purchased by a company called Danisco and their stock would no longer be publicly traded. I was not crazy about Danisco…

HOW GOOGLE’S NEW OFFERING AFFECTS RULE #1 INVESTORS

Phil Town

2 comments.

Posted in how to invest

I just saw that Google is in the process of diluting its current shareholders by 14 million shares to raise $4 billion, diluting me by 8%.

Remember that Rule #1 investors act as if we own the entire business — so what does this mean if we like Google and feel like we own the whole thing?

It means the management just decided to take our pie — which we own all of — and cut a slice of it out and sell it to someone else.  On a per share basis, they just hacked about $20 a share out of my wallet.  That kind of sucks, doesn’t it?

I’ve given them the right to do it (somewhere along the line the shareholders approved issuing another 90 million shares of stock for just this sort of possibility, so management doesn’t have to ask for permission).  But why would I feel good about having 8% of my pie get confiscated and sold to someone else?

STURGIS INVESTORS

Phil Town

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Posted in how to invest

About my trip:

I rode a severely modified 2002 Harley softail to Sturgis from LA and then from there over to Jackson Hole where I live. I got too hot, too cold, too dry, too wet and rode too fast too often. It was perfect. Gave me time to smell the sagebrush at 90 mph and see some of the most amazing country at 20 mph. I camped most of the time. Rode solo most of the time just to go where I wanted, when I wanted and as fast or slow as I wanted. Nearly ran out of gas in Wyoming but some folks that run a bar were kind enough to spot me a gallon of gas and a great breakfast burrito. Rode some around Sturgis with a Jackson cop named Sarah and an authentic Jackson Hole cow puncher named Jimmy. Talked investing for hours with a Rapid City school teacher while I watched guys burn their back tires off for no reason whatsoever. There were too many bikes and not enough time to enjoy it all. And now I’m back and thinking about what to tell you guys at the next event where I’m speaking.

Here’s what I’ve been thinking for the last ten days or so:

HOW TO RESEARCH MANAGEMENT (PNRA)

Phil Town

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Posted in how to invest

I want to show everybody the kind of digging into the management of a business that you can do right around home.  In the Comments on the "Heads up on Panera" post, John is ripping into how Panera is being run and piece by piece the management seems to be doing things better than most businesses that they are going to compete with.  In the process he found out that they have their sights set on a growth rate of 21%.  We can use that number to confirm the Sticker Price.  This is really good work from John so I’m including the whole Comment:

PANERA (PNRA) PART II

Phil Town

15 comments.

Posted in how to invest

John D. signed up to do Investools investor education and tackled an analysis of Panera as one of his first 4M companies. Good timing, considering we’re looking at Panera this week. I helped him out with some of his spreadsheet calculations, and he got back to me with some research about PNRA’s management. See below.

 

To: Phil

From: John

Date: July 18

Phil –

Please check this – I did this on Panera Bread Company using the Investools website for info. Let me know if I’ve got it right now, or where I need to fix the formula. Thanks for the help.

John

YOUR HOMEWORK: SNDA (SHANDA INTERACTIVE)

Phil Town

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Posted in how to invest

Here’s a new homework.

While I was in Europe Alan contacted me with his YUMMMMY analysis of SNDA — Shanda Interactive Entertainment Limited. Shanda is a Chinese home entertainment company specializing in online gaming (interactive video games, mostly).

Here’s his analysis and my response:

[Edited for length]