Rule #1 Finance Blog

how to invest

YOUR HOMEWORK: EVALUATING A COMPANY IN TRANSITION

Phil Town

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Posted in how to invest

Here’s another piece of homework, submitted by Garrett Smyth of Chattanooga, TN, who was a professional golfer for 15 years before making a career change to sales.

Garrett wanted to know if the YUMMMMY analysis works in determining the value of transitioning companies that are moving into new and different sectors. Below is his question and my response. I’ll post more about his progress once he calculates the Moat for the company in question.


On 6/9/05, Garrett Smyth wrote:

Phil,

Question:  What is your feeling about a company that has changed directions from what they used to be to something new?  My example is St. Joe Company in Florida.

St. Joe Company was originally a paper company in Northwest Florida who in 1997 shifted its emphasis away from paper products into real estate development.

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YOUR HOMEWORK: TOLL BROTHERS, INC.

Phil Town

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Posted in how to invest

As I mentioned earlier in the How to Get Mentored post, I’m asking students of investing to do their homework and research YUMMMMY companies on their own… then submit their work to me for evaluation. Every so often I’ll post a good example under Your Homework. Be sure to check these out — they’re the best way to learn.


This is a post from Jon Welsh.  He is a former Marine Corps Sgt.  He was part of a small team that did SWAT actions in Fallujah and he’s carrying some scars.  The man is one of our young heros.  I’m hoping he doesn’t go through what a lot of Vietnam vets went through when they came home to an uncaring country so I’m working tight with Jon.  And he’s getting on this Rule #1 stuff.  These are emails from yesterday back and forth between us.   

On 6/12/05, jonathan welsh wrote:

Hello! This is my homework. Well at least half of it.

Y – Yes I would like to own "the nation’s leading builder of luxury homes." (Toll website). Toll Brothers builds quality luxury homes in some great areas in the U.S., and they win some prestigious home building awards.

U – They build it in 20+ states, and people buy it. In Phoenix, New York, and California, people are buying plenty of homes for investment reasons. Demand for homes is rising faster than Toll…

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IS GARMIN YUMMMMY? (PART II)

Phil Town

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Posted in how to invest

My look at Garmin started with whether I wanted to own it, whether I understood it and whether it had moat.  So far so good.  Next I want to look at management, Value and Yield:

M: Management. Which means Dr. Min Kao, Founder, Chairman and CEO.  Here’s the summary I got from articles about him that I got when I googled "Min Kao" Garmin.

  1. Dr. Min Kao’s BAG:  (I want to hook up with guys who want to change the world and have really committed themselves to it.  I call that a Big Audacious Goal – BAG):  “To bring GPS to the masses”.  Nice.
  2. How does he intend to do that BAG?  He says he intends to make the best product, at the lowest cost to build,  and to do that he is going to go for vertical integration. 
  3. What kind of guy is Dr. Kao?  He seems like he’s all about this company.  No indication otherwise.

I like the sound of this guy.  He seems like a guy I’d like working for me.  Management gets an A.

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WHAT NOW FOR WHOLE FOODS?

Phil Town

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Posted in how to invest

I popped into Whole Foods last February at 90.  And as a Rule #1 investor getting into WFMI meant that I thought it was YUMMMMY.  Turned out it was!  Since then WFMI ran up to 104 and I bailed at 102.  Then again in at 97 and now its at 120.  That is some serious up.  About 40% in 5 months.  Good.   But here is where it gets real good.  That investment represented about 40% of my portfolio.  That means that my entire portfolio went up 16% in 5 months even if the rest of it was under my mattress.  That is just nuts! And it’s all about focus.  If you think you can do that by diversifying, think again.  Remember this:  Diversification is for the ignorant.

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Advice from J.D. Mullane’s Old Man: Compound Interest

Phil Town

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Posted in how to invest

I always feel like such a pathetic speaker when a good writer decides to rip me after an appearance!  J.D. Mullane, writing for a Philadelphia paper, wasn’t exactly overly impressed with me.  So, by way of apology, I wrote this to him :

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David Bach and Me

Phil Town

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Posted in how to invest

I’ve been on stage with David Bach for the last year at about 20 events around the US. We’ve passed in the hotel lobby but never spent any time together. But we share a common passion. I just read his book, The Automatic Millionaire and strongly recommend you read it. David is at least as interested in helping people find their way to financial security as I am. And we both are interested in seeing others get there with as little effort as possible.

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