Rule #1 Finance Blog
how to invest
MSNBC called Your Business. It airs at 7:30 EST Sunday mornings, so
TiVo is a nice thing if you party like a rock star.
This kind of thing
is definitely a perk of having a New York Times best selling book.
Doing TV interviews is fun, but they tend to be 4 or 5 minutes, in and
out. This show is a blast because we can actually discuss some
things.
The idea of the show is to give small business owners a lot of
information in an entertaining way. The key to that is the host, JJ
Ramberg .
She is just a cool woman and really easy to work with. JJ goes on
location at interesting small businesses, interviews the founders,
and finds issues that are of concern to the owners for us to discuss.
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.
Allen from Moorpark, CA had a couple questions worth sharing with other Rule #1 readers. I’ll answer this one today and his other question tomorrow.
Hi Phil Town,
What *DO* you do when the growth rates are all over the map? For
practice, I’m trying to analyze Disney, which is *NOT* a Rule #1
company, but we have a zillion shares from when my wife was a little
girl.The 9, 5 and 1 year equity growth rates are 5.7%, 2.8% and 0.1%,
but analysts forecast 12.15% earnings growth, and actual 9, 5 and 1
year EPS growth is 7.4, 16.8 and 10.7%.So the EPS growth is there, but
the equity growth doesn’t support it. Since sales growth and ROIC are
weak, and long term debt is 5 years of free cash flow, I’m not
thrilled. But the problem with selling, of course, is the *BIG* tax
bill that we’d be hit with. Am I missing anything? Any thoughts?Thanks so much for reading this, and have a good weekend!
Allen
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.
A few days ago, Monk brought up some interesting observations about YHOO and Intangibles in the Comments.
Our exchange is useful enough that I decided to reprint it here.
Monk's comment:
As a new student of all this, I agree that Intangibles do make this process all the more scary. I agree that GOOG has a low percentage of Intangibles, and that may have been a bad example. By my read, YHOO on the other hand seems to have a lot more Intangibles percentage than you came up with. From Morningstar's site, under the balance sheet for 2005, YHOO had a Total Equity of 8566.4 and Intangibles of 3430.2. Am I reading it wrong?
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.
THE LITTLE BOOK THAT BEATS THE MARKET
People are curious about my take on Joel Greenblatt’s book. Read on to find out what I think.
Phil,
Saw you at a “Get Motivated” seminar in Cleveland, want through InvesTOOLS training – lost $1,000 on options – and THEN read your book. Now ready for Rule #1 – never lose money. I also just read The Little Book That Beats the Market by Joel Greenblatt (Columbia Business School Professor and hedge fund manager) – he also talks about finding good companies at bargain prices and calls it “magic formula investing”.
He talks about Benjamin Graham, the Margin of Safety, EPS and Return on Capital. However, he adds in Earnings Yield – the bargain price is determined by a higher earnings yield. Is he just computing Value by a different means? Also he sets Return on Assets (ROA) at a minimnum of 25%, talks about being committed to holding the stock for a minimum of 3 to 5 years, and says this approach works best with companies with a market capitalization above $50 or $100 million.
How is this different from Rule 1 Investing – is it? Are these just personalized embellishments? Why is ROA important (I’m obviously asking for your opinion on this)? Thanks.
Carol
Here’s my response:
I like Joel Greenblatt’s approach to investing. He uses a lot of the same key things we look for in Rule #1 investing. But I thought I’d talk about what he calls the “magic formula” – the Earnings Yield. Here’s how Earnings Yield works:
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.
Today, April 16, Rule #1 is the #1 NY Times Advice/How To Bestseller. You can also read a recent New York Times review of the book here. Phil…
Some readers are having trouble navigating the search engine screens for the free tools mentioned in the book. Here is a direct link to the Industry Sector list…
My publisher, Crown/Random House, just sent me the first magazine
review of Rule #1. Publisher’s Weekly is the book industry magazine.
They publish weekly as you might have guessed and they review about 140
of the 5000 books published that week — so getting reviewed at all is good.
Out of the 140 they review, they give a red star to 10 books
that they think are good books. This helps the book buyers — the
Barnes & Nobles, Amazon.com, Waldenbooks, Costco etc. determine what to stock up on.
Rule #1 was favored not only with a very nice review but also with a red star.
Here’s the review:
For amateur investors who admire the incredible returns produced by
Benjamin Graham-Warren Buffett-style value investing but can’t figure
out how to replicate these billionaires’ methods at home, Town’s
investment guide is manna from heaven.
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.
I've been mentoring Major Clay Edens about getting him the money he needs to retire comfortably in a few years. His goal is to buy a 42' boat and travel the Caribbean islands. He's started doing his homework by practicing the 4M's and taking a look at my WFMI posts. But he still had a few questions about identifying a wonderful company. Read on to learn where WFMI is today, and how I as a Rule #1 investor interpret its position. For those of you who need visuals, there are charts and graphs with this post.
Phil,
As you will see with some of my figures I did have some trouble, but I am hoping that based on your experience and familiarity with WFMI, you will be able to quickly identify them. I used your Blog to try and build a YUMMMY report with enough detail to show myself I had the ability, I was confused as to where to find the information for the MOAT, and doing the calculations for the MOS.
Clayton
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.
FACTORING IN THE BIRD FLU: THE EFFECT OF GLOBAL EVENTS ON YOUR INVESTING DECISIONS
Here’s a quick Q&A from Sandra.
Hi Phil,
Please bear with me, I’m still trying to catch on.
Let’s say Sanderson Farms met Rule # 1. Do you factor in global events, like the bird flu? How does this effect your decision?
Thanks,
Sandra
Good question, and one we haven’t addressed yet. Here goes:
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.
In 1969, Warren Buffett faced a dilemma. Some Buffett Partership limited partners were voicing their disappointment that Mr. Buffett had been sitting mostly in cash for a long time and, as a result, they were not making the wonderful 20% plus returns of the past decade. They wanted him to invest. But Mr. Buffett knew that in every bull market Mr. Market gradually becomes used to paying more and more for a business — and eventually the prices get so high that there just is no rational choice but to stay in cash and wait for the inevitable crash. 1969 was 4 years past the peak of the bull market that started in 1942, but the market was still overpriced, so Buffett wasn’t investing — and the partners were getting antsy. Now what to do? Should he pay more for a good business or fold the partnership? Would the market do what it had always done and crash, or somehow continue to defy business gravity?
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.