Rule #1 Finance Blog
how to invest
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.
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.
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.
Here’s a quick Q&A from Sandra.
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?
Good question, and one we haven’t addressed yet. Here goes:
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?
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?
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:
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.
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.