Rule #1 Finance Blog

stock market basics


Phil Town


Posted in stock market basics

Here’s another email exchange some of you might find useful. Joe wanted to know what the difference is, over time, between Rule #1 style investing and the “dollar cost averaging” of investing a set amount per month in mutual funds. 

Here’s his question and my response… as well as a follow-up email from him.

Date:   June 16, 2005
From:  Joe
To:      Phil

Hello Phil,

I recently heard your talk at the Get Motivated! seminar in Philly.  Your market charts depicting sideways/zero growth for huge chunks of time over the past 100 years really got my attention about my current investment strategy.  I’ve been doing a lot of thinking about your investing philosophy vs. simply making systematic investments in an S&P 500 type index mutual fund, and the only plus I can possibly see for the index argument is dollar cost averaging.  I’m sure you are familiar with the argument: by investing regularly (e.g., same $ amount every month) in a mutual fund, you are guaranteed to buy fewer shares when the price is high and more shares when the price is low. Thus, in the long run, you are virtually guaranteed to profit regardless of how the market does.

I’d like to see a comparison of the profit generated using the Rule #1 method vs. dollar cost averaging in an S&P500 Index fund during a 0% growth year in the S&P.  I’m sure it would vary a lot, depending on how much up and down there is in the market that year, but it seems like a reasonable question (especially since most index mutuals don’t charge a commission for systematic investing).

Your thoughts?


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Phil Town


Posted in stock market basics

Last week, Jonathan Welsh — who’s doing his Homework on Toll Brothers, the luxury home builders — contacted me with the following question about a 2-for-1 split. I figured a lot of people would have the same question:  with 2-for-1, do you really get more for your money — double the shares? Here’s his question and my response.

On 6/14/05, jonathan welsh wrote:

The current sticker price you calculated for Toll was 105/share. It is currently selling at 96/share, which is not even close to the 50% requirement. Toll is having a 2-for-1 split on the 21st of June 2005. With a 2-for-1 wouldn’t that get me the same result?  I am kind of new to the concept of getting one additional share to each share held, but doesn’t that count as doubling your money?

God  bless!

Jon Welsh

Date: Jun 16, 2005
Subject: Re: toll 2 for 1
To: jonathan welsh

Good question, Jonathan.  The short answer is no.

Here’s the why not: 

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First, Get Out of Debt

Phil Town


Posted in stock market basics

Traveling and speaking at seminars introduces me to a lot of people, many of whom have the same question:

“If I have significant debt, should I pay it off first before getting started in investing?”

Here’s what I’ve been telling them:

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