Rule #1 Finance Blog
stock market basics
A lot of people email me asking for advice on how to get out of debt so they can start investing. I’ve covered debt management before, and other…
START AT THE BEGINNING: LEARN AN INDUSTRY
Here’s an email from Keith, who served in the Gulf War and has had some tough times since coming back. We’d been going back and forth about how to get him started in investing when he asked me the following question:
From: keith
Date: Sep 19, 2005
Subject: Weekly Tasks?Other than the Get Motivated seminar DVD’s and workbook. What do you suggest that I do each week since I am a beginning investor (this may be a good thing to put on your blog site if not already there) in the way of Stock Market news programs (such as Jim Cramer’s Mad Money), magazines, newspapers, websites, etc. I don’t want to analyze things to death, but in essence if I could only watch / read 2 to 3 things within each catogory each week what would they be? OR should I just solely focus on the materials (DVD’s, workbook, success website) I have already?
Can’t wait to get your book in March ’06.
Thanks Again.
Keith
And my response:
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.
PREPARING FINANCIALLY FOR EMERGENCIES
Tying into my earlier post about educating people to take care of themselves financially, here are some links to info on other sites about saving and preparing for…
The other day Damien left a great question in the comments, one I get asked pretty frequently – about good debt vs. bad debt, and when it’s okay to start investing. Here’s our exchange:
Dear Phil,
You stated in one of your many post that you should get out of debt before investing. I can understand if you hate credit card debts with as high interest rate. In my case I only got a mortgage $84,000 and a around $6,000 in debt at 2.9% interest rate. Should I pay everything off before I start investing which will take about 10 years or can I start investing once I master the 10% solutions. Thanks for the help,
Damien Bricka
And here’s what I say:
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.
Here’s a homework back-and-forth between me and Adam, who saw me speak at the Get Motivated seminar in Philly. Follow along and drop a note in comments if you have anything to add about Toll Brothers (TOL).
I’ll put this in the FAQ too because it answers a couple common questions: 1) How to buy $1 for $0.50 and 2) Where to find the Sticker Price / Target Price on Investools Valuation section.
On 7/11/05, adam wrote:
Hi Phil,
My name is Adam L. I saw your seminar in April just outside of Philly. I just purchased investools over the phone last week. I am so excited and ready to do this!!!! I wanted to know if I could regularly email you with questions? Would that be ok? I read David Bach’s book “Automatic Millionaire” last year and I have been using some of his strategies to save up and I invested some of that savings into investools….which, I know, will make me a millionaire someday. (hopefully sooner than later). I am looking forward to gaining all the knowledge that I can. I cant wait to read your book next year when it comes out. I guess my first question is…where do I go in the toolbox to find where you displayed the undervalued stock? For example a stock is going for 50 cents but worth 1 dollar. Please help me out I am just getting started and trying to absorb everything I can.
Talk to you soon,
Adam
on 7/12 phil town wrote:
Hi Adam,
Sure, you can send me questions anytime. I’ll do my best to respond quickly.
As for getting $1 for $0.50, here’s how it 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.
Here’s an email from John, who’s been reading the site and teaching himself how to use the Excel spreadsheets to figure out whether a company is at the right price. He still had a few questions. With his permission I’m posting his spreadsheet set up and his questions for the rest of you to reference.
To: Phil
From: John
Date: July 14, 2005
Please look at the attached file and let me know what you think.
| Sticker Price and MOS Calculation | ||
| # of years | 10 | |
| Growth Rate | 22.0% | Lower of Historical or Zach’s |
| EPS | $ 2.32 | |
| Actual Price | $ 90.00 | Looks Great!!!, Check the YUMMMMY before Buying |
| Est Future PE | 44 | Looks Great – under 50!! |
| Future EPS | $16.95 | |
| Value Per Share | $745.66 | |
| Sticker Price | $184.31 | |
| MOS | $92.16 |
I think I’ve got the technicals now. The yellow shaded cells are input and I’ve added some comment if statements to help see the results more clearly. I have a few questions though for understanding why.
1) Is the Estimated future PE really twice the Growth rate used? Why?
2) Why do you use 10 years and not more or less time?
3) Why do you use 15% minimum and not more or less?
These questions are for me to understand the whys of what is being done here, so that I can make a more educated "buy" decision. Any help you can provide is appreciated. BTW — I really was affected by your Boston appearance. It opened my eyes to some opportunities I have available to me. Thanks man!!
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.
PLAYING TO NOT LOSE: HOW WOMEN INVEST
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.
MUTUAL FUNDS & DOLLAR COST AVERAGING
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?
Joe
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.
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:
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.