Is Rule #1 Investing Right for You?

What if you could achieve high returns with low risk?

What if you could dictate where your money is going, get better returns than your mutual fund manager, and maybe change the world for the better?

This is what Rule #1 investing is all about…

My investment strategy lowers risk by teaching you how to evaluate and find a few great businesses, and then buy them on sale.

Whether you have $1,000 to invest, or $100,000, every level of investor can learn this strategy and produce great returns. I started with just $1,000 and turned it into $1.45 million in 5 years.

Rule #1 Investing is For You If:

1) You Want Higher Returns, but Lower Risk.

If you are tired of the 5% returns your advisor is making you, yet aren’t comfortable taking more risk, Rule #1 is an investing approach that you’ll catch on to quickly and reap the benefits (some produce 15%-20% returns). It’s a Warren Buffett-style strategy that the most successful investors in the world rely on.

It is not about getting rich quick through risky new businesses or creative trading; nor is it about lowering risk through diversification, which dilutes any potential gains.

It’s a straightforward, honest approach to researching and finding quality businesses and buying them when they are mispriced (how we achieve low risk).

When you know what you’re doing, you don’t need to take big risks or protect yourself with diversification. By taking some upfront time to understand how to properly evaluate a business, you are truly investing in a stock that you understand and one that can deliver value.

2) You Want More Control of Your Money and Where it Goes

If you’re frustrated by paying financial “experts” high fees for low returns, you’re not alone.

Do you feel in the dark about what your financial advisor is doing with your money? Rule #1 can teach you how to confidently manage your own investments.

The financial services industry has preyed on consumer trust with one-size-fits-most investment strategies that are far inferior and limited compared to what you can accomplish on your own.

What many small investors don’t know is that they have unique advantages over the big guys. For example, you can take your money in and out anytime, whereas the big guys have too much invested to have such flexibility. You can funnel more focus on fewer investments.

Rule #1 can teach you how to take masterful control of your money in just minutes a week, after some initial training. College students, single parents, and busy professionals alike have all transformed their financial future by using my investment approach.

If you are willing to devote an hour a week to learning, Rule #1 may be for you.

Click the button below to get your first hour of education…

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3) You Only Have $1,000 to Invest

The great thing about Rule #1 is that you can start with any amount of money and still retire comfortably in time. Because you won’t be diversifying or striving for small margins, a nominal initial investment is all that is needed to begin seeding your wealth. You can even start by learning how to invest $500.

Your first investment will be into one well-researched business. I even advise you to only start by paper trading for a month or so to see how Rule #1 works.

This breeds true confidence that you won’t lose money doing Rule #1 investing because of the margin of safety we insist on.

Rule #1 Investing Might Not Be For You If:

1) You’re Hoping to Get Rich Overnight

This is not about getting rich overnight. It’s not about finding penny stocks or shorting the market. There’s no hidden agenda or sneaky tactics to it. I’m telling you this because I want you to start thinking about your retirement, now.

Rule #1 is about learning how to thoroughly evaluate businesses and knowing what they are worth. Then you wait to take advantage of Mr. Market mispricing businesses that you want to hold on to for a long time.

This approach takes patience and is not for day traders or anyone looking to make a lot of money, then move on to the next big thing. Rule #1 is an investing approach you can use throughout your life including after you retire.

2) You’re Unwilling to Take the Upfront Time to Learn the Rule #1 Strategy

While it will only take you minutes each week to monitor your investments, it does require an upfront dedication to learning how to properly evaluate businesses.

If you’d prefer to hire someone to manage your money, or invest in your company’s 401K, or if you’re thinking about buying index funds or mutual funds, you may be missing the significant advantages Rule #1 can offer to the individual investor.

3) You’re Content with 5% Returns

If you are content with 5% to 7% returns like most of the industry strives for, we’ll have to change the way you think. If you don’t believe you can beat the market, I’m here to tell you that it’s possible to beat the market over and over again.

This strategy has helped countless investors ranging from beginner to advanced achieve 15% to 20% consistently on their money, even in a stock market drop. You can’t do that in a mutual fund or in a 401K. Rule #1 investors routinely outperform the S&P 500 and the Dow Jones Industrial Average by a significant margin.

In taking all of these aspects of this strategy into consideration, this style of investing is for someone who believes there is a better way to make better returns without as much risk through deliberate, informed investing.

If you want to learn more about Rule #1 investing, you can get the best of my 2 New York Times best-selling books for free by clicking the button below. It will teach you the basics of everything you need to know, and then you can go from there.

 

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Phil Town is an investment advisor, hedge fund manager, two-time NY Times best-selling author, ex-Grand Canyon river guide and a 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. You can follow him on google+, facebook, and twitter.

  • Henry Allen

    I just got this book and I’m excited to learn. I hope there is a good community here that I can turn to for help. I’ve never been good at math so generating an analysis with historical figures may slow down the learning curve.

  • Stephen Nichol

    Hi, I am enjoying the Rule1 philosophy and teachings and will soon be putting them into practice. However, I have one question that I haven’t heard talked about yet. Being in Canada. I’m looking primarily at TSX stocks, and have found one HCG.TO Home Capital Group. It is trading under “my” sticker price right. However, last year as a dividend, the gave everyone a “free” share (stock split). So, I’m not sure if my sticker price $45.49 is based off the pre split price? or the after split price? What is the best option for dealing with these circumstances? Thanks

  • Ryan Chudyk

    Wow.
    Not sure their is much else to say! How’s everyone holding up?

    Depending how long this turmoil lasts, this may make it much easier for us to find great companies and attractive prices.

    • Daniel Thompson

      Hello All,

      I have recently read Phil’s book “Rule #1” and have stumbled on one question that I was hoping to get clarification on. When calculating the sticker price you need two PE ratio numbers. One is explained as the default where you just double the rule #1 growth rate and the second PE ratio you use the 5 year historical average. While calculating the sticker price for DAL (Delta Airlines) I came across two ways to get this historical average that are quite different.

      1) MSN money > Analysis > Price Ratios then taking the average of the 5 year high (8.88) and 5 year low (1.08) which comes out to 4.98.

      2) Morningstar > click valuation tab > see 5 Yr Average column and P/E row which says 14

      Can anyone elaborate on this?

      • Rich

        Daniel,

        I would definitely go with the Morningstar 5 year average. It is better to smooth out the numbers rather than have an outlier skew them.

        The 2008/2009 financial collapse had some very low P/E multiples just as the 2000-2002 tech bubble burst had really high multiples just before that crash. If you use those type of extremes to derive an average it might artificially raise (or lower) the P/E you use.

        I would also question why MSM money has a five year high of 8.88 and Morningstar could have a 5 year average of 14. Doesn’t make sense. You may want to find the actual earnings and share price for each year and do the math….. Unfortunately sometimes you get bad data.

        • Ryan Chudyk

          Rich, Agreed, and great answer!

          Daniel, welcome to the community!
          If you’re doing a valuation on Delta to post it here and we’ll help you find the most accurate value (and we can poke holes in your analysis of you need us to play devils advocate)

          • Daniel Thompson

            Thanks Ryan and Rich! Yeah, once I feel good about a valuation I will post one to get some feedback! At first I thought the PE ratio was a little skewed with Delta because it looks like their earnings have bounced up and down quite a bit over the years. However then I compared the PE ratios of Apple using the same 5 year high and low on MSN vs the 5 year average on morning star and it looks to be quite a bit different as well. What’s the best way to manually calculate the PE ratio for a specific year? I know it would make sense to use the total earnings for the year, but how do you settle on what price to use? Is there a good way to get the average price for the year?

            Sorry for bombarding you guys with questions! I started listening to Phil’s podcast a few months ago and just finished his book and it has got me very motivated. Thanks again!

          • Ryan Chudyk

            Hey Daniel,
            No problem at all. I’m honestly just glad your getting into investing!

            In my opinion, the best way is to let someone else do the work for you, haha. Using a website like: Wolfram Alpha
            (http://www.wolframalpha.com/input/?i=delta+pe+ratio)
            works great for getting the average PE the fast way. They do all the grunt work for you and you can just grab the number.

            Note: I would still double check the data against Morningstar just to make sure they’re similar.

            I would recommend signing up for a free toolbox account on this site. It’s the fastest and best way to value a company your looking at Rule #1 style. (It always pays to do a company valuation on your own a couple times as well).

            After you’ve signed up, check out DAL’s competitors, by clicking on ‘Peers’ below the heading ‘Company’. Then click through the top couple on the list, and pay attention to the ‘Rule 1 score’ and see where you end up and have fun!

            Another way to check out the industry is to see what the best investors in the business are saying about it. You can do this by going to a site like guru focus and searching for your company, then seeing if anyone is buying the company you like.

            Here’s what one of the best investors, Warren buffet, has to says about the airline industry:
            http://www.forbes.com/sites/tedreed/2013/05/13/buffett-decries-airline-investing-even-though-at-worst-he-broke-even/#46c21fcf7dc7

            After you’ve done all that, come and check in with us and tell us what your thinking!

            Again, it’s awesome your getting into investing!

            I’m here if you need me.
            Good luck!

            ~Ryan Chudyk~

          • Rich

            One place that is great to get historical P/E ratios is available on TOS (Think or Swim). Phil used to (and probably still does) use TOS as the platform to open a paper trading account as it has a ton of features for investors/traders.

            If you have an account on TOS you can go to the Ananlyze tab, click on Fundamentals. There will be some analyst reports available for additiional research. Click on S&P 500 Capital IQ and scroll down that report to per share data. They provide 10 years of historical data including high and low P/E ratios for each year. Note: if you don’t have an account on TOS, it is worth a look.

            To manually calculate yearly P/E you need each year’s annual EPS and the high and low price of the equity for the year. Divide the high price by EPS and the low price by the EPS. It would probably be more accurate to use the trailing 12 months of earnings at the time of the high and low price if you really wanted to fine tune your numbers…. That would take more digging and may be more work than is necessary.

          • Daniel Thompson

            Yeah, after looking at Delta’s financials a little bit closer I have nixed them. I have been using a mix of the Rule #1 toolbox and gathering data from financial sites. I did throw together a valuation for Buffalo Wild Wings (BWLD) in excel. What do you think?

            Current EPS $5.17

            Historical Growth (equity) 20%

            Projected Growth (Earnings) 19%

            Rule 1 Growth Rate 19%

            Default PE 36

            Avg Historical (5 yr) PE 31

            Rule 1 PE 31

            Minimum Acceptable Rate of Return Annually 15%

            Future EPS $29.44

            Future Price $912.69

            Sticker Price $228.17

            Margin of Safety Price $114.09

          • Daniel Thompson

            I have also noticed that the compound growth rate calculations given on the toolbox account seem to be quite a bit off. For example if you look at CAT financials and calculate the 10 yr or 7yr EPS, OCPS, Sales of BVPS growth rates it does not come close to what I am getting from the data. I am using an excel formula. Is anyone else calculating the same growth rates?? I have tried this with several companies. I am wondering if I an issue with my calculations or if this Rule 1 toolbox growth rates are not population correctly.. What do you guys think?

      • bump513

        Why look into DAL instead of a more consistently growing business? I went to value it as an exercise and the #s to me seem are all over the map. Am I missing something?