Rule #1 Finance Blog

With Investor Phil Town

Rule #1 Calculators Update

For those of you who’d written in about the Rule #1 investment calculators not being able to process negative numbers — we’ve been hard at work at an update, which we’re happy to announce went live today.

Please shoot us an email if you notice any problems (though we don’t anticipate any).

Please also note the additional instructions in the Sticker Price & Margin of Safety Calculator, regarding the use of a negative Current EPS:

We have updated the Margin
of Safety Calculator to allow for the input of a negative starting EPS
Number. However, due to the complexities of the math involved, when
using a negative Current EPS, the
calculator will yield a negative Future EPS (and thus a negative Future
Stock Price) if you input an EPS Growth Rate of less than 8%
.
Explaining why this happens is complicated. But keep in mind that at
this stage in your evaluation of a company, you really shouldn’t be
considering buying into something with such a low Growth Rate
projection.

 
If you’re really determined to evaluate a
company with a negative EPS and a Projected Growth of less than 8%, try
shifting away from the negative number and starting with an EPS of 0.1,
or use an historical EPS from a previous year — a number you feel is
more representative of the company’s past and future performance. (And
remember: a good company can have one bad year or off accounting cycle,
but more than one year of negative EPS numbers can be a red flag
warning you to stay away.)

We will be adding this to the FAQ as well.  Thanks for all your feedback.  Now go play! Phil Town

identicon
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.