Hi Phil Town,
I just bought the RULE #1 book and spent the weekend reading it and making notes of course. Having just read Cramer's book, I have to agree with Mr. Cramer that your book was by far clearer and educational for us novice investors. I had to read his book twice and I agree with your assessment of Jim. He is very, very good at what he does and I believe he has our best interest in mind as you do as well. Thanks for thinking of us.
Regarding Texas Instruments if this slide continues it seems as though it's going to be Rule # 1 stock from what I have discerned from doing the homework while also reading the book. It's not the 50% margin of safety but it might be in the coming weeks.
I've read several analysts reports from my broker but in my opinion they are too conservative. I'm finding it very interesting how they think much to yours and Jim's credit of tipping us off on how they think and who they work for. [Name of broker omitted] likes the stock but of course they are not recommending a buy. I spent the last five year-seven years buying their stock at discount so I'm leveraged (16K shares) or at risk with the stock and didn't sell during the recent sell off. Of course I didn't have your book at the time but now the stock looks even better and is sliding to a point where I'm looking to buy additional shares(5000 shares) especially knowing that the sticker price could or should be $38 this year or early next. Many of the analysts had also agreed but know they are backing off without enough justification for me especially with what you've taught me in the past three days. I really appreciate the education and will be implementing as many of the books practices as I move forward. Do you have an opinion on this?
You guys really motivated me to get smart and help others as well especially younger people deal with their future. I'm planning on engaging those young people that I'm around including my children using your method of the M's and debt. I thought about setting aside $1000 dollars a piece for about 6 kids (ages 12-15yrs) and then teaching them your methods. I think it's the best education that I can offer them for the money these days.
My take on TXN:
Here is a graph of four of the big five numbers for TXN.
It gives you an idea of the degree of volitility that each key number has and it also points to some sort of reasonable expectation of future growth. Looking at this I get the sense that the business is vulnerable but not horribly so. It seems to recover, which is nice if it's the only business you are going to own. (And that's how we treat it, right?)
So what is the Rule #1 growth rate for TXN?
Looks something like 1.5 doubles in 9 years. So six to double.
That's a 12% growth rate. Ooops. When you check Zacks you'll see that the range of analysts expectations range from 10% to 30% per year. Clearly we are on the lower end of that scale. So no way do I use the analysts expectations, averaging 19% here. I'm using 12% with a 24 PE (and that fits conservatively with the last few years historically). Suddenly we have a $27 stock here that is selling for $30.
This raises a couple of interesting points about investing:
The fact that a stock price has fallen a lot means NOTHING about its real value.
And it certainly means nothing when we look at whether it's a bargain or not.
Many investors, including some of my best friends, have some sort of built in emotional view of the market that just screams "BARGAIN" if a stock price drops 20% or more, when in fact the only way to know if the new price is a bargain is to know what the business is worth. If you don't know that, you don't know anything about whether this is a good deal or not.
In this case, TXN has dropped 20% of its price and it is still over priced according to a reasonable view of its history. Of course, you might know the business so well that you know that the future is not going to be like the past and that the analysts who are estimating 30% growth are correct -- and therefore this is a steal. Good on ya, mate. If you are right, you score.
But for us river guides, that is just too much work. I'm going to spend my research time finding stuff that is conservatively priced with a big MOS in an industry I understand and buy that.
Now go play.