Rule #1 Finance Blog

With Investor Phil Town

InvestED Ep.147- Everything You Need to Know About the Future of Our Market

Danielle and I are coming to you with a wealth of information about where we think the stock market is headed in our future and how the best Rule #1 gurus are preparing. We love to talk about the market and the different choices we can make, but remember that nothing should be considered advice on how you should react.

In Episode 147 You’ll Learn:

  1. What are most Rule #1 style gurus doing?
    • Currently they are sitting in cash or in “sell them” mode, likely waiting until the market comes down.
  2. Why is the market concerning?
    • There is a surplus of foreign money coming in because our market is doing so well, this is pushing more money into the market.
    • Foreign markets are not doing as well, leaving US investors nowhere else to go except to continue putting money into our market because bonds are too low.
    • Real Estate is very expensive currently.
    • Index Investing is also being heavily relied on and bringing more money into the market.
    • When you look at the Wilshire Index compared to the GDP (gross national product) is incredibly high and only has happened a handful of times in history, all resulting in a market crash.
    • The United States is scaling back it’s balance sheet by 4 trillion as well as encouraging corporations to bring their money back to the United States through tax reform (which puts more money into the market at a fast rate). This results in a potential 6 trillion entering our market over time, which is unprecedented.
  3. What is Quantitative Easing?
    • The introduction of new money into the money supply.
  4. What should you do right now as a Value Investor?
    • If you follow what the gurus are doing, you want to cash out.
    • In the words of Warren Buffet, “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”
  5. How to Price a Company
    • A “good” price to pay is 10 times the owner earnings.
  6. How to Find the Earnings Yield Ratio
    • The earnings of the company divided by the price of the company.
    • Earnings can be manipulated by management to look better on paper for owners and their own benefit.
    • Earnings yield is the reverse of the PE ratio (price of the company divided by earnings).
  7. What is a buyback?
    • A company’s buying back its shares from the marketplace. The idea is simple: because a company can’t act as its own shareholder, repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced.

Show Notes:

On the InvestED podcast, Phil and his daughter Danielle shine a light on the successful investing strategies that gurus like Warren Buffett have used for 80 years. Listen in for a great stock market education on basics, learn how to invest on your own, and follow along with real-time examples and investing tips from week to week.
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