Phil Town asks a really good question : Why not study and get the skills to invest like the wealthy investors, like Buffett, Graham, Nygren, Ruane? Why should not you also earn a 15% to 20% per year no matter what the market offers up? Why not be cynical about the whole mutual-fund industry and all their boldness that the investing market always goes up and that you'll always get an 8% return? Why not take control of your financial future instead of leaving it in the hands of people who have proven to be very goofy?
Phil Town says you can but the first requirement is that it be a wonderful business. We never invest in anything that we don't know is wonderful. Phil has in mind something very specific and easy to figure out when I say "wonderful." I mean a business that will continue growing at a predictable rate for 20 years. That means a wonderful business first and foremost has a PREDICTABLE rate of growth.
But here's the rub: In order to know that a business's growth is wonderfully predictable, you have to know something about the investment. It has to MEAN something to you personally because if it does you will understand it more easily and more quickly. And it should not violate your values (because that makes you a hypocrite). And understand the business enough to know that they are the best at what they do (we only go with the best).
Phil wants you to know that it has a lot of automatic protection against competition which Phil Town calls this a MOAT.
Phil Town wants you to know that the MANAGEMENT, in particular the CEO, are intent on building this business for the benefit of all the stakeholders - including and most especially the owners. You and me.
These three M's are quite simple to figure out and you will find that in a year or so you have too many wonderful businesses that you would like to own.
Monday, November 30, 2009
Phil Town investor
Phil Town always aims for a 15% investing return(ROI) because anything lower is just too low to account for the risk of investing.
Phil Town learned this important RULE #1 skill when he was doing venture capital investing that to get that rate of ROI Phil Town had to shoot for in a early stage business (assuming everything worked as planned) was about 50% per year. Phil did that because for venture capital in a typical portfolio of ten businesses, 2 of them would fail completely, 5 would do far less than expected, and 3 would succeed or exceed expectations.
In order to maintain a rate of return that was acceptable and part of a Rule #1 mentality, Phil Town had to be sure that on the 3 that did well, our rate of return was astronomical to pay for the rest of the investments that did not do so well.
First, and foremost is Phil begrudges losing money on anything. We do our homework to make sure we are certain we won't lose money.
Then, if a RULE #1 investor does lose it, we expect that we will exceed expectations on a few investments, and those excess returns will make up for the losses.
Keep your default rate of return (or "discount rate" if you're using Investools) at the expected overall rate of return in your RULE #1 portfolio. Yes, it will make it harder to get into some good deals -- but you will be glad you were patient when the occasional deal you did get into launches to the moon because you bought in at such an amazing price.
Phil Town learned this important RULE #1 skill when he was doing venture capital investing that to get that rate of ROI Phil Town had to shoot for in a early stage business (assuming everything worked as planned) was about 50% per year. Phil did that because for venture capital in a typical portfolio of ten businesses, 2 of them would fail completely, 5 would do far less than expected, and 3 would succeed or exceed expectations.
In order to maintain a rate of return that was acceptable and part of a Rule #1 mentality, Phil Town had to be sure that on the 3 that did well, our rate of return was astronomical to pay for the rest of the investments that did not do so well.
First, and foremost is Phil begrudges losing money on anything. We do our homework to make sure we are certain we won't lose money.
Then, if a RULE #1 investor does lose it, we expect that we will exceed expectations on a few investments, and those excess returns will make up for the losses.
Keep your default rate of return (or "discount rate" if you're using Investools) at the expected overall rate of return in your RULE #1 portfolio. Yes, it will make it harder to get into some good deals -- but you will be glad you were patient when the occasional deal you did get into launches to the moon because you bought in at such an amazing price.
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