Phil Town suggests that you can tell if an analyst has got their head screwed on straight:
First thing is to check two of the Big 5 that Phil Town teaches in his RULE #1 investing book. ROIC and Equity growth rate - for the recommended business. Those two numbers will disqualify 99% of all of these recommendations and recommenders.
Phil Town teaches that If the ROIC and Equity growth rates are high enough, consistent and holding or growing, and if the stock price is less than the MOS price, then you have to be interested enough to dig deeper and start looking at the Moat, the Meaning, the Management, all of which take time that I don't want to spend if these people are recommending either unpredictable or overvalued businesses for me to buy.
This is a very quick way to get a reading on the intelligence of the people who are doing the recommending. The only problem is that after you do this a few times you'll realize that most of the brokers, TV pundits and junk mail soliciters are totally clueless.
They have about as much business recommending businesses to buy as you or I would have recommending which lottery number is going to come up this week. That means that you are on your own. Scary thought. But better to know what's really going on than to live in a fiscal fantasy and wake up in a financial nightmare, don't you think?
If, on the other hand, you are getting recommendations that turn out to be wonderful businesses at attractive prices, hey, tell me who these guys are, too!
Friday, February 5, 2010
Tuesday, December 8, 2009
The New book-Payback Time
Phil Town writes bestselling, unfashionable RULE #1 advice. NY Times and Amazon bestselling - like his first book, Rule #1. Not too-sexy advice because Town focuses on the sorts of things that don't make big instant wealth. Town's first book covered a number of key investment and financial planning concepts like Return on Investment, Capital and Equity, how to read form 10Ks and what to look for in financial disclosure forms. The truth is that investing in companies means spending more time looking for things to queer the deal on potential investments, rather than looking for things that will make you want to put your money into play.
Phil Town's new book, Payback Time, like Rule #1, is geared towards educating the investor - Town understands that investors who have made the transition from mutual funds to self-funded IRA's need a bit of traing for long term investing, and that the current market is a place that's rife with potential bargains to be had...and he gives a pretty stunning indictment of the mutual fund industry, pointing out that only four percent of fund managers have beaten the S&P 500 over the long haul, and that if you're going to do a mutual fund, you might as well invest in an index fund.
Phil Town covers a thing called "stockpiling", and is based off of strategies showing how investors (including Buffett) made large amounts of money by investing in down markets. It's about identifying stocks that are undervalued because of the current credit melt-down, and while it's really basic, Town's easy, non-technical explanations (with the sidebars explaining what the thought and decision process is) makes it accessible.
PAYBACK TIME is available for pre-order now at Amazon, Borders books and Barnes and Noble.
Phil Town's new book, Payback Time, like Rule #1, is geared towards educating the investor - Town understands that investors who have made the transition from mutual funds to self-funded IRA's need a bit of traing for long term investing, and that the current market is a place that's rife with potential bargains to be had...and he gives a pretty stunning indictment of the mutual fund industry, pointing out that only four percent of fund managers have beaten the S&P 500 over the long haul, and that if you're going to do a mutual fund, you might as well invest in an index fund.
Phil Town covers a thing called "stockpiling", and is based off of strategies showing how investors (including Buffett) made large amounts of money by investing in down markets. It's about identifying stocks that are undervalued because of the current credit melt-down, and while it's really basic, Town's easy, non-technical explanations (with the sidebars explaining what the thought and decision process is) makes it accessible.
PAYBACK TIME is available for pre-order now at Amazon, Borders books and Barnes and Noble.
Saturday, December 5, 2009
Lesson from Dr. Salk
I heard Phil Town got interested in biotech and invested in a business which had Dr. Jonas Salk, the inventor of the Salk Polio Vaccine, as Chairman of the Board. Phil Town helped the struggling company raise money – and ended up on the Board, also.
As a Board member, Phil Town had the privilege of knowing Dr. Salk personally. He was truly a great man in private as well as one of the most influential men in the history. One night after a dinner at his beautiful home in La Jolla, he told me a story about how people are toward you when you're trying to do something new.
He said that when he first started developing the vaccine against polio, the people who loved him and wanted the best for his career and his life told him that if his idea was any good, it would have been done already. But it hadn't been accomplished before; therefore it couldn’t work and he was wasting most of his time. Dr. Salk realized that as much as they loved him, they didn’t see the possibilities he saw... and so he continued in spite of the skepticism.
Finally, years later, when polio had been nearly eliminated from the planet and millions had been saved, the people who loved him and wished him well in his career came to him at award ceremonies to congratulate him and to tell him they knew it would work all along.
He said to expect this process in anything you are doing that is going to make a real difference in the world: First, they will say it will never work. Second, they will say it works, but it's trivial. Third, after you've succeeded, the exact same people will say they knew it would work all along!
Phil Town has always appreciated that advice from one of the great men of our time. Phil Town hopes you can use it, too.
As a Board member, Phil Town had the privilege of knowing Dr. Salk personally. He was truly a great man in private as well as one of the most influential men in the history. One night after a dinner at his beautiful home in La Jolla, he told me a story about how people are toward you when you're trying to do something new.
He said that when he first started developing the vaccine against polio, the people who loved him and wanted the best for his career and his life told him that if his idea was any good, it would have been done already. But it hadn't been accomplished before; therefore it couldn’t work and he was wasting most of his time. Dr. Salk realized that as much as they loved him, they didn’t see the possibilities he saw... and so he continued in spite of the skepticism.
Finally, years later, when polio had been nearly eliminated from the planet and millions had been saved, the people who loved him and wished him well in his career came to him at award ceremonies to congratulate him and to tell him they knew it would work all along.
He said to expect this process in anything you are doing that is going to make a real difference in the world: First, they will say it will never work. Second, they will say it works, but it's trivial. Third, after you've succeeded, the exact same people will say they knew it would work all along!
Phil Town has always appreciated that advice from one of the great men of our time. Phil Town hopes you can use it, too.
Friday, December 4, 2009
Basic Investing for Retirement
The first Phil Town rule is never ever lose money as an investor. So ask yourself, if the market melts down again in 2010 will you get bamboozled in a diversified traditional mutual fund? Probably . Look at Warren Buffett right now is he out of the market and in cash? Yes. Why? Because the market is too expensive and is likely to go back down. What do you lose by going into cash (money market account)? You lose the upside if the market goes up. Is it likely to go up from where the DOW is today around 10,000? Nope, no way man.
This Phil Town simple analysis should answer a lot of questions about what to do when it comes to mutual fun investing. If you don't know what you are doing right now in this market, get to cash like Mr. Buffett unless you have 30 years before retirement. And most of us probably don't.
Phil Town Investing is about investing in something you understand, that has a big moat around it, with super good management and a huge margin of safety below the real value. Your mutual fund manager is not going to do that for you, so you have to choose: start your education quickly and little by little bring up your knowledge to where you can invest it all on your own. At this point there is no other way to go that I know of.
So once you get into cash, what can you do to 1) not lose any more money and 2) make a good rate of return - absolutely a 15% a year?
So it all boils down to this: invest in stocks as businesses, understand the business so that you can know what the business is worth, and then wait for Mr. Market's regular fluctuations to price it with a big margin of safety. This way of RULE #1 investing has worked for the last hundred years and it will be the basis of investing for the next one hundred as well.
Monday, November 30, 2009
Investing like Buffett
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.
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.
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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