Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week!

by Phil Town

Book Overview

Who's going to provide for your future? There's a crisis looming in pensions. Investing in property is time-consuming and risky. Savings accounts yield very little return. If you're not careful, you... This description may be from another edition of this product.

• Format: Hardcover
• Language: English
• ISBN: 0307336131
• ISBN13: 9780307336132
• Release Date: March 2006
• Publisher: Crown Publishing Group (NY)
• Length: 308 Pages
• Weight: 1.29 lbs.
• Dimensions: 1.1" x 6.5" x 9.3"

Customer Reviews

Good Foundation

Rule One is a nice introduction to the Warren Buffet (Benjamin Graham) philosophy of investing, and is written in a way that is much more easily understood than Security Analysis and more to the point than any of the numerous "buffettology" type of books. Town talks a great deal about a company having a "moat", and gives the reader five metrics to examine when deciding whether a company's stock is worth purchasing. The "moat" analogy didn't really work for me, but the principles behind it seem very sound. If you're thinking about investing in a mature company, by all means do your homework and follow Town's rules. In addition to the "moat", Town runs through his price calculations several times so that the reader can get a handle on how to do it. Town exaggerates when he claims that the work can be done in just a few minutes a week, but once you've done a few calculations and bookmark the websites where some of the numbers are available, the calculations are simple. There is some judgement to be used when deciding what numbers to use, but it's pretty straightforward and incorporates a margin of safety element. If you are an individual investor who plays the stock market or even one who sticks to mutual funds, give the book a read. At the very least, the cautious approach will probably prevent you from losing money.

Rule#1 Rules!

Overall this is the best investment guide I've found yet. Rule #1 is "Don't lose money." Fair enough; no one wants to lose $$. But how? The author answers that question. First, buy wonderful companies. For Town, that means companies with strong and consistent growth: 10% minimum average annual growth for EPS, free cash flow, sales, and book value for the last 10 years. Efficient, well-managed companies, with great return (10% or higher) on invested capital. Once you've found that company, determine the fair value, and buy it ONLY when it's at a 50% discount, thus giving you a "margin of safety" against the vagaries of the "Mr. Market." He makes it sound easy, but it's not. He admits that it can take 4-8 hours of research on each company to determine if it's "wonderful" or not. And even after you've done a preliminary search with a stock screening tool, you might have to research dozens of companies to find one that's wonderful AND trading at a 50% discount. One great feature of this book is that Town provides a fairly simple method for determining the fair stock price of a company. This is a notoriously difficult problem, but Town's method is quite good. The problem is that you have to determine the expected growth rate of the company and the future PE ratio. He provides methods for doing so, but the process is necessarily quite speculative. But if you're going to invest in stocks (as opposed to mutual funds), this difficulty is unavoidable. At least his method is fairly rigorous and scientific. There is little guess-work. Town recommmends buying only when the price is at least 50% below the "fair value price." Once you've chosen a "wonderful" company and sunk your life savings into it, Town outlines a trading strategy designed to avoid losing your money (rule #1). His trading method relies on 3 technical analysis indicators, MACD, Moving Average, and Stochastic. These indicators are easily available at many free stock charting sites. Basically, you trade out when the trend is going down, and trade back in when it's going up. It's therefore a form of market timing, which is very controversial and tricky. The advantage is that you will avoid the big market meltdowns like 2000-2002. Even if you don't know anything about technical analysis, his method is easy to follow. On the other hand, if you don't feel comfortable market timing, you can buy and hold, and still presumably do well if you've chosen your stock according to Town's guidelines. According to Town, anyone who follows his method is guaranteed to get 15% minimum annual return in any market conditions, thus doubling your money every five years. Unfortunately, there are no "sure-fire" methods for getting that kind of return, especially in a bear market. But in any case, he still provides a detailed, coherent, and understandable method for finding great companies to invest in and avoiding losses.

Practical, instructive, thoroughly useful.

This is NOT a book about how a Harley-loving, periodically unemployed river guide made a million from a borrowed thousand dollars in five years following the advice of "the Wolf". (This requires a compound interest of about 300% a year that one won't achieve following the instructions here.) This is NOT a book on some sort of secret rule, allowing you to work on your portfolio 15 minutes a week achieving 15% or more a year on your investments. (These are just promotional tools;) BUT you will find clear, useful, practical advice about starting and managing your own portfolio. The General Strategy (Meaning, Moat, Management, Margin of Safety) and Specific Strategy (ROIC, sales growth, EPS growth, BVPS growth, FCF growth), the calculation of the Sticker Price (in order to buy a stock at 50% of its value, allowing the protection of margin of safety) are all well explained, even walked through with a step by step description. You will learn about the freely available internet sites (Yahoo, MSN Money, etc) and at the end could come up with a realistic stock analysis of your own. The greatest benefit is that the book takes you from a scared and ignorant novice to an unintimidated and educated novice, encouraging you to do your own work and showing you how to get started; this all is without trying to hook you up with a pay-site, newsletter or other disappointing and all-too-common practices you would find nowadays in the investment literature. A two thumbs up five stars!

Valuable Approach

The substance of this book is solid--it is basically a value investing approach, which means that the ultimate worth of a stock or a company is determined by its return on investment, which the book teaches you how to calculate. It tells investors to ask this basic question: if I invest a dollar today, how much can I expect to get back in the future, and how does this compare with other stocks or investments I could make with this dollar? This isn't the most complex idea in the world, but it's the basis of the fortunes that Warren Buffett and other successful investors have embraced. The key is to do it as well or better than others. As the book points out, the future is hard to predict, with the right tools you can at least make reasonable guesses and do quite well. The book explains how to use these tools in down to earth, common sense language, A quibble with the book, as a few other reviewers have pointed out, is that it seems at times to want to cloak the sound investing principles it puts forward in "magical thinking"--as if saying "I want to become a billionaire" enough times before you go to bed every night will make it come true. Well, unfortunately, most of us have figured out it just doesn't work that way. That said, if you follow the sound principles and financial calculators explained in the book, you should have an excellent chance of doing as well as you need to, and with a little luck, maybe doing a whole lot better.