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Rule #1

Cover of Rule #1

Rule #1

The Simple Strategy for Successful Investing--in Only 15 Minutes a Week!
by Phil Town
Before I became "Phil Town, teacher of investing principles to more than 500,000 people a year," I was a lot like you: someone who viewed individual stock investing as way too hard to do successfully....More
Before I became "Phil Town, teacher of investing principles to more than 500,000 people a year," I was a lot like you: someone who viewed individual stock investing as way too hard to do successfully....More
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Description-
  • Before I became "Phil Town, teacher of investing principles to more than 500,000 people a year," I was a lot like you: someone who viewed individual stock investing as way too hard to do successfully. As a guy who barely made a living as a river guide, I considered the whole process pretty impenetrable, and I was convinced that to do it right you had to make it a full-time job. Me, I was more interested in having full-time fun.

    So I was tempted to do what you’re probably doing right now: letting some mutual fund manager worry about growing your nest egg. Let me tell you why that decision could one day make you absolutely miserable.

    The fact is, because of natural market cycles, the mutual fund industry is likely to soon be facing twenty years of flat returns. That means that if you’ve got your nest egg tucked away in funds—especially the type found in most 401ks—your egg won’t get much bigger than it is now. Translation: Get ready for a retirement filled with lots of cold cuts, plenty of quality TV-watching time, and a place to live that’s too small to accommodate your visiting kids.

    In this book I’ll show you how I turned $1,000 into $1 million in only five years, and then proceeded to make many millions more. I came to investing as a person who wasn’t great at math, possessed zero extra cash, and wanted a life—not an extra three hours of work to do every day.

    Fortunately, I was introduced to The Rule.

    Rule #1, as famed investor Warren Buffett will tell you, is don’t lose money. Through an intriguing process that I’ll clarify in this book, not losing money results in making more money than you ever imagined. What it comes down to is buying shares of companies only when the numbers—and the intangibles—are on your side. If that sounds too good to be true, it’s because the mind-set I’ll be introducing you to leads not to bets but to certainties. Believe me, if there were anything genius-level about this, I’d still be a river guide collecting unemployment much of the year.

    Part of the secret is thinking of yourself as a business owner rather than a stock investor. Part is taking advantage of today’s new Internet tools, which drastically reduce the "homework factor." (We’re talking a few minutes, tops.) Part is knowing the only five numbers that really count in valuing a potential investment. And part—maybe the most important part—is using the risk-free Rule #1 approach to consistently pay a mere 50 cents to buy a dollar’s worth of a business.

    What I won’t waste your time with is fluff: a lot of vague parables reminding you of what you already know and leaving you exactly where you started. This is the real deal, folks: a start-to-finish, one-baby-step-at-a-time approach that will allow you to retire ten years sooner than you planned, with more creature comforts than you ever imagined.

Excerpts-
  • From the book

    Table of Contents

    Introduction: Make Money No Matter What 1

    Chapter 1: The Myths of Investing 11

    Chapter 2: Rule #1 and the Four Ms 33

    Chapter 3: Buy a Business, Not a Stock 39

    Chapter 4: Identify a Moat 53

    Chapter 5: The Big Five Numbers 65

    Chapter 6: Calculate the Big Five 95

    Chapter 7: Bet on the Jockey 111

    Chapter 8: Demand a Margin of Safety 132

    Chapter 9: Calculate the Sticker Price 145

    Chapter 10: Know the Right Time to Sell 172

    Chapter 11: Grab the Stick 186

    Chapter 12: The Three Tools 196

    Chapter 13: Take Baby Steps 216

    Chapter 14: Eliminate the Barriers 246

    Chapter 15: Prepare for Your First Rule #1 Purchase 259

    Chapter 16: Q&A 274

    Glossary 293
    Acknowledgments 301
    Index 303


    Chapter 1: The Myths of Investing

    An expert is a person who avoids small error as he sweeps on to the grand fallacy.
    --Benjamin Stolberg (1891--1951)

    The gold standard of low-risk investing is a ten-year United States Treasury bond, which, at the time of this writing, has a return of about 4 percent. Invest in nothing but these bonds and you're guaranteed a 4-percent haul. The only problem with such a strategy, especially for the millions of soon-to-be-retired baby boomers, is that, at 4 percent, it takes 18 years to double your money. In addition, after 18 years, even with a low inflation rate of 2 to 3 percent, most of the gain is absorbed by higher prices, leaving you with only slightly more buying power than you had 18 years earlier. Despite this reality, investors buy billions of dollars of these 4-percent bonds.

    Why in the world would anyone want to own a bond that barely keeps pace with inflation and realizes almost no real gain in wealth? Because almost everyone is convinced that a higher rate of return necessarily means a lot more risk. And they're more afraid of losing money in an attempt to get a higher return than of their inability to retire comfortably.

    The fact is, a higher rate of return is not necessarily contingent on incurring significantly more risk. Let me explain.


    HIGH RETURNS DON'T NECESSARILY MEAN MORE RISK

    During a talk at the America West Arena in Phoenix, Arizona, I asked the audience, "How many of you drove your cars here today?" Most people raised their hands. "Okay, almost everybody. And how many of you took a huge risk driving here?" A few hands went back up. "You guys took a huge risk driving here?" I asked incredulously. "Either you drivers didn't really take a risk and are just clowning around, or at last we've found the problem with Phoenix traffic--you people with your hands up don't know how to drive. Is that it?" Everybody laughed. "Okay, so it wasn't so terrifying to drive down here. But now imagine that you're coming here but instead of you doing the driving, it's your eleven-year-old nephew behind the wheel. Are you taking a lot of risk now?" People laughed and nodded yes. "The trip was the same--going from Ato B. But when you put someone in the driver's seat who doesn't know how to drive, a relatively safe trip becomes an incredibly risky trip."

    Exactly the same thing holds true for your journey to financial freedom. If you don't know what you're doing, your journey is going to be either very slow or very dangerous. That's why most people think that going fast (going after a high rate of return) is dangerous--because they don't know how to drive the financial car, and not because going fast is necessarily dangerous. It's only dangerous if you don't know what you're doing. And the essence of Rule #1 is...

Reviews-
  • AudioFile Magazine Few investing audios spell out how to pick winning stocks as thoroughly as this one. With an engaging narrative flow, the lesson analyzes every possible way to look at publicly traded companies--how they are valued, the viability of their products or services, their competitive strength or vulnerability in various markets, their brand value, and so forth. Phil Town has a decidedly fundamentalist approach and an amazing gift when it comes to engaging an investor's personal interests when thinking about investing. His supporting arguments will sound bulletproof to both fundamentalists and traders alike. Helped immensely by Marc Cashman's vocal energy, these strategies make intuitive sense in spite of their complexity and detail. T.W. (c) AudioFile 2006, Portland, Maine
  • Publishers Weekly (starred review)

    "Town's investment guide is manna from heaven... engaging and accessible... Town's ability to break down that philosophy into a detailed, step-by-step program that can be understood by any reader with basic math skills is unique... will leave readers feeling empowered and ready to manage their money themselves."

  • Arthur Levitt, author of Take on the Street and former Chairman of the Securities and Exchange Commission "Extraordinarily readable...provides investors with surefire tools to outperform costly advisors. Follow Town's simple, time-tested precepts, and even unsophisticated investors will leave most mutual fund managers in the dust."
  • and Markets Commentator, thestreet.com "A really smart, homework-driven read that tells you precisely how to do it. Rule #1 may be the clearest and best book out there to get you on the path to riches. This one's special!" --James J. Cramer, host of CNBC's "Mad Money"
  • Rich Karlgaard, publisher, Forbes magazine, and author of LIFE 2.0 "Rule #1 is an investment Bible for our time. In fun, easy-to-understand words, Phil Town tells you how to buy quality stocks at a discount."
  • Gene Marcial, Senior Writer, Business Week "For the individual investor, Rule No. 1 should be, 'Read Rule #1.' This book debunks a lot of myths in the market and provides pearls of common-sense wisdom...Indeed, Rule #1 rules."
  • Jonathan Hoenig, Portfolio Manager, Capitalistpig Hedge Fund, and regular contributor to Fox News Channel "Rule #1's common-sense, pragmatic approach is money in the bank. This step-by-step guide is methodically researched and terrifically accessible ... Can you really beat the mutual fund mangers and so-called experts at their own game? Hell yes!"
  • Danielle Hughes, President and CEO, Divine Capital Markets LL "Rule #1 is probably one of the most inclusive, no nonsense, fundamental books about investing in the stock market I've ever read. This book is a must-read for everyone; from beginner students of the market to super know-it-alls."
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Phil Town
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Phil Town
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