As a Rule #1 investor, it all boils down to this: Phil Town invests in stocks as businesses. You have to understand the business that you are investing in so that you can know what the business is worth. Then, you just wait for fluctuations in the market and to get your price that has a big margin of safety(MOS). RULE #1 investing has been in existence for 100 years and it will likely be the basis of investing for the next one 100 as well.
Let me add a explanation regarding ‘undervalued’ for RULE #1 investors. My view of undervalued is formed from buying private businesses and doing venture capital investing. Phil Town doesn’t see it the way Wall Street sees it at all. Undervalued, to Phil, means the following:
First that the business is predictable enough to have a solid valuation – this first requirement eliminates a lot of businesses simply because we can only know few industries well enough to be comfortable. It eliminates a bunch more that I do understand but which do not have historical numbers solid enough to base anything on. Phil Town passes up a lot of investing opportunities that are getting turned around and may be on their way up. But then if they really are, in a few years I will have another investment opportunity. And also, yes, it means that I am sometimes investing in a business that could crash without notice. Thank God for good RULE #1 indicators. They save me from my own ignorance.
Second, based on an estimated growth rate, the current market price should be about half of its value if I want a 15% return. Buying with that big of a margin of safety also saves me from the darkness I wander into.
Tags: phil town, phil town investing, phil town rule #1, philtown.org
When will your new book be out?
Hey Jimmy thanks for asking. Payback Time is available now for pre-order.