Summary: Rule #1

Review and Analysis of Town's Book

BusinessNews Publishing

• Éditeur: Must Read Summaries
• Année: 2016
• ISBN:
  9782511019757
• Sujet: Business
• Sous-sujet: Investimenti e titoli

The must-read summary of Phil Town's book: `Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week`. 

This complete summary of the ideas from Phil Town's book `Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week` shares the simple rule that Phil Town used to transform his $1,000 loan into a $1 million investment portfolio: don't lose money. In his book, the author explains how good financiers operate and how to determine the true value of a business. By reading his advice you will have a checklist that you can follow when making an investment to ensure long-lasting success and impressive profits.

Added-value of this summary: 
• Save time 
• Understand the key concepts 
• Increase your business knowledge

To learn more, read `Rule #1` and discover the secret to making a profit on every investment.

Summary of Rule #1 (Phil Town)

1. Find a “wonderful” business

A wonderful business will be one that has four characteristics:

1. Meaning – you understand and value what it does
2. Moat – it has financial strength and predictability
3. Management – a great management team is there
4. Margin of safety – it is available at a great price

In essence, what you try and do is identify a business you’d like to own completely because you relate to it rather than just looking for a stock which will make you money.

The markets are full of opportunities to buy stock in all kinds of companies. To make Rule #1 work for you, however, you need to narrow the field a little. You need to run the entire menu of choices through the selection filter of four key questions before you decide whether or not to buy. In selecting some wonderful companies to invest in, keep in mind the 10-10 Rule: “Don’t invest in any business for ten minutes unless you would be more than happy to keep your investment for ten years or longer.”

The four filtering questions are:

1. Does this business have meaning to me?

Always remind yourself you’re buying an equity stake in a going concern and not just a stock to speculate on. You want to be proud of what you own and what you put your money into rather than being in it just for the anticipated gain. Therefore, what makes a wonderful company is personal. A great business for someone else will not necessarily be a great business for you to invest in. You want to invest in businesses which are aligned with your own values and your interests.

To decide whether a specific company has meaning to you, consider two follow-up questions:

1. Would you choose to own the whole business if you had the funds available? In other words, do you admire what the company has achieved and what it will be working to accomplish in the future? Obviously, this will involve some judgement calls. Some people have no problems investing in companies which exploit child labor in third-world countries. Others wouldn’t dream of being a party to that kind of approach to business. The starting point for identifying a genuinely wonderful business is to look for a company you admire first and foremost.
2. Do you understand the company’s business model well enough to own all of it? If you don’t have a clue how the business generates a profit, you can’t make a Rule #1 investment. It will be impossible to gauge how the company will do in the future if you haven’t a clue what it’s doing at present. You don’t need to understand all of the intricacies, but there must be some general awareness of specifically what the company does to make money.

With these two questions in mind, you probably should look to invest in the companies which make the products and deliver the services you use as a customer. More than likely, these companies will lie at the intersection of your personal passions, interests and habits of consumption. Start with companies you are familiar with and then gradually expand your focus.

Once you begin to start thinking this way, you’ll soon notice there are some areas of the market you should avoid because you don’t understand what’s going on. That’s good. It will save you some losses in the future if you stick to lines of business and areas of technology you are familiar with and competent in.

“You don’t necessarily have to use the Internet to conduct an initial search. An effective starting point for finding businesses you understand is simply to consider where you repeatedly shop and what you repeatedly buy. You might not understand the intricacies of, say, the shoe industry, but if you wear only Nike shoes and routinely buy Nike apparel (and happen to like everything you see and hear about Nike), that’s a good start. Look at your credit card statements and checkbook to see where your money goes. And then ask yourself, ‘What would I be proud to own?’ My guess is you’ll have 15 or more on your list just from being alive and working.”

– Phil Town

2. Does this business have a wide moat?

In medieval times, a moat protected a castle from attacks. You’re looking for something comparable here. You’re trying to find a business to invest in with a sustainable competitive advantage which means it will be difficult for other companies to compete against it. The wider that figurative moat is, the more difficult it will be for someone else to enter the market. And in turn, the greater the degree of certainty for you as an investor.

As a rule-of-thumb, you want to invest in companies which will continue to perform well for at least the next twenty years. You want to look for companies which have a sust...