Rule #1 Finance Blog
stock market basics
HOW TO AVOID BECOMING ONE OF THE BIG GUYS
Rob has a pretty sizeable nest egg to invest on his own and wants to make sure he does it right. Several Rule #1 readers have written in with similar concerns. Read on:
Hi Phil,
Studied your book and have been using your philosophy and tools for
about 3 months now. I have an IRA with approximately 4 million in it which is being managed by a money managing firm. I would like to take
over the management myself using your book and tools as a guide.Do the
same rules apply using this much money? Would I invest all of the
money in 4 or 5 stocks? Would I have to buy each company in stages (ie.
$100,000 at a time) in order not to affect the price and then trade
these companies according to the three charts you use as tools or could
I buy $800,000 of each stock when all 3 charts cross their lines?When I go on vacation would I place a stop loss order and sell out
completely if they meet that price and then buy back again when I
return?Thanks for your advice. I have given copies of your book to everyone
in my family and now we are all engaged looking for those few pearls.Thanks again for my financial education.
Rob
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
WHAT TO DO WHEN EARNINGS GROWTH AND EQUITY GROWTH DON’T MATCH
Here's Allen's second submitted question. Yesterday we talked about whether or not he should consider dumping his Disney shares.
Hey Phil Town,
I would like to know your thoughts on selecting a growth rate when the earnings growth, (and analysts estimate of earnings growth) vary widely from equity growth. (In Disney's case, the historical PE's tend to be much closer to 2* earnings growth than 2* equity growth).
Thanks–Allen
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
RULE #1 INVESTING IS FOR ANYWHERE, INCLUDING NEW ZEALAND
Doree, among many others, has written in to ask about applying Rule #1 investing methods in her own country (in this case, New Zealand).
The great thing about Rule #1 investing is that it not only applies to any investment, it also applies to any investment anywhere. It doesn't matter if the market that you are in is thinly traded or thickly traded, long term or short term, in Chinese or New Zealandese. It's all the same. You MUST buy wonderful businesses at attractive prices. Anything else is pure gambling. End of story.
So how do you do that in New Zealand?
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
How do you tell (other than after the fact) that you are in a bull or a bear market?
First, for those who don’t know, a bull market is one where stocks are going up — the buyers outnumber the sellers. And a bear market is the opposite.
Here’s how I look at it: we’re in a Bull Market when the Dow Jones Industrial Average keeps making new highs. And we are in a Bear Market when it isn’t doing that for long periods of time.
By my definition, we have been in a Bear Market since 2000 and we will stay in it until the Dow breaks out and stays above about 11,500.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
Here’s a letter from Todd:
Phil,
As a customer of Vonage, I have been given the opportunity to participate in an IPO offer. Vonage plans to go public with approval of the SEC at a price of $16-18 per share. Given the fact that there are no historical numbers, obviously the Rule #1 methodology would say to stay out of this. However, the offer does sound appealing. In your experience, do most IPOs move up from the initial price or stay around the initial price?
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
THE TIME FRAME ON TOOLS, RISKY BIZ, & ADRS
I got this letter from Garza recently and thought I’d post it because some of you have been submitting questions that echo his. Read on:
There are some things that are not suficient explicit in your book:
- you did not mentioned what is the time range to use in the graphs related to technical analysis; 4 months, 6, a year or more.
- It seems to me that if the three indicators do not go ahead you should not go, however this is not true.
- In obtaining the 10 years of the big five you have a lot of difficulties due to lack of information, besides you do not exlain what are the lesat number oy years that you should use in order to make aplicable your theory.
- You did not mention if your system works in ADR or ADS of the different countries who have shares in USA, Also if you wanted to use this technique for shares of markets abroad.
It seems to me after a trial and error method that it is possible to eliminate several steps of the rule and still have a good result.
I would appreciate your comments at your earliest convenience, since I have been ask to give my investor opinion to an investor club intergrated by non finacial people who likes the pragamtic solution to investment analyisis.
Garza
My responses:
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
HOW TO GET RID OF OLD STOCKS, RULE #1 STYLE
Brian from Florida is learning how to invest with Rule #1 but currently has a
portfolio of 16 stocks. What to do with what he has?
Dear Mr. Town,
I saw you in Jacksonville Florida in the fall and was energized to get my finances in order.
I am currently on active duty in the Navy. I have two growing boys who will need college, a baby who is in Hospice and has special needs and a fourth child on the way.
In the past ten years I have gone from an buy/acquire (inherit stocks) and hold diversify model to dollar cost averaging an S&P 500 index fund.
In the past 5 months I have made sure my bad debt is gone. I have been investing in myself by reading everything I can get my hands on. I am currently most of the way through your book and I am doing my homework by having read your blog, Automatic Millionaire, Dummies Investing, Millionaire Next Door, Motley Fool book, Mr. Kiyosaki’s books and I have recently bought the Intelligent Investor.
Next I have to research and start paper trading.
But, I have one big problem looming over me and stealing my energy. How do I get out of the businesses I already own?
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
CHICO’S: CASE STUDY RE: THE IMPORTANCE OF VIRTUAL TRADING
Laura left this comment very recently:
I'm having a heart attack
today because I bought into Chicos (CHS) when the arrows said to
"buy" and I have been watching it in gross detail everyday. I felt
good about it closing yesterday at 37. I woke up this morning and it has taken
an enormous nose dive and all of the signals have gone to sell. It's killing me
to sell right now because I have faith in the wonderful company and I would
lose a lot of money. I'm violating Rule 1! If the big guys move so slow, how
can this kind of nose dive occur so quickly without any bad news! Anyone can
help with advice?Laura
not good! Losing money and getting caught in a big drop just isn't
fun. So first, what went wrong, and second, what to do about it?
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
YOUR HOMEWORK: RESMED, INC. (RMD)
Every once in a while someone gets the hang of Rule #1 Homework on the first try. Read on.
"Knowledge is power" Francis Bacon
My 17 year old son and I heard you at a Get Motivated seminar in Corpus Christi, TX earlier this year. He had wanted to learn about stocks since he was very small and I had put it off since they scared me–lack of knowledge breeds fear. I had placed my faith in mutual funds.
You opened my eyes and I took my son with me to the Investools seminar and they opened our minds to consider investing.
You emphasized practicing our trading before we invested REAL money. Investools pushes you to move quickly. I chose to follow your advice. I pre-ordered your book and audiobook. While waiting for the book and CD to arrive, my son and I practiced with paper trading. It didn't go very well and we were puzzled. We thoroughly enjoyed the Investools seminar and using their website but we weren't getting the results we wanted or expected. (Thank you again for the recommendation of practice, practice, practice!)
Okay, my favorite Icon on Investment, I think I have found my first wonderful company and I want the teacher's approval or re-direction.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.
Here's a letter from Jen, who wants to know whether now's the time for her to sign up for professional investing tools. Read on.
Hi Phil Town,
I'm a single mother (the real kind –no support, no contact from her dad) of a 4-year old. I have a good secure 100k professional government job with early retirement (I'm eligible in 2019 — at age of 50). But I'm not mediocre. I give everything plus to what I do. The catch phrase on my evals is that I am "passionate" about what I do and this is used as a negative against me.
With 100K in student loans and my 150K mortgages, I pretty much spend every dime I make.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.