I am stuck here with my laptop in a waiting room and I'm wondering how I may be able to provide some value, I thought I'd share a quick summary of a great book I just finished - being that I am a complete rookie in finance - and maybe even get feedback on the method from those who have a ton more experience than I do.
With the coming recession - there will be some great opportunities to buy stocks cheap so I have committed myself to learning as much about finance as possible. Here's the lowdown of Phil Town's Method.
What is RULE 1?
Very simply - never lose money in the stock market, and it's actually a simpler concept than most would think. Rule one investors just do not gamble.
How could you not lose money in the stock market, and in fact nearly guarantee 15% returns?
A majority of mutual fund managers/traders lose money by diversifying into a ton of different investments hoping to mitigate losses and have enough wins to still be on the positive side. There is no need to diversify if you are choosing the right companies. The market is an EMOTIONAL roller-coaster, and often misprices these great companies. You can identify and buy huge opportunities at 50% of their price, wait for the market to adjust their price, and sell/hold.
What Makes A Great Company?
Phil describes choosing great companies that you are passionate about, have strong growth rates, a "moat" (brand/patent/proprietary info), and great leadership. This can all be identified.
How Do I Know When A Great Business Is On Sale?
I will not get too deep into this, other than explaining the overall ideology. Using 10 year historical growth rates of sales, equity, earning per share, and ROIC (all very simple numbers to obtain), you can determine the future growth rates of the company. Using these growth rates you can determine the most likely future stock price and reverse calculate what price TODAY you'd need to buy at to have a 50% margin of safety (buy at half off) AND grow your investment 15% per year.
The Summary
GREAT companies with great track records for growth go on sale for 50% off when the market panics or misprices them. You can purchase them on sale and grow 15%-25% a year with very little risk as long as you are holding out for the right businesses.
I am currently selecting my rule 1 companies and waiting to buy them on sale when the recession hits over the next 2 years.
With the coming recession - there will be some great opportunities to buy stocks cheap so I have committed myself to learning as much about finance as possible. Here's the lowdown of Phil Town's Method.
What is RULE 1?
Very simply - never lose money in the stock market, and it's actually a simpler concept than most would think. Rule one investors just do not gamble.
How could you not lose money in the stock market, and in fact nearly guarantee 15% returns?
A majority of mutual fund managers/traders lose money by diversifying into a ton of different investments hoping to mitigate losses and have enough wins to still be on the positive side. There is no need to diversify if you are choosing the right companies. The market is an EMOTIONAL roller-coaster, and often misprices these great companies. You can identify and buy huge opportunities at 50% of their price, wait for the market to adjust their price, and sell/hold.
What Makes A Great Company?
Phil describes choosing great companies that you are passionate about, have strong growth rates, a "moat" (brand/patent/proprietary info), and great leadership. This can all be identified.
How Do I Know When A Great Business Is On Sale?
I will not get too deep into this, other than explaining the overall ideology. Using 10 year historical growth rates of sales, equity, earning per share, and ROIC (all very simple numbers to obtain), you can determine the future growth rates of the company. Using these growth rates you can determine the most likely future stock price and reverse calculate what price TODAY you'd need to buy at to have a 50% margin of safety (buy at half off) AND grow your investment 15% per year.
The Summary
GREAT companies with great track records for growth go on sale for 50% off when the market panics or misprices them. You can purchase them on sale and grow 15%-25% a year with very little risk as long as you are holding out for the right businesses.
I am currently selecting my rule 1 companies and waiting to buy them on sale when the recession hits over the next 2 years.
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