Rule #1 Investing

What is Rule #1 Investing?

Phil Town's book Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week! appears to be yet another get rich quick story, but once you get past the subtitle... and the rule itself... you will find that the book is founded on solid theory and contains a lot of helpful and easy to understand information.

... And what is The Rule? According to Phil Town “There are only two rules of investing: Rule #1: Don’t lose money, and Rule #2: Don’t forget Rule #1.” Okay, this is a bit oversimplified and a bit reminiscent of Fight Club (...the first rule of Fight Club is - you do not talk about Fight Club. Second rule of Fight Club is - you do not talk about Fight Club) but if you stay tuned and read on, it is founded on solid theory as I said above.

Rule #1 Investing is rooted in the investment philosophy of Columbia University’s Benjamin Graham (author of The Intelligent Investor), and popularized by Graham’s students, including the Oracle of Omaha himself Warren Buffet (probably the most successful investor of all time). In fact Rule #1 comes from Warren Buffett’s first rule of investing, "Don’t lose money" and in the book Phil Town explains some of the basic tenets of the Warren Buffett "Value investing" method in simple, easy to understand language.

Rule #1 provides specific formulas for calculating the fair price or “sticker price” for a company, and describes how to evaluate the investment potential of a business. In a nutshell you would look for companies that:

• You would be proud to own, you are passionate about, and that you understand.
• Have a wide moat (i.e. a competitive advantage, a huge cash reserve, or an exclusive license or other barrier to entry).
• Have an excellent management team.
  
• That you can buy with a margin of safety (i.e. the stock is priced so low that even if you miscalculate its “sticker price” you’re not likely to lose money).

And unlike many other investment strategies, Rule #1 also describes couple signs for when it is time to sell:

• When a company has lost it’s moat or “ceased to be wonderful”.
• When the stock price moves above the sticker price.

The strength of Phil Town's book Rule #1 book is that it provides detailed instructions on how to go through the stock evaluation process using common investment information sources, such as Yahoo! Finance and MSN Money.