Rule #1 Blog: Phil Town on Investing

How the Rich get Richer

2009-12-15T10:36:44-08:00

I wanted to share a recent comment from Markus and my reply:

"Hi Phil Town, there are two points I still have not yet understood:

1. If I only buy stocks at the MOS price I calculated using your tools, when should I rebuy, after having sold them (because of 10-days-line, MACD- and stochastic indicated to sell)? Should I wait for the stock's price fall again to the MOS-price? This might take a long time of being solely in cash and waiting for Mr. Market to turn crazy again...

2. Should I buy a stock which has gained 50% and more during the last 6 months in a perfect stable trend but which hasn't yet reached its MOS price? I fear to buy it at the top at the end of a trend. Thank you for any reply."

Phil Town's response:

A stock is rising in price and has moved in just 6 months from $20 to $40 per share. It is easily worth $150 a share. Should I buy more if I have more money (assuming the indicators or FACs don't show a big down trend on the way)? Let's check the Payback Time (more on that in my new book) because its a great check to see you're getting a true bargain but assuming that's okay and you're still below the MOS (in this case about $75) with the price at $40, of course we're buyers. This is stockpiling at its most elemental. You buy. You buy more. As long as I'm selling you $10 bills for under $5 you just keep buying.

This is exactly how the rich get richer. They have the money to buy when things are on sale. If you are careful with your money, you will also have the money to buy when things are on sale. And if you save some each month and Mr. Market cooperates, your wonderful business will still be on sale in a month and you can buy more.

Now go play.

Phil Town

Phil Town recommends website

2009-12-09T14:55:54-08:00

As you guys know, I almost never blog about someone else’s blog, but you know the old saying about the apple falling not so far from the tree? Well, this person’s writing is phenomenal. Really. The fact that the blog is written by my daughter, Danielle, has nothing to do with praising her work. Nah. I can’t be bought for love or money….. Well, make that, I can’t be bought for money. Love is another story altogether. I love my daughter and I do whatever I can to help her go forward in her life, including subjecting you guys to a brief blog on her new website, BrownButterandBourbon.com .

First, the name of the website itself is compelling, isn’t it? Brown Butter & Bourbon? Doesn’t the title pull on you to find out what it’s all about? Well, a quick trip to the site will get you to the answer but I’ll spare you the trip. It’s about Danielle’s unique style developed from her life in Jackson Hole and Wellesley, Mass and Oxford, England and New York, applied to her home dinner parties.

I mean, seriously, you’ve got to be coming from a different place when you can make something really cool and really beautiful out of an image of a dead salmon lying on an iceberg. That’s not the first thing that comes to my mind when I’m thinking about having a dinner party. Of course, the first thing that comes to my mind in that situation is which caterer I should call to take this thing off my hands.

And maybe that’s the point of her blog – giving us some pretty (if strange and different) ideas of how a little get-together can be easily put together without the caterer. And maybe that would actually be cool to do. You know, actually do the dinner ourselves.

But you guys do that already – do it yourself, I mean. So for you, her blog will just be another set of cool and unusual ideas for doing it yourself. Not a bad thing at all. And her writing style is pretty good reading, if I do say so myself. Perhaps, in spite of her reluctance to admit it, the apple really doesn’t fall far from the tree.

Now go play.

Phil Town

On Tour with Phil Town

2009-12-08T07:06:57-08:00

Phil Town investing

Phil Town on BB&T

2009-11-16T06:59:41-08:00

Raphi wrote in a good question. Here's his email:

"Hi Phil Town I really like your Work. One thing i don't understand: if BB&T is the deal, why we don't see this in the stock price?? regards raphi"

I'm not sure from your email if you think the BB&T price is too high or too low. You could mean either one. So let's see what it looks like to me:

Without doing a lot of analysis on the industry or the business, just using the analysts view of this business, let's grow it at 7%, use a 14 PE (the historical average of 10 is just too low for a buyout price so we'll use 2X the growth rate) and 15% MARR. But what shall we use for current earnings? We're in a massive recession and banking meltdown. Earnings are way down. Way way down. BB&T TTM earnings are $1.42. But earnings in 2007 were $3.17 and those earnings reflect a consistent growth from 1999 of 8% per year, right about what we're projecting right now. If we ignore the intervening two years of down market and run the earnings projections out from 2007 we'd be at about $6 ten years from right now. I can believe that and so will anyone who is going to try to buy all of BB&T. That puts today's value at about $25 a share. And its selling for about that.

However, BB&T was on sale for $12 back in March when I said to load up the truck.

I hope you meant that the price was too high to buy. If so, you just have to get used to it, Raphi. Great businesses are usually only available at full retail or more. The Big Guys aren't stupid. But they have moments of irrationality and fear borne of the fact that they are paid to be right in the short term and get very afraid when the short term looks bad. BB&T was a great business in a horrible industry meltdown and its price went through the floor along with Bank of America and Citi. That's when we have to be ready to strike and load up the truck.

Now go play.

Phil Town

We Learned that in Kindergarten

2009-11-12T07:19:54-08:00

Jonathan Grubs wrote on my FACEBOOK Page: "I was with Bank of America for many years, but when the Supreme Court announced their ruling on the Kilo case that allowed companies to seize private property for business use and BB&T responded with a press release announcing that they would refuse financing to any company involved in seizing of private property. I sent an email to the president of BB&T letting him know I would switch from Bank of America to BB&T if they ever opened a branch near me in Central Florida. When I saw the BB&T coming soon sign down the road from my office, I was literally the first person in line to open an account at that branch. BB&T is a great bank, they take care of their customers!" _______________________________________________________________________________

Phil Town's response: "YOU ROCK!!!! I love people who make decisions by basing the decision on a specific set of values. Frankly, the Golden Rule is not a bad start for a value system. For example, if you follow the Golden Rule and you think it is wrong for someone to take what is yours then you wouldn't take someone else's stuff. Come on you guys. You learn this in kindergarden. So that should be a bedrock value, right? Don't take other people's stuff. Simple.

Well, then, apply it to all the decisions you are making in your life, just like Jonathan Grubs does. BB&T follows that value. Bank of America follows the value of 'mo money mo money'. Which one do you like better? Well, some of you like the mo money thing right up until its your stuff they are expropriating and then you don't like it at all. But I believe that in this world and the next, what goes 'round comes 'round. You go for mo money by taking what isn't yours, you'll pay it back somehow because their is no free lunch.

You learned that in kindergarden, too.

Now go play.

Phil Town