The Simple Strategy for Successful Investing in Only 15 Minutes a Week!
By Phil Town
I have a public github repo where I’m currently implementing an
automated version of this strategy. Feel free to check it out,
if you’re into coding! kurz-net/rule-one
A PDF with the most important formulas is available for download here https://www.ruleoneinvesting.com/ExcelFormulas.pdf.
Chapter 1, 2
Not much to take from here.
Chapter 3 - Buy a company, not a stock!
First M: Meaning
- Be proud of what you own!
- 10-10 rule: I don’t want to have a company 10 minutes, if I wouldn’t want it for 10 years.
- Break down your potential companies by filtering according to what you like to do, what you’re good at and your expenses & income.
For example if you’re good at computers, you might consider investing in software companies.
Chapter 4 - Find a moat!
Second M: Moat
- Companies, that sell mass products, don’t have a moat.
- The five moats:
- brand: a product, for that you pay more, because you trust the brand (Coca-Cola, Gillette, Disney, Nike, …)
- secret: a patent that makes competition hard or impossible (pfizer, 3M, intel)
- monopoly: a company that handles near single control over a market (marketing agencies, providers)
- convenience: a company that is so integrated in everyday life, that it’d be hard to make a change (microsoft)
- price: a company that can sell its product/s without competition (wal-mart, costco, target)
Chapter 5 - The big five
- The big five
- ROIC - Return on Investment Capital
- Revenue / Sales Growth
- EPS - Earnings per Share
- BVPS - Book Value per Share
- FCF - Free Cash Flow
- All of them have grown by at least 10% over the last 10 years.
- Make sure to look at the debt as well.
- The growth of the big 5 should be consistent across the last 5 and 1 year aswell.
- This exception is the key to rule-one investing: companies, that accumulate a surplus of capital
- ROIC: %
- Revenue / Sales, Capital, Cash: in Millions
- EPS: in $
- Where to get the big five
- Other names
- EPS: “Diluted Normalized EPS”, “Diluted EPS”
- Debt: if a company could pay their debt in 3 years with the current cashflow, it’s ok.
- What are their long term liabilities (in $)? divide it by the current cashflow. if it’s 3 or less, it’s ok.
- order of importance (descending) of the big five:
- revenue / sales
calculate: (net revenue after taxes) / (equity capital + liabilities)
also named: return on capital (ROC)
- What is the stock worth by the numbers?
- What’s my MOS (margin of safety)?
- If the current price of the stock is around the MOS price, it’s go time
- numbers to calculate the value price
- current eps
- future eps growth estimate
- future PER (price earnings ratio) estimate
- min. profit rate
- short version
- calculate the future eps by letting the current eps grow by 10 years by the eps growth estimate.
- calculate the future market price by calculating the future eps by the future kgv
- calculate the value price by lowering the future market price by the min. profit rate
- calculating the value price
- if the future eps growth estimate is way higher than the historical eps growth rate, take the lower (more conservative) number,
also called “earnings estimate”
- kgv = stock price / eps
- standard kgv = 2 x future eps growth estimate f.e. if the company is expected to grow by 10% in the next year, the std kgv would be 20
- if the historical kgv is smaller, take the more conservative number
- divide value price by 4 to get the MOS price
- divide the MOS price by 2, that’s the price you should buy the stock at
- when you should sell
- the company isn’t “wonderful” anymore (bad management, scandal, new ceo, leaks, …)
- the market price surpassed the MOS price
- 8 / 17 / 9
- bars going up -> buy
- bars going down -> sell
- 14 / 5
- from 20 going up - good signal
- from 80 going down - bad signal
- line going up -> buy
- line going down -> sell
- lines crossing -> buy / sell signal
- Moving Average
- 10 SMA
- price crosses sma bottom to top -> buy
- price crosses sma top to bottom -> sell
If all 3 indicators give a buy signal (and the MOS price is looking good), you can buy the stock.