on August 16, 2007
First off I really hate it when people give reviews before they have even tried it. Does anyone else roll up their eyes when someone gave this book 5 stars and havent even finished it yet?! Investing in the financial market isnt reading a Alex Cross novel. A review either pro or con for a book like this should be thoroughly tested before one suggests others to do the same.
That being said; Today is the one year anniversary of trying this method. I have been investing for over 8 years and graduated at ASU with a degree in Accounting (Managerial Accounting) to be exact. But never resting on my laurels, I decided to take 2 grand to "experiment" using this method.
Im not going to list when and all the companies that I invested in cuz it would frankly just take too much time. This already should tell you that following his chart advice will cause you to get in and out of a particular company a little more frequently then the average person is probably comfortable with.
First off I want to say that for a Novice this is a very good FOUNDATION. But I would strongly hesitate before rolling over my entire retirement portfolio into it. This book has PLENTY of positives to it, and for the beginner it gives you some good pointers and will give you at least SOMETHING to build upon and learn from. This alone beats probably 99% of all the other books out there. Most seem to just offer stocks to buy without giving you a true reason why its a good company to buy. This is a guaranteed way to lose. So for that I give this book kudos.
But this book is far from perfect.
1) The chart idea is mixed at best. It did save me from losing a lot of cash at certain times. But it also prevented me from making huge gains as well. Plus there were certain time when I ended up buying at almost at the peak and then dumping at its lowest point. This happened on more then one occasion. To be honest with you; I never saw any real indication of a stock moving slowly up or down. Five % swings appeared to be the norm here in either direction. But it did protect me from the huge losses.
2) 15 minutes a week will eventually get you killed. At any given time a company can split or buyback its stock. This will not only mess up the market price of the stock but will effect the BVPS and EPS as well causing your calculations to be WAYYY out of sync with your MOS.
3) No real advice is given on when a company is no longer attractive until its too late. I was surprised nothing was offered about signing up for free alerts or news about companies you are interested in. For example, QCOM was looking great for a while and had great numbers. But 15 minutes a week and looking at charts would not have given you the knowledge of patent infringements, banned in the US, or companies moving away from QCOM. There are plenty more examples then this but this is the one that would have set you back abouit 15% in one day if you werent knowledgeable and up to date on the company.
4) No mention given about looking up or evaluationg quarterly reports with the previous year. All the book mentions regarding this is all companies have a bad time here and there. While this is true it still doesnt stop a stock from dropping dramatically if earnings are suddently expected to sharply drop.
In summary, while I admit I bashed it a bit I did make a 18% gain for the year. But this was a very good year and I kept that gain when the charts told me to get out. As of this moment the stock market is having a major correction and this method did prevent me from hanging onto the stock for too long. All and all a very good book and a great way to get your feet wet!
On a side note: I emailed Phil a question I had at his website in which he responded back. That showed me that he at least believes in what he is selling and is there for you if you need assistance.
on March 26, 2006
I ordered this book sight unseen from Amazon because of the advanced reviews. If I had seen it first, I *might* not have bought it. But I'm still glad I have it anway.
What I really like about this book is that it explains key financial figures for calculating the future worth of a company and for deciding what a good price would be to pay for the company today (in terms of the paid stock price.) This aspect of the book is invaluable and is easily worth the cost of the book.
What I don't like about the book is the presumption that you can just sit down, at any given time, and with a little research, quickly find a company that's on fire sale and that will safely reap 15% a year or more, for many years out. It takes special circumstances to find companies in such positions. One of the author's inspirations, Warren Buffet, has not found many such opportunities for years now, which is why he is sitting on 46Billion in cash. He can't find anything to buy that's cheap enough and that would meet the author's criteria!
So the author is disingenuous in suggesting that you, after reading the book, and putting in a few minutes a week looking at web sites, can discover a gem that the greats like Buffet haven't been able to find. Bargains like this don't come along everyday. But they do come along over time.
And that's why I ended up really liking this book. The author's instructions on how to find such gems thrown into the trash by the market, when such situations occur, is the clearest, best, and simplest description I've come across (and I have no less that 3 sagging shelves of investment books.) I'm going to use the information the author gave so that, when the market tanks, say, I can pick up some of the great companies he describes and KNOW, because of his formulas, that I'm buying a jewel at a bargain basement price. I'd been looking for that information for some time, thus, in the final analysis, I really do value this book.
on September 8, 2006
Overall this is the best investment guide I've found yet. Rule #1 is "Don't lose money." Fair enough; no one wants to lose $$. But how? The author answers that question. First, buy wonderful companies. For Town, that means companies with strong and consistent growth: 10% minimum average annual growth for EPS, free cash flow, sales, and book value for the last 10 years. Efficient, well-managed companies, with great return (10% or higher) on invested capital. Once you've found that company, determine the fair value, and buy it ONLY when it's at a 50% discount, thus giving you a "margin of safety" against the vagaries of the "Mr. Market."
He makes it sound easy, but it's not. He admits that it can take 4-8 hours of research on each company to determine if it's "wonderful" or not. And even after you've done a preliminary search with a stock screening tool, you might have to research dozens of companies to find one that's wonderful AND trading at a 50% discount.
One great feature of this book is that Town provides a fairly simple method for determining the fair stock price of a company. This is a notoriously difficult problem, but Town's method is quite good. The problem is that you have to determine the expected growth rate of the company and the future PE ratio. He provides methods for doing so, but the process is necessarily quite speculative. But if you're going to invest in stocks (as opposed to mutual funds), this difficulty is unavoidable. At least his method is fairly rigorous and scientific. There is little guess-work. Town recommmends buying only when the price is at least 50% below the "fair value price."
Once you've chosen a "wonderful" company and sunk your life savings into it, Town outlines a trading strategy designed to avoid losing your money (rule #1). His trading method relies on 3 technical analysis indicators, MACD, Moving Average, and Stochastic. These indicators are easily available at many free stock charting sites. Basically, you trade out when the trend is going down, and trade back in when it's going up. It's therefore a form of market timing, which is very controversial and tricky. The advantage is that you will avoid the big market meltdowns like 2000-2002. Even if you don't know anything about technical analysis, his method is easy to follow. On the other hand, if you don't feel comfortable market timing, you can buy and hold, and still presumably do well if you've chosen your stock according to Town's guidelines.
According to Town, anyone who follows his method is guaranteed to get 15% minimum annual return in any market conditions, thus doubling your money every five years. Unfortunately, there are no "sure-fire" methods for getting that kind of return, especially in a bear market. But in any case, he still provides a detailed, coherent, and understandable method for finding great companies to invest in and avoiding losses.
I never heard of Town until a few weeks ago when my wife saw him on a panel of mostly investment people on CNBC. I watched the show for a while, and I almost fell out of my chair when Town promised 15% returns on national TV. As a Registered Investment Adviser, I find it hard to believe the SEC would allow him to make this claim.
The 70-year historic return of the S&P 500 is between 10 and 11%. If one believes that future returns will be like past returns......and this is a big if.....one could bump up your portfolio return by utilizing small cap value stocks (Fama-French 3-factor study), foreign stocks, and REIT's.....but you would still not achieve a 15% return.
I am a big fan of index funds. Every study I have seen shows that index funds outperform actively managed approaches over long periods of time. The few people that have beaten the S&P 500 over long periods of time can be counted on one hand (Lynch, Buffett) and Lynch did not do it for 30 years either.
Out of curiosity, I picked up his book. I started laughing when I read it.....because he was replaying the 1930's strategy of Benjamin Graham....try to identify companies that are worth $1 but are selling for $0.50......then sell them when they rise to $1.00.
I have no issue with the Benjamin Graham approach......but it is a lot of work....certainly more than 15 minutes a week that Town espouses....and even Graham himself said on his deathbed that his value approach no longer seemed to work as well as it did in back in the 1930's.
Many years ago, I looked at several companies, and tried to calculate the intrinsic value of their stock. The idea is that if the stock is currently selling below its intrinsic value (its margin of safety).....then buy the stock and sell it when it reaches it intrinsic value. What I found was that the slightest error in forecasting caused dramatic changes in the intrinsic value. I think Warren Buffett's greatest secret is how he is able to fairly accurately (his record is not 100% either) determine a company's intrinsic value.
As I read further into the book......it even got more bizarre when Town threw in technical indicators for selecting stocks. If you are really lucky using Graham's fundamental value approach......you have some chance of equaling the return of the S&P 500......but you might as well read tea leaves as use technical indicators to select stocks. Most academic studies have found no value in the predictive powers of technical indicators.
One has to also ask, where is the substantiated data that Town's method of picking stocks has beaten the S&P 500 at the same level of risk as the S&P 500?
Town also ignores the behavioral finance aspects of investing. Very few people have the discipline to remain 100% invested in stocks when a Bear market shows up. Most people chase the winners and therefore buy high and sell low.
As the greatest investor of all time.....Warren Buffett......has said......most investors should use index funds for their investments.
I would suggest people save their money and not buy this book.......but instead buy a couple good books on index fund investing and asset allocation.
The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing
This book surprised me by marrying together several common methods for investing in stocks for above average returns. I don't recall any other book advocating this particular combination. I was intrigued enough to begin a test of the method. It's too soon to see how it will go, but I suspect that I may be able to improve my returns. Time will tell.
Rule #1 as most investors know is to avoid losing money. That's because it's too hard to make up losses. So you pull out quickly before a position weakens very much according to this book . . . in fact, faster than most people do now. But it's good to have a sell discipline and most books are pretty weak on that point.
The book begins with a variation on the Benjamin Graham and Warren Buffett school of investing . . . buy $1 worth of a fine growth company for 50 cents. He urges you to buy quality companies at an attractive price based on a ten year perspective for growth in and high levels of return on invested capital, sales growth, e.p.s. expansion, and book value per share growth.
Then, he turns to a few technical rules to buy and sell positions quickly based on a combination of MACD (using a 8-17-9 test), relative stochastics (using a 14-5 test triggered at the 20th and the 80th percentiles), and stock price compared to a 10 day moving average. When all are positive, buy. When all are negative, sell.
If you don't know what those measurements are, the book will explain them for you. They sound more complicated than they are.
If you follow this approach rigidly, you should pick up on the middle part of a major up move and be out before the stock price can decline very much to eliminate your profits.
The book provides considerable detail on how to acquire these statistics for free on the Internet. And that's where I had a quibble. I tried to follow his advice for making the weighting adjustments to what MSN Money provides automatically . . . and I couldn't find a way to make the adjustments. So I'm using the standard weightings on Yahoo Finance instead. Perhaps it's that I'm not very good at following directions . . . or perhaps because I use a non-standard browser . . . but I gave up after two hours of futile efforts.
I also don't think you can really pursue this approach in 15 minutes or less a week. If you get into a volatile position during a time of market gyrations, you'll need to spend more like a half hour a day . . . unless you are only looking at one stock.
But if you had used this approach during the Tech bubble, it would have saved your bacon. That's how the author was able to keep his hands on the 7 figure value of the portfolio that he pyramided from a small initial investment in the late 1990s.
Anyone who wants to have a new approach to high return investing should definitely examine this book.
on August 6, 2006
This is NOT a book about how a Harley-loving, periodically unemployed river guide made a million from a borrowed thousand dollars in five years following the advice of "the Wolf". (This requires a compound interest of about 300% a year that one won't achieve following the instructions here.) This is NOT a book on some sort of secret rule, allowing you to work on your portfolio 15 minutes a week achieving 15% or more a year on your investments. (These are just promotional tools;)
BUT you will find clear, useful, practical advice about starting and managing your own portfolio. The General Strategy (Meaning, Moat, Management, Margin of Safety) and Specific Strategy (ROIC, sales growth, EPS growth, BVPS growth, FCF growth), the calculation of the Sticker Price (in order to buy a stock at 50% of its value, allowing the protection of margin of safety) are all well explained, even walked through with a step by step description. You will learn about the freely available internet sites (Yahoo, MSN Money, etc) and at the end could come up with a realistic stock analysis of your own.
The greatest benefit is that the book takes you from a scared and ignorant novice to an unintimidated and educated novice, encouraging you to do your own work and showing you how to get started; this all is without trying to hook you up with a pay-site, newsletter or other disappointing and all-too-common practices you would find nowadays in the investment literature.
A two thumbs up five stars!
on April 8, 2006
Several years ago I wanted to learn more about investing. At first I read all the mainstream financial magazines then subscribed to a few financial newsletters and then began to invest in mutual funds. After that I joined a few investing clubs and learned the ins and outs of stock investing. I have lost money and I have made money but the one thing that I have learned through it all is that one needs to spend more than 15 minutes a week to make a safe and sound investment decision. And the promise that one can make 15% a year or more on their investments using these methods is more hype than reality. For example Morningstar publishes a newsletter called the StockInvestor (available at some libraries) that uses a similar approach to investing as espoused by Phil Town. They have a staff of 90 smart and experienced stock analyst and provide two portfolios to follow the Tortoise Portfolios and the Hare Portfolio. The best performing of the two portfolios the Tortoise received a 7% return last year. Their recommendations had wide moats and were undervalued stocks. So for the author to contend that just by screening for stock with tools on the internet will result in a 15% return is ridiculous.
The author also contends that one will fall short of receiving a decent return by investing in mutual funds. In truth there a few brilliant (stock pickers) fund managers who year in and year out beat the S&P and score impressive returns in good and bad markets. But again it requires careful research to find these funds
My advice is learn to use the tools on the internet but don't believe the author's hype that one can spend 15 minutes a week and easily achieve a 15% return each year.
on December 6, 2006
This book is very well written and probably the easiest investing book to understand that I have read.
This book is excellent in many areas and I highly reccomend reading it if you have any interest in doing your own stock picking and investing. However, this is not a silver bullet answer to all your troubles and you will still need your day job. The "15 minutes per week" I knew from experience could not be possible, but giving phil some credit, once you have gone through and identified a number of stocks that you think are a fit for this style of investing, you only need to watch a few things each day to know if there are any buy or sell signals. I think that is what he is really saying, but the way it is stated on the cover is missleading if you take it at face value. Most people want the full effect right away and won't have the patience to see results at 15 minutes per week.
The first thing you need to do to invest is to be able to think a little bit for yourself and you will still need to think after reading this book. Phil is a little lax on the math and I have found little issues with his calculations as others have highlighted in discussions. This style of investing though is not 100% dependent on having perfect calculations. We calculate it out and then only buy at 50% off price and with other indicators saying the big boys are moving in, so being a little off shouldn't hurt us.
Phil really emphasizes paper trading until you have confidence that you can do it with real money. Very sound advice. Those that say this is a rip-off; well I'm not sure how you could have read this book and not gotten the cover price and more worth of good information. Phil maintains a web site and blog and answers questions there each week, so if you are really taking issue with the claims made, I suggest finding his site and posting there.
The real issue with this style is finding the companies that fit the criteria, that you know something about and that are on sale. If you think you are getting a free ride to wealth then you will probably be dissapointed. If you are willing to work at it, be patient and think a little bit for yourself (and you don't expect to be a millionaire in a month at 15 minutes a week), then this book might be for you.
on March 25, 2006
This book does contain some good basic information on finding stocks. The problem I have with these type of books is when the author throws statements about how he use to make only $4,000.00 a year as a river guide,then he was taught how to invest... I borrowed $1,000, and five years later I was a millionaire. He does not tell you how that $1,000 made him a millionaire. I guess he wants you to believe "Rule #1" made him the millionaire, by the way, Rule #1 is - don't lose money.The author strives for at least a 16.0% return on your investment, but on page 18 he shows a bar chart showing what $10,000 invested from 1965-2005 would return if you used Buffett's Rule #1 Average return 23.3% as opposed to the S&P(9%) or DJIA(8%). Theres no back testing or other data to confirm this simple looking chart. On the back flap of the book it states the author addresses half a million people a year at the nation's largest touring success seminars. If only he comes out with a second book telling how that $1000 was turned into a million dollars...
on January 4, 2009
I bought this because I wanted to learn how the author married up value concepts and technical analysis. This is possible, but why bother? if you identify value stocks, then why not hold them as Buffet does through thick and thin. The author suggests timing purchases by using MACD (8day and 17 day), Stochastics (14 day) and a 10 day moving average- this -imho-and I have looked at this on quite a number of charts- is ridiculous. you are using short term timers with long term fundamentals. In an up trending market you will be fine, and yes, you will be out in a down trending market, but in a sideways market (possibly 70% of the time) you will be savagely whipsawed, with severe loss of capital, and the fact that you are in value stocks is likely to make not the slightest difference. The book lacks any credible backtesting, and I therefore wouldn't risk my money on this approach. If the author made his money in the last bull run, I suggest he is making the biggest mistake of all - confusing the tide which lifts all boats with his own approach. Its a good read on the fundamentals, but I would steer very clear of this confused approach to investment. I would tend to use a longer timer say 50 day and 150 day to get in and out.