Posted by: sanjayshetty | August 17, 2007

Rule #1 of investing

Rule #1 of Investing is don’t lose money, and Rule #2 is don’t forget Rule #1. This is the premise for the excellent book, Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week!.written by Phil Town. (Available here Amazon).

I’ve read an re-read the book it’s been an enlightening experience, which explains in detail how one can go about sucessfully investing in the stock markets. Essentially every investment has to be looked upon as not just buying a stock but owning a company, checking for the 4M’s and its relevance for you: one that has Meaning, Moat, a Margin of Safety, and good Management.

Phil further explains it on his blog as follows (http://philtown.typepad.com/phil_towns_blog/2005/07/yummmmy_becomes.html)

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Here is the definition of each “M” in the 4M’s:

M: MeaningWould You be ethically proud to own this business — all of it? Is the business something that connects with you so much that if you only were going to live off of one business for the next 100 years, this one is it? And is this one “it” because you Understand it well enough to know it will be there for you long term? And does it track with your personal values?

M: Moat – Does this business have a protective Moat? Does ROIC, and the 4 growth rates — Equity, EPS, Sales, Cash — confirm the Moat?

M: MOS: Margin of SafetyIs a dollar of value available for fifty cents?

M: Management – Does this business have owner-oriented and driven Management with a Big Audacious Goal, or BAG?
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In my blog I will be exploring how companies listed in India, on the Indian stock exchange’s stack up when we put them up to the 4M test of Rule #1 investing.

I’ve also noticed that there is an excellent community(http://www.roicommunity.com/) of Rule #1 enthusiasts who have done considerable work in applying the learnings from Phil and have excellent discussions on the same.

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Below portion added on 11th Oct 2007

There are five numbers that we have to look at to determine whether a business has a Moat is what Phil say’s, refer to this blog post http://philtown.typepad.com/phil_towns_blog/2005/10/the_big_five_na.html

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