Anyone followed Phil Town's "Rule #1" investing?

[spencetj]

I read Phil Town's first book "Rule #1" book after a recommendation from another forum. He says this is basically what the likes of Warren Buffet have been doing for years: find solid companies with a good track record, then wait until there is a blip in the market and the share price falls for some reason, and buy them at half their true value. I think Rule #1 is a simplified (possibly over simplified?) guide for people like me who don't have a great deal of investing knowledge or the time to acquire it.

The Rule #1 criteria is the "Big 5" numbers, in priority order below. We want them all >= 10% per year for the last 10 years. Also check the 5 and 1 year numbers to see growth is not slowing down.
-ROIC (steady or increasing year on year) 10, 5 and 1 year numbers (net operating profit after tax / (equity + debt))
-Equity (or BVPS) growth rate 
-EPS growth rate
-Sales (or gross profit) growth rate
-Cash flow growth rate

It seems like a reasonable strategy to me, and the 50% margin of safety should prevent you losing (too much) money even if you get the assessment wrong. The problem I am having is finding all the relevant data in the first place, and finding companies that meet the criteria. This is without even considering whether I understand anything about the business they are in, or whether the shares are currently at half their true value.

I couldn't find any free data sources that go back 10 years so I subscribed to Sharepad, which is a good source of information but I would like to save the money if I could get the data for free elsewhere. ROIC is a difficult statistic as everyone seems to calculate it in a different way, and I couldn't find any values on other websites that match the ones Phil Town gives. His website has a Toolbox with a free 30 day trial, but $30/month thereafter and it only covers US stocks. I found another website stock2own.com which has some free functionality and a 30 day trial. It seems to be designed as a tool for Rule #1 investors but I am not sure how complete the data is. I tried searching for Avast and it didn't find anything.

Using these tools I haven't found any UK shares that seem to meet all the "big 5"criteria. Running the same search against US stocks finds some hits but then it gets more complicated - I guess I have to consider currency conversion, possible extra fees, taxation etc, not something I have done before. My share dealing is currently in an ISA but I wondered if it would be worth opening a SIPP, especially for US shares? I know you can't hold foreign currency in an ISA but you can in a SIPP.

So, some more specific questions
- has anyone tried the Rule #1 strategy? With success?
- are there any free sources for 10 year history and/or easy ways to calculate the numbers?
- are there any UK shares that meet the "Big 5" criteria ?

Thanks for any help

[colin]

I read Phil Town's first book "Rule #1" book after a recommendation from another forum. He says this is basically what the likes of Warren Buffet have been doing for years: find solid companies with a good track record, then wait until there is a blip in the market and the share price falls for some reason, and buy them at half their true value. I think Rule #1 is a simplified (possibly over simplified?) guide for people like me who don't have a great deal of investing knowledge or the time to acquire it.

The Rule #1 criteria is the "Big 5" numbers, in priority order below. We want them all >= 10% per year for the last 10 years. Also check the 5 and 1 year numbers to see growth is not slowing down.
-ROIC (steady or increasing year on year) 10, 5 and 1 year numbers (net operating profit after tax / (equity + debt))
-Equity (or BVPS) growth rate 
-EPS growth rate
-Sales (or gross profit) growth rate
-Cash flow growth rate

It seems like a reasonable strategy to me, and the 50% margin of safety should prevent you losing (too much) money even if you get the assessment wrong. The problem I am having is finding all the relevant data in the first place, and finding companies that meet the criteria.

Thanks for any help

Perhaps that's because the investing world consists of thousands of full time proffesional investors and fund managers all trying to do the same thing . If you do find such companies that fit all the selection criteria than ask yourself why has someone else not yet picked up that $50 bill lying on the sidewalk?
But then I just buy funds for an easy life and will never be rich.

[scrumpyjack]

That's not what Warren Buffet does. He does not try to time the market or buy a company because it seems temporarily cheap.

He said
“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”

[spencetj]

That's not what Warren Buffet does. He does not try to time the market or buy a company because it seems temporarily cheap.

He said
“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”

Yes I have heard that quote, but I didn't suggest buying a company BECAUSE it is cheap, the theory is to identify the wonderful companies and buy them WHEN they are cheap. I have also heard a quote something like Buffet describes his investment style as lazy bordering on slothful, meaning most of the time he is not making trades, waiting for the right moment.

Clearly it is not so easy as Phil Town would like to make out, but allegedly some people who are not professional investors have managed to do it. He actually claims that the small investor has an advantage because they can dance nimbly in and out whereas fund managers have so much money to move that it takes time to place all the trades, during which time the price moves. Unfortunately the book was written some years ago and the examples he gives are US stocks that don't look so good any more.

The "big 5" numbers are supposed to confirm that you have indeed found a wonderful company, but to come back to the original question, what is the easiest (preferably free) way to get that 10 year data?

[Gan020]

I read Phil Town's first book "Rule #1" book after a recommendation from another forum. He says this is basically what the likes of Warren Buffet have been doing for years: find solid companies with a good track record, then wait until there is a blip in the market and the share price falls for some reason, and buy them at half their true value.

Using these tools I haven't found any UK shares that seem to meet all the "big 5"criteria.

So, some more specific questions
- has anyone tried the Rule #1 strategy? With success?
- are there any free sources for 10 year history and/or easy ways to calculate the numbers?
- are there any UK shares that meet the "Big 5" criteria ?

Thanks for any help

Right now the FTSE is 7650 so your chances of finding "inexpensive" shares based on any critieria is low. If the FTSE falls to 6000 your opportunties are going to look a lot better.

I follow a strategy with equities of consciously buying when the market is in "fear mode" and has fallen back a long way. I almost never pick the bottom, but I've got far more chance of making money if I buy something when the FTSE is 6000 than when it is 7650. I tend to buy mostly companies with strong balance sheets which have been in business a long time with stable managment teams so I can see their historical track record. A different criteria to Phil Town but perhaps not so different as to be a million miles away.

Over the years these have been my best trades. Buying good companies with track records when the market is low.

[Bubblesofearth]

His website has a Toolbox with a free 30 day trial, but $30/month thereafter and it only covers US stocks.

So we know how he's making his money and it's not from picking up bargains in the market!

[Steveam]

I read Phil Town's first book "Rule #1" book after a recommendation from another forum. He says this is basically what the likes of Warren Buffet have been doing for years: find solid companies with a good track record, then wait until there is a blip in the market and the share price falls for some reason, and buy them at half their true value.

Using these tools I haven't found any UK shares that seem to meet all the "big 5"criteria.

So, some more specific questions
- has anyone tried the Rule #1 strategy? With success?
- are there any free sources for 10 year history and/or easy ways to calculate the numbers?
- are there any UK shares that meet the "Big 5" criteria ?

Thanks for any help

Right now the FTSE is 7650 so your chances of finding "inexpensive" shares based on any critieria is low. If the FTSE falls to 6000 your opportunties are going to look a lot better.

I follow a strategy with equities of consciously buying when the market is in "fear mode" and has fallen back a long way. I almost never pick the bottom, but I've got far more chance of making money if I buy something when the FTSE is 6000 than when it is 7650. I tend to buy mostly companies with strong balance sheets which have been in business a long time with stable managment teams so I can see their historical track record. A different criteria to Phil Town but perhaps not so different as to be a million miles away.

Over the years these have been my best trades. Buying good companies with track records when the market is low.

While there are many different successful strategies this one requires one to keep dry powder and the carrying cost of cash can be high over an extended bull market. This is a form of market timing and good luck if you can get it right. I’m now more inclined to be more or less fully invested and to just sit out the poor periods. When I have cash to invest I buy solid companies which I think are oversold (Unilever) or offering an excellent yield (HSBC).