Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week!

Do you want to be a long-term investor?If so, this is the book to read. I feel like I get it, but it takes ongoing effort to find stock picks that will work. And by "work" I mean giving 15% annual returns for the next 10 years (or doubling twice).Forget the 15 minutes per week. It takes more effort than that.The biggest obstacle is understanding the system and then finding the numbers. The author explains it well. But you will have to figure out how to get the information you need. I found it, but only after lots of looking. Your web research skills will pay off here. And you will likely use his website calculator to do the math on the Margin of Safety, but he offers it for free.Here is what it takes.I spent several days learning the system of finding great companies. This took me 50-100 hours of finding the right websites and getting it down to a simple research system that worked for me, mostly based on the book.Now I research individual companies for about an hour and put their stats on a notecard. This INCLUDES the actual price I want to pay for the stock.But you will have to research 100 companies to find 10-15 great companies.The prices will be way too high, except for one or two companies. Invest in those. You only need one or two or three investments like this per year.Repeat the research process until you find more great companies.Besides teaching the system itself, the book's strength is in showing you what to look for right away before wasting a lot of time researching a company. So if it doesn't fit this initial criterion, I move on immediately. So I don't have to waste an hour on research for that company.It takes time, especially in your learning phase, but it is time well spent.

There is one big flaw in the book and I did not wait to even finish it before writing this!The man gives a terrific introduction to valuation and stock analysis. No doubt! In fact he enlightened and unstuck me from 10% return mindset. He also gave wonderful new angles on business valuation like ROIC and Equity growth rates.But when arriving at present valuation - "the sticker price" of the stock, he takes projected future EPS at Year 10 and multiplies it by a conservative P/E. That will be his starting point which he un-compounds at 15% rate of return for 10 years to arrive at present stock price!Boom and there lies the big flaw!If the market does not value the stock at year 10 at his conservative P/E, if the fortunes of the sector diminishes or if his arrived P/E projections for Year 10 still turns out to be too steep (He talks of projected P/E in 40s and 20s) then there is a great chance that the present sticker price arrived at willSTILL BE TOO STEEP.I think the book would have been a lot smarter if he had just discounted the projected earnings and arrived at Net-present-value for the stock. Because in that case earnings yield on the price paid (for the stock) would have grown the book value for the investor, whether or not the market prices the stock optimistically in years to come in the future.The book is still a must read!As close as the book comes to teaching true value investing, it suddenly fails in the critical aspect of liberating investor from market pricing and market fluctuations.

I read this book last summer for the first time. Now I read it again. It is good that I did; last summer I would have given it only two stars because of the hype, including the cheesy name "Rule #1 Investing". On second reading, and with some experience gained in the meantime, I found the book a lot more insightful.Town's book's best feature is that he does not focus on the price of a stock as the first and foremost information about a company. That sets his book apart from most information sources about stocks (especially the media coverage). What I like about the book is that it is about INVESTMENT, as opposed to speculation. He describes an approach of figuring out the fair value of a stock. Whereas the principle is sound, the formula is somewhat flawed, especially the approximation that the PE of the stock would be twice its EPS growth rate (expressed as %). Town correctly identifies the ROIC as the most important numeric parameter of the company's moat, and the equity growth rate as the best predictor of its long term earnings growth rate. Another important positive of the book is its emphasis on assessing the qualities of the company's management. There are many excellent businesses that disregard the interests of the owners (the shareholders), and the top managers self their own interests. John Bogle's books explain the rampant abuse in "managers' capitalism" better, but Town appropriately addresses the issue from a practical point of view.The use of the "tools" (technical trading) in conjunction with the stock valuation is an interesting notion. However, it works only when your investment is relatively large, and "nimbly dancing in and out" of holding equity would not eat up the profits due to trading expenses (commission). Apart from the fact that Town's description may lead the reader to overtrading, it is important to recognize that even with limited selling and repurchasing, the approach is ONLY viable in IRA accounts. Otherwise the compounded gains will be destroyed by compounded tax expenses. (Realized gains are taxed in the same tax year when the gains occurred.) Town points out that legislation should allow investors to roll over their gains into different stocks without taxation, similar to real estate. However, until that happens, Town's approach is not going to deliver the promised 15% annual return. In fact, there is no guarantee for such return even if one uses a tax-deferred IRA account. That is a negative of the book - it just promises too much. It is clearly a hype.There are various investment strategies, and the one described in this book can be combined with some others. For example, Greenblatt's "The little book that beat the market" and his stock-screening website would complement Town's approach, and aid identifying underpriced, solid companies. However, some other investment strategies may not be compatible. It is questionable that Town's approach is superior, but it is clear that it is a good approach.Take seriously the margin of safety he mentions. It is important to note that the future fair value estimates are not precise, and without the margin of safety, the investment may be too risky. If one insists on the margin of safety, the stock may - on occasion - yield far more than 15% return.The folksy style of the book may find approval from some readers, but personally I did not like it. It could have been conversational without using double negatives, colloquialisms, and - simply put - poor, unrefined English. Do we need to shoot for the lowest common denominator?I am not sure how Town made his fortune. What he describes, cannot be explained with 15% annualized return, and was probably NOT "Rule #1" investing. I am also uncertain, whether Town makes more money from investing, or from his book and investment seminars (like Kiyosaki). It would make the book a lot more credible if we knew whether that investing by the "Rule" is Town's primary source of income, and whether he personally is still making 15% or more on his stock investments.