The Golden Rules in Investing

Investing

"The individual investor should act consistently as an investor and not as a speculator." - Ben Graham

Phil Town, a stock market investor and author from Wyoming, United States travels frequently teaching stock investing seminars. In 2006, he wrote the book Rule#1 which reached the New York bestseller list. Now as an ’Investment Guru”, his opinion is sought by many, as he is often interviewed on financial news media. According to him, successful investors look at stocks as businesses and find a few wonderful businesses. Then they wait for inevitable market drops and buy them when they are available at attractive prices.

The Rule #1 formula comes from Buffett – find a wonderful business and buy it on sale. His teacher, Ben Graham said the key to investing is to not lose money. The three most important words in investing according to Warren buffet are ‘margin of safety”. This is why they insist on finding the value of the business and then buying it at a big discount – like 50% off what they think its worth. According to Phil Town, you ask 4 questions to research a company before putting your money in it.

1. Do I understand the industry?
2. Does the business have a durable competitive advantage?
3. Is the CEO honest, investor-oriented, and passionate about the business?
4. Can I buy it 50% off its value?

If it does, you are guaranteed to make money.

The above is extracted from an interview of Phil Town by Gerald Chuah as reported in the New Straits Times.