Rule #1: Phil Town on Investing

MSNBC - Your Business

It's been a while since my last post. I'm busy at work on new projects I hope to talk about on the blog soon.  In the meantime, here's a clip from my recent appearance on MSNBC's Your Business.  If you're an MSN site member, please watch the clip and vote/comment on it.  Among other topics, we talk about the importance of cash flow projections for business owners.

Business Answers: Selling Yourself

Norm Brodsky, Columnist for Inc. Magazine and Phil Town, investment advisor and author of "Rule #1" answer viewer questions about the best ways to get in touch with buyers and tips for selling yourself and your company to potential customers.

LINK:  Business Answers: Selling Yourself

Quarterly Earnings Calls: When to Listen

Jon from Colorado recently asked me a question I thought I should post here and add to the FAQ:

Phil,

Do you listen to quarterly earnings calls each quarter for all 20+ companies on your watch list? I'm trying to find the time to listen to these...

thanks,

-jon

My response:

Because I'm lazy, I listen to the ones that I'm likely to buy in the near term, i.e., when the group is getting good, i.e., when the money is headed that way.  Keeps the load down a bit to do it that way.  Still, if you have time and inclination it's best to keep up with all of them.

Phil

New Speaking Dates

I hope you all enjoyed your Memorial Day weekend. New dates have been added to the News and Events page. Be sure to bookmark that page for updates.

Is HANS a Buy Now?

HANS (Hansen's Natural sodas) has great numbers.  But it's not enough to have great numbers.  Remember the 4Ms? 

The numbers tell us there must be a moat, but "Is it going to last?" is a question that is only answered by the first M -- the Meaning of the business.  Do you know this business?  If you do, you should be able to handle this question well:  Is HANS going to definitely be here and still growing in 20 years?  That is the key question.

Buffett and BNI

A few weeks ago, Ven left the following comment:

Phil,

I just read Michael Brush's article "How Buffet is Playing This Market" on MSN. He says that Buffet is investing in BNSF Railway, but according to Investools, the BNI stock is not a bargain. In fact at the present it is at 77.00, with a valuation of 73.77. Of course I know Buffet knows what he is doing, but is this a good investment for me because Warren says it is?

Thanks,
Ven

Ven asks how it is that Buffett could buy BNI in spite of its price being higher than its value. 

Well, we have to ask, what is the value of BNI?  Buffett has been buying it in the high $70s and low $80s.  Is the value really less than the price? 

Setting Up Your Own Berky

This post is the Part II of a two-part series. Click here to read Part I.

Mr. Buffett’s BERKY (Berkshire Hathaway is Mr. Buffett’s Berky, for those of you who are just tuning in) gets its cash flow from businesses Mr. Buffett owns.

[I know that the cash comes from businesses that Berkshire Hathaway owns, but I’m setting this up as an analogy, so bear with me.] 

The guys who run those businesses are well compensated for passing up the excess cash to Mr. Buffett’s Berky.  In order to set the game up so that they will send him the cash, Mr. Buffett put his CEO’s on a compensation system that rewards high return on equity (ROE). 

[NOTE: Or high return on Capital, which is a bit different.  For the purposes of this post, it works better that we stick with ROE rather than ROIC, even though ROIC is better in the real business world.]

Because of the way Mr. Buffett set up compensation and rewards, the more cash his CEO’s get off their books (by sending it on up to the Berky), the lower the denominator that they are using to divide into their earnings to get ROE... thus the higher the ROE. 

Good system.  Keeps everyone working toward the same goal -- well run businesses and lots of cash to the Berky. 

You can do this, too.