I love owning Whole Foods. It is a great example of a Rule #1 company.
First, Rule #1 investors don’t buy stock. We buy businesses. That means we evaluate the opportunity as if we owned the whole thing and as if there was no stock market for the next ten years.
Second, Rule #1 investors try to buy $1 of value but only pay $0.50 for it. When we do this correctly we know we are going to make money at some point. We also know that our risk is less than if we bought a comparable business but paid the full $1 for it. We call this a Margin of Safety. I insist on a MOS because I’m not all that smart and need a cushion that can absorb my mistakes in valuing a business or unexpected problems that the business might have.
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