Phil Town

TOL AND STICKER PRICE

Here's a homework back-and-forth between me and Adam, who saw me speak at the Get Motivated seminar in Philly. Follow along and drop a note in comments if you have anything to add about Toll Brothers (TOL).

I'll put this in the FAQ too because it answers a couple common questions: 1) How to buy $1 for $0.50 and 2) Where to find the Sticker Price / Target Price on Investools Valuation section.

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On 7/11/05, adam wrote:

Hi Phil,

My name is Adam L. I saw your seminar in April just outside of Philly. I just purchased investools over the phone last week. I am so excited and ready to do this!!!! I wanted to know if I could regularly email you with questions? Would that be ok? I read David Bach's book "Automatic Millionaire" last year and I have been using some of his strategies to save up and I invested some of that savings into investools....which, I know, will make me a millionaire someday. (hopefully sooner than later). I am looking forward to gaining all the knowledge that I can. I cant wait to read your book next year when it comes out. I guess my first question is...where do I go in the toolbox to find where you displayed the undervalued stock? For example a stock is going for 50 cents but worth 1 dollar. Please help me out I am just getting started and trying to absorb everything I can.

Talk to you soon,

Adam

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on 7/12 phil town wrote:

Hi Adam,

Sure, you can send me questions anytime. I'll do my best to respond quickly.

As for getting $1 for $0.50, here's how it works:

PANERA (PNRA) PART II

John D. signed up to do Investools investor education and tackled an analysis of Panera as one of his first 4M companies. Good timing, considering we're looking at Panera this week. I helped him out with some of his spreadsheet calculations, and he got back to me with some research about PNRA's management. See below.

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To: Phil

From: John

Date: July 18

Phil -

Please check this - I did this on Panera Bread Company using the Investools website for info. Let me know if I've got it right now, or where I need to fix the formula. Thanks for the help.

John

THE WHYS BEHIND THE BUY

Here's an email from John, who's been reading the site and teaching himself how to use the Excel spreadsheets to figure out whether a company is at the right price.  He still had a few questions. With his permission I'm posting his spreadsheet set up and his questions for the rest of you to reference.

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To: Phil

From: John

Date: July 14, 2005

Please look at the attached file and let me know what you think.

Sticker Price and MOS Calculation
# of years	10
Growth Rate	22.0%	Lower of   Historical or  Zach's
EPS	$       2.32
Actual Price	$     90.00	Looks Great!!!, Check the YUMMMMY before Buying
Est Future PE	44	Looks Great - under 50!!
Future EPS	$16.95
Value Per Share	$745.66
Sticker Price	$184.31
MOS	$92.16

I think I've got the technicals now.  The yellow shaded cells are input and I've added some comment if statements to help see the results more clearly. I have a few questions though for understanding why.

1) Is the Estimated future PE really twice the Growth rate used?  Why?
2) Why do you use 10 years and not more or less time?
3) Why do you use 15% minimum and not more or less?

These questions are for me to understand the whys of what is being done here, so that I can make a more educated "buy" decision.  Any help you can provide is appreciated.  BTW -- I really was affected by your Boston appearance.  It opened my eyes to some opportunities I have available to me.  Thanks man!!

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YOUR HOMEWORK: SNDA (SHANDA INTERACTIVE)

Here's a new homework.

While I was in Europe Alan contacted me with his YUMMMMY analysis of SNDA -- Shanda Interactive Entertainment Limited. Shanda is a Chinese home entertainment company specializing in online gaming (interactive video games, mostly).

Here's his analysis and my response:

[Edited for length]

YUMMMMY BECOMES MMMM (4M)

A Rule #1 business is a business that has Meaning to us. It also has Moat, Management we admire and a Margin of Safety, meaning we can buy it at a discount. 4 M's.

My publisher, Random House/Crown Publishing, has convinced me to change the YUMMMMY acronym to MMMM, or 4M, to simplify things. I think the changes clarify what we're seeking so I'm into it.

So, from now on YUMMMMY = MMMM. This is how it'll be in the book too. I'll go in and change it on the blog ASAP. You'll notice this change the most in Categories.

Here is the definition of each "M" in the 4M's:

REAL ESTATE VS. RULE #1 - CONTINUED

Owen and I are trading some pretty interesting comments on my "Real Estate vs. Rule #1" post. Just a heads up to check it out. There's a lot to learn there.

HEADS UP ON PANERA (PNRA)

I'm putting this one up quick because I need some feedback from readers.

My daughter called me from Oxford today.  She's a Rule #1 investor.  She wanted to go over Panera Bread: PNRA.  See what I think.  So we took ten minutes on the phone and looked at it together.   Until 2000 the business was trying to figure itself out.  Then it got it together and has been on a rocket ride ever since.  For a Rule #1 investor the first question is "Do you want to own the whole thing?" and her answer is...

PLAYING TO NOT LOSE: HOW WOMEN INVEST

I just read Kathy Kristof's column in the LA Times about how women need to be thinking about learning to manage their own money for retirement.  She writes that "Like it or not, 80% to 90% of all women will have to fend for themselves economically, often because of death or divorce." She quotes Cheryl Burbano, a financial planner with American Express Financial Advisors: "Women invest to not lose money.  Men invest to make money," she said.  "There's a big difference." 

Indeed there is.

MUTUAL FUNDS & DOLLAR COST AVERAGING

Here’s another email exchange some of you might find useful. Joe wanted to know what the difference is, over time, between Rule #1 style investing and the “dollar cost averaging” of investing a set amount per month in mutual funds. 

Here’s his question and my response… as well as a follow-up email from him.

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Date:   June 16, 2005
From:  Joe
To:      Phil

Hello Phil,

I recently heard your talk at the Get Motivated! seminar in Philly.  Your market charts depicting sideways/zero growth for huge chunks of time over the past 100 years really got my attention about my current investment strategy.  I've been doing a lot of thinking about your investing philosophy vs. simply making systematic investments in an S&P 500 type index mutual fund, and the only plus I can possibly see for the index argument is dollar cost averaging.  I'm sure you are familiar with the argument: by investing regularly (e.g., same $ amount every month) in a mutual fund, you are guaranteed to buy fewer shares when the price is high and more shares when the price is low. Thus, in the long run, you are virtually guaranteed to profit regardless of how the market does.

I’d like to see a comparison of the profit generated using the Rule #1 method vs. dollar cost averaging in an S&P500 Index fund during a 0% growth year in the S&P.  I'm sure it would vary a lot, depending on how much up and down there is in the market that year, but it seems like a reasonable question (especially since most index mutuals don't charge a commission for systematic investing).

Your thoughts?

Joe

UPDATING THE BLOGROLL

I'm updating my blogroll this week, including adding a Tech category.  Seems like these lists may get longer over time (lots of great stuff to read out there!), so I'm going to put the notes in "Tool Tips."  This means you pass your cursor over the link and you'll see a yellow box with my comments about each site I link to. This will save space in the long run. Thanks.