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:
M: Meaning - Would You be ethically proud to own this business -- all of it? Is the business something that connects with you so much that if you only were going to live off of one business for the next 100 years, this one is it? And is this one "it" because you Understand it well enough to know it will be there for you long term? And does it track with your personal values?
That's the first "Y" and the "U".
M: Moat - Does this business have a protective Moat? Does ROIC, and the 4 growth rates -- Equity, EPS, Sales, Cash -- confirm the Moat?
M: MOS: Margin of Safety - Is a dollar of value available for fifty cents?
M: Management - Does this business have owner-oriented and driven Management with a Big Audacious Goal, or BAG?
If it has all of those, we move forward. This is the same process as YUMMMY but drops Mr. Market and Yield. Mr. Market isn't something we have to do - it's just a reminder that Mr. Market will bring us the business at a great price someday. And Yield is confusing people with dividend yields or bond yields, and I'm just using it to emphasize that you buy as if you own the whole thing - which is effectively covered in Meaning.
Does this make sense to everyone?
So from now on, YUMMMMY companies = 4M Companies or Rule #1 Companies. Sometimes I may call it "MMMM."
Now get going and be the first person to get a Homework assignment up under the new Category name!
