Phil Town

LIKE MONEY IN THE BANK

People often write in to ask me specifically how to free up funds to invest. I'm sure a lot of you have Eric's question, below, about life insurance. Read on:

Mr. Town,

1.  I currently have a whole life policy into which I pay $250 per month.  Would it be smarter for me to invest the $250/month in following the program you set before us during the "Get Motivated!" seminar?  I could pick up inexpensive term life to replace it for about $120 per year and invest an additional $3000 per year.  I do have $3000 invested in the policy at this point (1 year) to consider - what would you do?

2.  I started putting about $200-$500 per month into a normal money market account four months ago just to have it set aside for a rainy day.  You seemed to be in favor of putting all eggs into one basket - do I close my safety account and start sending that money to Scottrade?

3.  I have an IRA in worth about $15K.  Would I be smarter to take the penalty for early withdrawal in order to have it available to invest using the Success Investor's Toolbox in the manner you described during the seminar?

Any advice is greatly appreciated.

Eric W.

Here's what I think:

FACTORING IN THE BIRD FLU: THE EFFECT OF GLOBAL EVENTS ON YOUR INVESTING DECISIONS

Here's a quick Q&A from Sandra.

Hi Phil,

Please bear with me, I'm still trying to catch on.

Let's say Sanderson Farms met Rule # 1.  Do you factor in global events, like the bird flu? How does this effect your decision?

Thanks,
Sandra

Good question, and one we haven't addressed yet. Here goes:

USING THE ARROWS OR NOT

To answer a very common question:

For all you arrows users (Investools or Success): I buy with three greens and it's amazing how many times I regret it when i jump the gun and buy with two.  So three green. 

And I get out when the stock stops going up and I get two reds down below. 

For all you non-arrow users who are trying to do the same thing using MSN charts: Set the MACD to 8-17-9 and the Stochastic to 14-5-0 and the Moving Average to the 10 day.  You'll get triggered a little earlier than on Investools, but that's okay.  The trigger point - the time to buy or sell - is when the lines cross. It ain't as easy and it ain't as purty but she works just fine once you get the hang of it.

FARMING WITH A TRACTOR

I get asked sometimes, like in this letter below, if my book is going to show you how to do this investing stuff... but only if you buy the tools to make sense out of it. 

Come on, I wouldn't do that to you guys. 

My book is going to show you how to invest using free tools. I really want everyone to be able to do this without going for a specific set of tools, ya know.

HOMEWORK: MSC INDUSTRIAL DIRECT CO. (MSM)

This Homework was submitted by Chad, an Investools user. Read on:

Phil,

I have noticed the investools valuation analysis numbers are much different than what I find on other sites. What numbers would you say are correct? Am I just looking at them incorrectly? For example Projected P/E for MSM. I looked at Yahoo finance and it shows a P/E 1 yr @ 19.32 but the investools shows a 1 yr P/E of 57.34. If I want an accurate assessment of P/E what should I be looking at?

I have looked into this company for a couple reasons which lead me into my 4M's:

HOMEWORK: TRUE RELIGION JEANS (TRLG)

Kat at eGirl Investments is interested in True Religion Jeans, TRLG. She knows someone with the company and has heard they're growing so fast they had to move 3 times in the past couple years. Here's how I did a quick analysis.  This took, by the way, about 1 minute to decide and then 10 minutes start to finish using Success tools. 

Here's the one minute: It has a two year track record, a new brand of high end jeans, great numbers and absolutely no possible way to predict if it will be around in ten years, much less twenty.  Would you want to own this business if it was the only way for your family to get money for the next 100 years, or would you like to own something just a little more predictable? 

HOMEWORK: SANDERSON FARMS (SAFM)

I just read this article by Bill Rempel, a guest commentator on Free Market News Network, an excellent, if advanced, market thoughts forum.  He does an analysis of a chicken business from the point of view of a value investor. 

He's looking specifically at Sanderson Farms.  After going through some of the numbers for Sanderson, Bill looks at price vs. value and thinks that the price today is somewhere between fair and a real bargain depending on one's assumptions about growth. 

Here is his conclusion:  "In summation, the picture I see is a small, growing company that is poised for long-term success, whose stock is currently trading at a significant discount."

 

I thought I'd do a quick Rule #1 analysis and see if we agree.

THE VERY FIRST RULE #1 LESSON: SAVE SOME MONEY

Strictly speaking, the first lesson in Rule #1 investing isn't "learn an industry."  Most of us need to start out by finding the money to invest: either by cutting corners in our spending (and this includes eliminating high-interest credit card debt) or finding ways to bring more money in. I'm coaching someone through this right now. Read on:

First of all thank you so much for sending me to the upcoming seminar and being my mentor for the next 6 months.  Me jumping up and screaming was sooooo not in my character but yet I was compelled that it was now or never for things to change.

HOMEWORK FOLLOWUP: STRYKER CORP. (SYK)

Remember our Stryker Homework? Here's a followup from Lyn:

"I did a little more research on Stryker and found out that the earnings dip in 1998 and 1999 were due to the acquisition of Howmedica from Pfizer.  And last year Stryker acquired SpineCore, Inc. and reported only 3% growth but the underlying growth was 29%.

The orthopedic implants industry itself may have a slight slow down due to pricing power but in the Grand Scheme of things they are talking only about 1% or 2% which is not a dramatic change.  Styker as a company itself has been conservative with their pricing increases.  So even if a 2% price increase goes to 0% it really will not affect their ability to continue their 20+% growth.

So this company is looking more and more like a Rule #1 Company!  Am I missing anything important?"

Nope. And then she asks whether, if the price starts to move up, we should jump in.

Answer:  We only go when the big guys go.  We're trying to buy something that is going to go up 50% in a reasonably short time - a few months.  It won't do that without Institutional money piling in there, so there isn't any real point in trying to get in way before these guys do.  So wait for the arrows or, if you are on MSN, watch the three Tools:  MACD, Slow Stochastic and Moving Average.

RULE #1 RECAP POST: 4M AND MORE

A lot of readers have been contacting me with repeat questions about doing a 4M analysis. Because of this I took a cue from the Carnival of the Capitalists and decided to host my own mini-Carnival here on the site, as a recap of useful Rule #1 posts that have all the info you'll need.

I'll link to this post in the sidebar and add all of this to the FAQ as well.

First, here's a basic summary of Rule #1 investing from the FAQ, and the site disclaimer, which explains what Rule #1 is about, and why you have to make your own decisions about what companies to buy. My Watch List post covers the same.

Now, onto the fun stuff...