Phil Town

IT'S NEVER TOO LATE TO START INVESTING

Phil Town got this email from Clif a few days ago and decided to post about it, since this question comes up pretty often: "Am I too old to get started investing with Rule #1?"  Below is the letter [edited for length] and my response.

please, if you read this personally, i sincerely request your advice asap.  i am 71 yrs old, i am single, i raised 4 children almost entirely by myself. i am a retired teacher college and senior advanced course high school - all 4 of my children have been to college. they all have jobs making more money than i ever did as a teacher, i did not save much- raising my little girl and getting her into college occupiued my 50's and 60's.

i dreamed of a useful and rewarding retirement which brings me to the ad i saw in the ny times last week for your "rule #1" book - i immediately went to borders and purhased it and read it and had -for a while a new hope that i might yet salvage a few years of the kind of retirement i dreamed of.

YOUR HOMEWORK: PHARMACEUTICAL PRODUCT DEVELOPMENT, INC. (PPDI)

Here's a homework submitted by one of my long-time readers, Tom from Grand Rapids.

Hey Phil,

It's been a while since we last chatted, mostly because my wife and I were busy welcoming the newest and (hopefully) FINAL addition into our family this past November!

At any rate, now that I've got yet ANOTHER college tuition to fund it's time to get back into the swing of things. Panera (PNRA) has become one of my best "friends" over the past few months and I'm gonna stick with it for the foreseeable future. However, I realize that I need to have a few other options available in case the bottom drops out - not to mention the fact that I want to continue to sharpen and hone my "skills" so I can become an Investment Superhero someday too!

Here goes my latest catch:

Pharmaceutical Product Development Inc. (PPDI)

APPLYING RULE #1 TO INTERNATIONAL INVESTING

Every once in a while people ask about foreign companies and commodities, like Chris does below. Read on.

Phil,

I've been reading (very dangerous) about Iran's plans to start trading its oil in Euros and not dollars - they plan to start doing this some time around 03/23 - 03/28 of 2006.  This information got me thinking (also very dangerous) about the Rule # 1 principles and investing/trading in other markets.

1. Do you trade in international securities or do only trade in U.S. markets?
2. Generally speaking, does Rule # 1 and associated investment strategies and principles apply to international trading or just to U.S. exchanges?

I'm still very new to these investment principles and not yet ready to involve myself with international trading, but out of academic curiosity, I thought I'd run this question by you and ask.

Thanks again Phil!

Christopher

Here's what I think:

Rule #1 is a universal strategy for investing.  We're not prevented from finding a wonderful business at an attractive price by a national border.

HOW TO BECOME AN INVESTOR

Here's something fun. About a week ago I received the following email from a student doing a school project:

For school I need to interview a stockbroker/investment person...  I admire you so much and I was hoping you would answer these questions.  Here are the questions if you could answer them that would be awesome:

• education needed?
• salary?
• hours?
• outlook on the job?
• how can you get better in the career?
• tips for someone my age on getting started on becoming a stockbroker/investment? (age 17)?????

Below are my responses:

HOW TO READ A 10Q

Every business that has stock owned and traded publicly is required to file a quarterly statement for the benefit of its owners -- the shareholders (us).  The Securities Exchange Commission is one of those government agencies that is really quite important as a watch-dog to protect us little guys from lying dogs (and yet they still slip through the protective net and bite us from time to time.). 

The 10K is the annual report and the 10Q is the quarterly report. 

WHEN TO GET THE TOOLS

Here's a letter from Jen, who wants to know whether now's the time for her to sign up for professional investing tools.  Read on.

Hi Phil Town,

I'm a single mother (the real kind --no support, no contact from her dad) of a 4-year old.  I have a good secure 100k professional government job with early retirement (I'm eligible in 2019 -- at age of 50).  But I'm not mediocre.  I give everything plus to what I do.  The catch phrase on my evals is that I am "passionate" about what I do and this is used as a negative against me.

With 100K in student loans and my 150K mortgages, I pretty much spend every dime I make.

YOUR HOMEWORK: APOLLO GROUP (APOL)... PLUS APPLYING RULE #1 TO BUYING A SMALL BUSINESS

Here's a new homework submitted by Charlie, a computer engineer and recent college graduate.   His choice of business is Apollo Group (APOL).  Make sure to read the entire post, because he also asks for advice about a business his parents may want to purchase.

Hi Phil Town,

Thank you so much for your help. Your philosophies have made all the difference in my ability to objectively evaluate a company.

I would like to submit this "homework" to you i have done on Apollo Group (APOL). I would also greatly appreciate your feedback and possibly your objective opinion on a business deal I'm currently working on.

Apollo Group:

Meaning: Apollo group is an industry leader in the online education arena. As the cost of higher education rises, coupled with increased "blue-collar" competition from overseas, Apollo Group is in a position to educate the entire world (most notably China) in the years to come at a lower cost than a traditional university.

FOLLOWING THE FLAGS: HANSEN'S NATURAL SODA (HANS)

New homework: David's applying technical indicators to HANS. Read on. [His original letter is dated March 9.]

Hello Phil Town,

I think I am getting the hang of this (Steve's post was great).

The red line is the "flag" and crossing it is the indication.

If I am correct, today is the day that all 3 red flags are up for HANS and it would be a good time to sell.  After trading shows a bit of a bounce.

Oh, I went back and did the same analysis on another stock I owned (WDC) and sold for a loss yesterday (and after having a gain for a while).  The lines told me to have sold on the 6th and kept my profit.

Am I on the right track here?  I am using one month for the timeframe.  Should I tighten that up a bit?

Preordered and waiting for your book.  Thanks for teaching us.

David

My response:

Hansen's Natural Sodas has been smoking the rest of the soft drink industry.

GRMN: WHEN TO RE-EVALUATE A COMPANY'S STICKER PRICE

Mark is a policeman in Kansas City who found Garmin for us about a year ago.  He did the 4M analysis and determined that the business had Meaning, Moat, and Management and that the Sticker Price was $80 with an MOS of $40.  It was priced very near the MOS at the time and Mark jumped in there.  Here is his result to date:

"Looking at my account, it's reporting a net gain of 62.65%.  Much better than the .1% that same money was getting in a savings account!"

He's continued to stay on top of GRMN developments and thinks the products and moat are better than ever.  And here is his question:

"So here's my dilemma, rerunning the same numbers I sent to you in May (P/E = 25, Growth rate of 20%) and updating the EPS to its current $2.85, I get a sticker of $109... so do I sell at my first sticker of $80 or hold out for something closer to $109?"

WHAT'S A WASH SALE?

Phil Town got a question about Wash Sales often enough I thought I'd plunge in and give you my humble opinion even though I'm not an accountant... so don't take action on this in any serious way without consulting an expert to verify. 

A Wash Sale happens when you sell a stock, take a loss and then buy the same stock back all within 30 days.  Some people sell a stock to take the loss in order to offset a gain in some other stock.  The IRS is okay with that.  But if you buy the stock back right away, the IRS is thinking you want to take the loss to offset some other gain but you don't really want to take the loss... which is why you bought the stock back right away.  So they say you can't have your cake and eat it too and they disallow the loss as a deduction.  Is this a problem?  Read on.