Phil Town

Tax Time is a Good Time to Consider a Berky

Tax time means time to wake up and consider any available strategies that can help you reduce your tax liability. In my book, Payback Time, I spend a whole chapter talking about Berkies. A Berky is any investment that YOU load up with cash, invest it, and then keep loading it up with cash. The key words that turn a normal investment account into a Berky are “recurring cash.” Now is great time to consider investing in a Berky account that will give you tax-free or tax-deferred investment returns.

For example, a self-directed IRA makes a good Berky. The federal government lets you put up to $5,000 – tax-deferred – into your IRA each year. That money will directly reduce your tax liability for the year. The idea is that eventually you will pay the taxes on that money when you retire, but for most people those taxes will be at a much lower tax bracket. If you don’t have a self-directed IRA, then you should consider opening one, because it’s like giving yourself free money. Without this type of Berky, you could end up paying a lot of unnecessary tax.

You say you didn’t put in $5,000 last year? Well, then you may have paid $1,000 to $2,000 to the Feds that you could have squirreled away in a tax-deferred investment vehicle. That is a huge missed opportunity. Do that every year for 40 years and you’ve pretty much kissed off thousands of dollars.

Some Berkies can create instant investment capital. For example, instead of paying for health insurance, consider opening a Health Savings Account (HSA). With this tax-deferred investment vehicle, you could save a significant amount of money. Here’s how this Berky works: Your insurance company will give you much lower monthly premiums if you carry a big deductible because you are paying a big chunk up front before the insurance kicks in and you are heavily incentivized to not use your insurance. By increasing your deductible, your premiums go down. The difference in premium is the money you use to fund your HSA.

And here’s the monster upside: If you can stay healthy, then you get to keep the money in the HSA, invest it and use it later when you retire. And you can do that every year. Imagine staying healthy and stashing away $400 a month out of your monthly insurance premium payments into an HSA for the next 40 years. Even invested at just 8% average, you’d have almost $1.5 million when you retire – free. Hey, you can give the money to the Feds and the insurance companies or you can be fortunate enough to stay healthy and make yourself a small fortune. Your call.

A well-managed Berky that’s filled up regularly with pre-tax money – money you were otherwise going to give the Feds – can earn you to a great retirement – if you make the effort. This tax year make it a point to keep some money for yourself for next year and well beyond.

Now go play!

Phil

TV and More TV

Wow, everyone, the whirlwind continues. Just wanted to catch you up on some recent TV appearances.

 

 

MSNBC’s “Your Business”

Sunday, March 28

I’ve been on this show about 30 times and love the fact that it’s geared for small business owners.  Yesterday I sat with the show host, JJ Ramberg, and Mike Michalowicz, the founder of Obsidian Launch and author of The Toilet Paper Entrepreneur. We had a pretty lively discussion about health care reform and small business franchising and the fine art of choosing a business partner.

Watch it here:

Health Care Reform

Small Business Franchises

 

Yahoo! Finance — Tech Ticker

Thursday, March 25

In New York last week I met with Aaron Task, host of Tech Ticker of Yahoo! Finance, to talk about Payback Time. Aaron is a seasoned Wall Street correspondent; he covered Wall Street for a decade at TheStreet.com. We chatted up the fact that while the economy is down, the market is currently pretty bullish. It reminds me of the 70s. That market was ripe for finding undervalued companies and, guess what, I think today’s market is, too.

See it here.

 

 

CNBC’s “Closing Bell”

Thursday, March 25

I also headed over to CNBC to tape a segment on the exchange floor after Fed chief Bernanke stated that rates will stay low to aid the ailing economy.  In this clip, I dig in with Alan Gayle, Senior Investment Strategist and Director of Asset Allocation for Ridgeworth Capital Management and David Mann Regional Head of Research, Americas, from Standard Chartered Bank, talking about the current momentum in the market.

Take a look here.

 

 

Also, I’ve shared with you that I’ve been preparing a cool new financial cable TV show called “Payback Time TV.” A couple of focus groups are watching the pilot this week and they are going to tell us what they think. Can’t wait to hear the results! Lots of effort went into the show; it really brings the Payback Time strategy to life.  Announcements coming soon about that.

 

 

P.S. Don’t forget that the Payback Time Teleseminar series starts Wednesday, APRIL 7th at 6:00 p.m. ET. I’ll be doing four calls – every Wednesday starting April 7th – and I’ll be covering two chapters of Payback Time per call, which means we’ll have covered the entire book by the end of April. Thousands have registered! Have you? If you haven’t, just order a copy of Payback Time from my website,

www.PaybackTime.com.

 

Now go play!

 

- Phil Town

#1 on the New York Times Bestseller List – Two Weeks Running!

Wow! More good news… Payback Time hit #1 on the New York Times bestseller list for the second week in a row! I appreciate the interest being generated out there and even more, I sincerely hope that the information presented in this book can help you financially as you face these tough economic times.

 

When I wrote this book, I estimated my market place to be around 50 million people. My ideal reader ranges from the average investor who shops at Walmart to the more sophisticated investor who regularly talks to his broker. The range is enormous and I love that because all of us share one common concern – we care about our financial health. 

 

And that’s where I believe my book can help you no matter what type of investor you are, because Payback Time teaches you how to think for yourself – how to choose those “wonderful businesses” that are not only meaningful to you but have the potential to bring good returns to your table... How to take those really important steps that motivate you to become an educated investor and not an ignorant one... How it’s possible to make some special things happen for you and your family.

 

Investment knowledge is a powerful thing. I want you to have it. I want you to understand what you are facing as you prepare for the years ahead. I want you to understand that you have it within yourself to take charge of your financial condition and do some things right now that can potentially create a turning point.

 

And I’m willing to help you get to that place in your life. Remember there is still time to sign up for my Payback Time Teleseminar Series. Those complimentary calls start April. 7^th. Click here if you have not yet purchased a copy of Payback Time… Buy one and you are automatically registered for these educational outreaches.

 

It’s been a good couple of weeks… but there’s more good stuff ahead.

 

Phil Town

Phil Town Comments on Under Armour

I got this question from Mark recently, about UA (Under Armour).  Nice work. I'm going to talk about this on my new TV show.  Here's your homework:  justify a long term strategy in UA by finding a similar business that sustained 15 year growth at 20%.

Hi Phil,

First, I want to thank you for all of the knowledge you have shared with me in Rule #1 and now in Payback Time.  I have taken control of my investments for the first time and really feel empowered.  I saw you speak at the Get Motivated seminar in Denver a few months back and was immediately intrigued to learn more.  Since then, I've become the owner of a couple good companies and it has already begun to pay off.

I'm starting to gain a little confidence now and wondered what your thoughts were on Under Armour (UA). 

Phil Town Explains Payback Time and Stockpiling

The other day I received a comment from Doug, about a discussion he had with his wife.  (Click here to read his question.)  The topic: the differences between Rule #1 investing, Payback Time, and value investing.  Here's what I told him.

Hi Doug (and Ms. Doug),

I love your post.  Thank you.  First, we're not 'value' investors if by that we mean guys who buy cigar butts.  But we could be in the future if cigar butts are the way to go.  It's just that right now we still have a pretty solid economy and there aren't many cigar butts lying around, so it's too tough to make any money doing that sort of Ben Graham thing. 

We still want wonderful businesses.  So I still don't know what to call us.  Maybe "Valuation" investors.  Basically, we try to do the same thing Graham did - find the value of the thing you want to buy.  In our case (and Warren Buffett's as well) we're not just considering the net equity of the business if it dies when we look at value.  We are also looking at a business as a living thing that produces cash and will do so for a long time into the future.  That kind of business is, by definition, "wonderful" and has a much higher value alive than dead because of all that cash it may earn in the future. 

Phil Town Interviewed by ABC

Phil Town Interviewed by Maria Bartiromo

Stockpile Google?

Stockpiling anything is about knowing you have a long term durable business with a big protective moat.  The 'knowing' part of the equation is what slips by many wanna-be investors. 

In Rule #1 I suggested trading a stock with technical signals to avoid the problem, essentially, of 'knowing'.  Or rather, not knowing is more accurate.  You give away some of the profit and sometimes all of the profit when you use technical signals in exchange for not violating Rule #1 - 'Don't lose money'.  You get in with the Big Guys.  You get out with the Big Guys.  You screw up the 'knowing' and the tools get you clear of the plane wreck.  Pretty nice trade off so you can sleep at night. 

The problem is, you get cranking on tools in a down market like this one and you get the 'death of a thousand cuts'.  You go in on green and right away, mostly because you bought in, the stock price goes down.  You get out on red.  You wait.  It goes up. You get in on Green and it goes down because you bought it again (as you dang well knew it would.  "See honey, I told you it would do that.") 

In THIS market there is a better way.  In fact, if you don't like investing, in all markets there is a better way:  Stockpiling.

Payback Time, my new book, is coming out on March 2.  Go over to PaybackTime.com and order and I'll hook you up with some cool freebies.  What it's about is how to load up the truck, or stockpile, a bigger and bigger bunch of ownership in a few businesses you truly believe in.

And that is the key.  You've got to know what you can know and what you can't.  So let's get back to Google.  What can you know?  Lots of stuff.  What's more important is what you can't know.  You, unless you have a real insight into technology, can't know where this business will be in 20 years.  It has a new business model that is just crushing competition everywhere, but is it sustainable?  How fast will they grow?  Is this Microsoft in 1985?  Is this Yahoo in 1999?  You've got to know if you're going to load up on Google every time you get a chance.  You have to know that this business will be around to support your family in 20 years.  And you've got to know what it's worth.  And you've got to know if you don't know, or can't know, those things.

I love Google.  What an amazing business.  But I don't know how to know those things I have to know to stockpile Google.  Of course, I can buy it in my risky biz account.  Take 10% of your portfolio and have some fun with it on potential awesome long term winners that you just can't know what you have to know about.  But I can't see putting 20% to 50% of my net worth in a business that could be gone in ten years because of some new technology revolution. 

Yes, it could be a forever huge moat gigantic wonderful business.  But personally I can't get enough of a grip on it to say I know it.  I'm just not certain.  So it (and companies like Garmin, which I also really like) are relegated to the risky side of investing, no matter how good they look today.

Now go play,

Phil Town

How the Rich get Richer

I wanted to share a recent comment from Markus and my reply:

"Hi Phil Town, there are two points I still have not yet understood: 

1. If I only buy stocks at the MOS price I calculated using your tools, when should I rebuy, after having sold them (because of 10-days-line, MACD- and stochastic indicated to sell)? Should I wait for the stock's price fall again to the MOS-price? This might take a long time of being solely in cash and waiting for Mr. Market to turn crazy again... 

2. Should I buy a stock which has gained 50% and more during the last 6 months in a perfect stable trend but which hasn't yet reached its MOS price? I fear to buy it at the top at the end of a trend. Thank you for any reply."

Phil Town's response:

A stock is rising in price and has moved in just 6 months from $20 to $40 per share.  It is easily worth $150 a share.  Should I buy more if I have more money (assuming the indicators or FACs don't show a big down trend on the way)?  Let's check the Payback Time (more on that in my new book) because its a great check to see you're getting a true bargain but assuming that's okay and you're still below the MOS (in this case about $75) with the price at $40, of course we're buyers. This is Payback Time investing stockpiling at its most elemental.  You buy.  You buy more.  As long as I'm selling you $10 bills for under $5 you just keep buying.

This is exactly how the rich get richer.  They have the money to buy when things are on sale.  If you are careful with your money, you will also have the money to buy when things are on sale.  And if you save some each month and Mr. Market cooperates, your wonderful business will still be on sale in a month and you can buy more.

Now go play.

Phil Town

Payback Time vs. Trading

I love a thoughtful email and this is a good one (see below).  John has been doing some thinking and digging and wants to know why we shouldn't buy and hold a wonderful business we buy on sale instead of trading it.  Its such a good Rule #1 question, John, that I wrote a whole new book about it.  The book is called Payback Time and comes out in March 2010 from Random House.

The short answer is that you are right.  Its better to hold a wonderful business that you bought on sale than to trade it.  Trading has a transaction cost, can be inaccurate in the short run and will certainly cost you some of your profit.  It also has the advantage of getting you out of a stock that is about to take a huge nose-dive.  Trading is insurance against screwing up.  Its not perfect but it is pretty good insurance and it reduces the amount of effort you have to put into determining whether the business is a good one and whether you got the price/value thing right.

Payback Time presents the buy and hold strategy in a whole new light with step by step instructions for implementation.  It starts with the same requirement to get a wonderful business at a great price.  But since we're holding, we're not trading, we HAVE to get the price right.  So I bring in the concept of pricing from Private Equity that I call the Payback Time Price.  Its the price of the business that will be repaid in a very short number of years out of earnings.  The Payback Time Price keeps you from screwing up badly.

Imagine you were going to buy a private business for $1 million.  The business earns $200,000 a year after tax.  It isn't growing.  Therefore, in 5 years you have your money back (assuming you don't need any additional working capital to keep it going).  Notice that from that point on, you don't have any money in this deal.  You are playing with house money.  Your money is off the table.  Now, if the business goes south, you can't lose money.  Once you've got your money out, you are golden.