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Phil Town
On the road across the U.S.
Phil Town is the bestselling investing author of RULE #1 and PAYBACK TIME.
Interests: travel, business, finance, speaking, personal finance, teaching, investing, my iphone
Recent Activity
We'll look for her, Louis!
Toggle Commented Aug 8, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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Good question. Anyone? But remember that Verisign is probably being bought by Todd, not Warren, and that the current average acquisition price is around $44, not $54, although the Q1 purchase was probably made at $54 for a pretty sizable block. Todd has about $7 billion to manage so this is about 10% of his portfolio and less than 1% of Berkshire.
Toggle Commented Aug 5, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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The problem might be too many zeros. Just knock off most of them and put in 7 for 7 million and 7000 for 7 billion.
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What a great point, Angela. Thank you. How do you see DE debt? Is it debt-debt or is it financing the sale of stuff?
Toggle Commented Jul 30, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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We use Thinkorswim.com prophet charts for all our classes. Awesome.
Toggle Commented Jul 21, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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Corollary: If you can estimate the Sticker Price 3 years from now with a high degree of certainty and the market price today is higher than that, sell. On Tue, Jul 15, 2014 at 3:00 PM, Phil Town <pbtown@gmail.com> wrote: Here is the key question about whether you should take a loss and move on: Can you say for certain that the current Sticker Price for RIG and DO is less than the current market price. If the market price is 20% above the Sticker then its time to get out. But if the Sticker is at or higher than the market price, hang in there at least until there is a better use of the capital.
Toggle Commented Jul 15, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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Here is the key question about whether you should take a loss and move on: Can you say for certain that the current Sticker Price for RIG and DO is less than the current market price. If the market price is 20% above the Sticker then its time to get out. But if the Sticker is at or higher than the market price, hang in there at least until there is a better use of the capital.
Toggle Commented Jul 15, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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Robin, Thanks for sharing your experience. There isn't a Rule One investor out there who hasn't made a mistake. Remember, Buffett bought Berkshire Hathaway, by his own account, a total disaster that was only corrected by doing exactly what you are contemplating - working to reduce the Basis through careful allocation of capital into cash producing investments. So how? First, get an inch wide and a mile deep on some industry and know your boundaries; know when you're crossing the boundary and thus in need of a great deal of research into something new.... and then do the work or don't put in the money. Students don't make many valuation errors on businesses that are in their inch wide mile deep industries. Its that knowledge about the business that is the key to knowing the value. And knowing the value is, of course, the key to buying it in the first place. If the businesses that you are 'in the red' on are in your wheelhouse (inch wide mile deep) then you can determine whether you own businesses that are worth less than what you paid or not. The current price is meaningless unless you don't want to own these businesses and are a seller; then the price is important. Otherwise, its the value we care about. For value we look to the tangible book value, the historical earnings growth and historical book value growth and, all importantly, our estimate of how well the CEO is going to allocate capital in the future; what will be the future of this business. Will it be similar to the past or better or worse or unknowable? Answer that and the value will pop out at you. And if you can't, then you're speculating, not investing. I hope that helps you evaluate your current holdings. Keep us posted on how you're doing and if you want you can seek advice about what you own right here on the blog.
Toggle Commented Jul 15, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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Hey y'all, let's back off this level of coaching here on the blog. You're going to get people in over their heads. Angela, the fact that BBBY is within 15% of the 2008 low means nothing about value and therefore nothing about MOS. The 2008 low is price. Price and value aren't the same thing. Entering with ROPs is a technique that is taught at our live workshops, not here on the blog. The fact that we're teaching advanced stuff to novice investors doesn't mean it should be repeated here. There are ramifications for every strategy and this isn't the place for that level of discussion. In fact, I rue the day I let options stray into the blog. Without proper training, options, even ROPs, have the potential for some serious ramifications that novice option investors may not see coming at all and the impact to them could be unpleasant. Let's stick to the basics here. Options are just icing on the cake, if used right and poop on the cake if used wrong. Let's not mess up the cake. Stick with wonderful and on sale. Focus on being an inch wide and a mile deep. That's really all you need to know. Everything else, if done right, just is there to speed up the inevitable results.
Toggle Commented Jul 11, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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This is good. Keep digging. Would Buffett buy this? Value? Will it double in price in. 3 yrs? Sent from my iPhone
Toggle Commented Jul 3, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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The investment is the adjusted basis if put and if not put. The risk is relationship between what the business is worth and the investment you have in it (or will have in it if put). That's the whole consideration. What's it worth? What's your adjusted basis? Some people confuse price with 'what its worth'. Thus they think 'If I get put this stock at $30, the price could be at $20 and I'm getting killed here so there is a ton of risk.' Rulers don't think like that at all. We think, what's the value? If the value is $50-$60 and my adjusted basis is at $30, what do I care if the price is $20? Unless I have money to invest, in which case, I will love it that the price is at $30. Price is not value. Price is what you paid. Value is what you got. If you're buying $10 bills for $5, where's the risk to your $5 basis if the price of the tens goes down to $3? We look at the world quite differently than most investors. Some of our students have told me its like they went down the rabbit hole. Others said its like the Matrix blue pill or the red pill. And as Buffett said, people either get it right away or they may never get it. You have to take the blue pill (or was it the red one) to see the world the way we see it.
Toggle Commented Jul 1, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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Sue, I want to correct the misunderstanding here. The sale of a naked put is, for most investors, a bullish trade. It is a bearish trade for us Rulers. For most investors it is done for a return on investment. For Rulers, it isn't; its done to reduce basis on the underlying stock position "if not put" and reduce the basis on the underlying and the new shares "if put". There are two possible outcomes when you sell a Rule One Put: "if put" and "if not put". If put, the adjusted basis is set by the strike on the new shares (typically below MOS) and the premium reduction of the original purchase (that puts the adjusted basis below MOS). If not put, its just the reduction of basis on the original shares to below the MOS. I understand how the rest of the world looks at this trade. This is a different way of viewing what is going on. This is what we mean by a "Rule One Put" or "ROP" and its why I gave the trade a new name to go with the new definition. I hope this helps you understand the difference in points of view because I don't want to see an argument about an important teaching point here on the blog. If you want to argue about it come to a TI in Atlanta and learn the trade first and then you can argue from a Rule One POV if you still care to.
Toggle Commented Jul 1, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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The best way to think about selling a Rule One Put is to sell it and pretend you bought the stock at that strike price; act as if your money is already in it at the strike. Consider the premium is only for the purpose of reducing basis - a return OF capital, if you will. For the time being, forget about a higher return. Make the initial point of reducing capital about getting your money back and putting your risk capital as far away from the actual price of the stock as possible. You should focus on risk, not return. That's the Rule One way. Reducing basis returns capital and reduces market risk and that's good; the less you have on the table, the better. In fact, consider this ideal retirement scenario: You own 10 great companies, all of which have returned all of your capital via ROPs, Stockpiling, Buybacks and/or Dividends and which, for the rest of your life, will produce a dividend return sufficient to live on that grows larger every year. That's an outcome worth taking the trouble to learn.
Toggle Commented Jul 1, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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Regarding COH: In my opinion, when a company changes its market focus from purses to everything Ralph Lauren and Michael Kors are doing without being Ralph Lauren and Michael Kors, it calls into question the Moat and its time to be very careful that you know that they are in a sustainable business model. Remember than retailers die all the time, even the best ones. That said, if you are certain you know the value, stockpiling is the way to go.
Toggle Commented Jun 30, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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Weird. Seems to be working now.
Toggle Commented Jun 21, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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TEST
Toggle Commented Jun 20, 2014 on INCH WIDE, MILE DEEP at PHIL TOWN
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Thanks for the plug, G!
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Mickey: Dig deep and don't forget to INVERT your Story and particularly this part: If Mr. Market is selling it cheap (you are saying its on sale, right?) then why is he selling it cheap? There has to be a reason. If there is no reason, keep digging. There is a reason. Your job is to find out what it is and then determine if the reason is short term or long term. If its short term then indeed this might be on sale. If its long term or you can't figure it out, my unsolicited advise is to avoid owning it. Never own anything you don't understand well enough to know why Mr. Market has incorrectly priced it.
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Thanks Brian. Good points, both. Sears and K-Mart are dealing with the fact that the US main street consumer is deleveraging and therefore consuming less. While the Tiffany consumer is back, the little guy isn't doing as well and that translate into fewer dollars going to the mid to low-end stores and that translate to some wicked price cutting competition. Low Price is only a Moat if you have the low cost locked in. Sears and K-Mart didn't and that makes life in a recession a day to day struggle for survival.
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The website has the correct number of shares for the BP ADRs on the Stock At A Glance page but the Details page shows a wrong number. The correct number of shares is about 3.5 billion for the ADRs. The 2012 number on Details is correct but the 2013 number is using the British shares of 20.5 Billion and is wrong. We're working to change it with our data provider. Einhorn (and I) think the true Z is in the $70-$80 range. Only the value of Proved deposits is calculated and that at cost. At $100 per barrel oil, the value is much, much higher. If you are looking at oil stocks you have to read the 10K for BP and XOM back a few years and get an education in how oil is put on the books. You'll notice, for example, that XOM has a lot of 'oil equivalents' in its assets ... meaning its finding a lot of natural gas and liquids instead of oil ... and its putting that on its books as equivalent when its only equivalent energy, not value. If you're going to buy an oil stock (or any stock for that matter) you have to read a lot to get to be a bit of an expert in the industry. Its part of the 4Ms: Meaning, and its probably the most important part ... like being in shape is basic to playing football well. Its not the game but you can't play the game without it. That's what Meaning is to the 4Ms; basic and fundamental. From there you go on with that base to studying the durable Moat and the Management team and then the MOS. So enjoy the reading, guys. My wife, Melissa goes to sleep nearly every night with me reading her off with 10Ks. They are amazing sleeping pills.
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Good discussion. Zombie is indeed modified by any 'non-real' item in assets like goodwill, cost in excess, intangibles .... And how the assets are valued by the accountants is important. For example, real estate GAAP accounting requires that it be placed as an asset at cost less depreciation. Companies like Alex Baldwin in Hawaii own huge chunks of land that was acquired in the early 1900's and is on the books at those costs. Read the small print of the 10k for an education if the Z value is important in your valuation model.
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Be sure that for BP we are all using the ADR shares, not the British shares. BIG difference.
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There is a right price for COH but be careful. Their management team is trying to change the very nature of the company. That changes the story considerably because it adds uncertainty. And no question that the brand is damaged and going down-scale.
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The key to buy backs ending up in your pocket is that the value of the company is staying the same or increasing over time. If the company is buying back shares at the same rate the value is deteriorating, you're getting nothing except a transfer of cash to ownership. If the value stays the same and the number of shares are halved, then you get the benefit.
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Joe, with buy backs intrinsic value PER SHARE should go up, not intrinsic value, right?
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