Rule #1: Buy or Don’t Buy?

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Rule #1During this final week in 2006, The Simple Dollar is reviewing one of the top investment book of the year (based on Amazon.com sales). What does Phil Town’s Rule #1 really all about, and does it bring anything useful to the plate that we didn’t already know? This week, we aim to find out.

To put it in a nutshell, Rule #1 is a simplification of the investment philosophies of Benjamin Graham and Warren Buffett. Phil Town basically takes their ideas, strips away almost all of the nuances, and leaves behind the bare skeleton of how Graham and Buffett invest. It’s simplified to the point that almost anyone could do it, for better or worse.

Of course, with such simplification comes some problems. The book’s philosophy is very good at finding companies that are going to be successful. However, it’s basically impossible to find companies this good. Companies that are so good that this method will find them are companies that large money managers have long ago discovered because they use nearly identical methods.

So here comes the recommendation: buy this book if you’re a beginning stock investor or a conservative investor. This book is loaded with great, simple metrics for finding great companies to invest in. If you follow Town’s philosophy as closely as possible, you will eventually find good companies for your money and you will make money.

However, I don’t recommend this book to experienced or risk-taking investors. Phil Town’s plan is focused on easy methods for finding good, stable companies that will make strong money over the long haul. If you’re looking for huge returns immediately and are willing to gamble to get them, go elsewhere; similarly, if you’re already familiar with Graham and Buffett, this book will be a simplification for you.

Personally, I enjoyed the book quite a lot. I tried his plan on a large number of companies and only found one that seemed to indicate that it was undervalued, and I am considering an investment in that company. Which company? I’ll reveal it in the future, as it will probably be the first company that I buy into with any seriousness as I begin investing in individual companies.

You can jump to other parts of this review of Rule #1 by following these links:
Overview
The Four Ms (and an addendum)
The Five Numbers
Implementing The Rule
Buy or Don’t Buy?

Rule #1 is the eighth of fifty-two books in The Simple Dollar’s series 52 Personal Finance Books in 52 Weeks.

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4 thoughts on “Rule #1: Buy or Don’t Buy?

  1. Thanks for reviewing this book. Does the strategy in this book really only requires 15 minutes a week?

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