Rule #1: Overview

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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.

I largely elected to read Rule #1 because of the professed simplicity. I’ve read a lot of investment books over the last year or two, but they all fell into one of two categories: either they required a huge investment of time or they had flaws so large that even I could see them from a mile away.

This one stood out from the others that professed simplicity in one key respect: it professed to be heavily based on the investing philosophy of Benjamin Graham, David Dodd, and Warren Buffett. In fact, the titular Rule #1 comes straight from Buffett: don’t lose money.

The book does succeed in laying down a simple investment philosophy that makes a good deal of fundamental sense. It recommends heavy use of the internet for acquiring basic pieces of financial information, then using these to easily calculate basic metrics with which to judge whether a company is going to return a strong investment or not.

This system focuses on finding sure bets and, having played with the numbers a bit, it does a great job of finding very healthy companies. There’s only one problem: the book also seeks out stocks that are undervalued and investors have gotten sophisticated enough that finding undervalued sure bets is almost impossible.

In other words, like any other financial book, this book will not make you immediately rich, but it does succeed in other areas. What other areas? For the next three days, I’ll go over some of the major premises of the book, then on Friday, I’ll issue a “buy or don’t buy” recommendation.

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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