Book Review: Rule #1 by Phil Town

I read the book Rule #1 by Phil Town while waiting for an oil change. As a book, it’s been a success. It received 4-1/2 stars from 156 customer reviews on Amazon. It got on the BusinessWeek Best Seller List. It also got an endorsement from the former SEC chairman Arthur Levitt on the back.

However the first sentence of the book doesn’t pass the smell test.

“This book is a simple guide to returns of 15 percent or more in the stock market, with almost no risk.”

Really? Even Madoff couldn’t pull that off with a Ponzi scheme going. Madoff only gave 10% – 12% returns. The book’s inside flap says

“In this book I’ll show you how I turned $1,000 into $1 million in only five years, and then proceeded to make many millions more.”

I don’t know whether it’s true he turned $1,000 into $1 million in five years, but why stop there? Why not turn $1 million into $1 billion in another five years and turn $1 billion into $1 trillion in another five years? Oh, by the way, do you know what the annual percentage return is if you turn $1,000 into $1 million in five years? 298%.

Rule #1 is Don’t Lose Money. Sounds good. Nobody wants to lose money. The four straight-forward steps for Rule #1 investing are:

  1. Find a wonderful business [TFB: OK, there are plenty of them.]
  2. Know what it’s worth as a business [TFB: Easier said than done.]
  3. Buy it at 50 percent off [TFB: Like that’s going to happen often.]
  4. Repeat until very rich [TFB: Doing it once, maybe. Repeat? Forget it.]

In Rule #1 investing, you are supposed to find great stocks at attractive prices. That’s not new. Everybody wants to buy great stocks on sale. The books says you use “Four Ms” to find these stocks: Meaning, Moat, Management, and Margin of Safety. The bulk of the book explains how to gather data and apply the four Ms using web sites like MSN Money.

The case study of a fictitious couple Susan and Doug Connelly is the most hilarious. The book makes it sound like the Connellys are real, not made up, but I doubt it. The couple love food and eating out in restaurants. So they researched restaurant stocks and chose The Cheesecake Factory (CAKE). Then the book conveniently had them buy the stock at a low point of $18.90 a share in Feb. 2003. They put their entire retirement savings into this one stock. Now get this (emphasis added by me):

“By getting in just below $19, and then moving in and out 11 times in two years with the big guys, and by adding in $500 a month they were saving, by July 2005, CAKE gives Doug and Susan a nice compounded rate of return of 56 percent per year, and their $20,000 is now worth $78,000.”

Man, if it were that easy! I’m speechless. Looking back into history, you can always concoct a story and hypothetical trades that make an investment profitable. You may even get lucky once. Then the book goes on to say:

if they continue their savings and Rule #1 investing, by the time they retire, they’ll have grown their nest egg to almost $1,500,000. From that point on they’ll have to figure out how to spend an investment income of more than $220,000 a year.”

An investment income of more than $220,000 a year. Yeah right. I hope you didn’t miss the most important word “if.” If the Connellys are real, I’d like to interview them and see where they are now on their journey to $220,000 a year in investment income. Doing some stock trading using some “fun money” is fine. Betting the farm on Rule #1 is down right reckless.

I can tell you the book market is not efficient. Books like Rule #1 make big sales because they sell hope and dreams. I’m not saying all best sellers are bad. But many bad books make to the best sellers list because they are marketed well. Saving money by making lifestyle sacrifices is too hard. Investing in index funds is too slow. People would rather believe in picking great stocks and figuring out when to move in and out. If you pander to such desire, you will have a successful business.

0 star. Don’t waste your time.

Refinance Your Mortgage

Mortgage rates hit new lows. I saw rates as low as 3.25% for 30-year fixed, 2.625% for 15-year fixed, with no points and low closing cost. Let banks compete for your loan. Get up to 5 offers at

FREE E-mail Newsletter

Join over 3,000 readers and get new articles by e-mail:

No spam. Unsubscribe any time.


  1. Geoff says

    “moving in and out 11 times in 2 years”

    LOL. If this is a bestseller, I think I need to become an author. That advice is downright atrocious.

  2. Pelon says

    So that’s what I’ve been doing wrong! I’ve been buying bad companies at twice their worth. Maybe I’ll give his ideas a try.

  3. Pablo says

    Thanks for reviewing this book; it sound like utter garbage. I’m surprised that Arthur Levitt actually endorsed this book – his credibility falls a few notches in my estimation.

  4. Harry Sit says

    Pablo – I was surprised by the Arthur Levitt endorsement as well. These are the exact words on the back of the book:

    “Extraordinarily readable … provides investors with surefire tools to outperform costly advisors. Follow Town’s simple, time-tested precepts, and even unsophisticated investors will leave most mutual fund managers in the dust.” – Arthur Levitt, author of Take on the Street and former Chairman of the Securities and Exchange Commission

    If I *have to* choose between Rule #1 and a costly advisor, I’d choose a costly advisor.

  5. DoneToZen says

    I read the book. I, too, thought that much of the advice was easier said than done (find a business that is selling 50% below its value enough times to turn $1000 into $1 million? Seriously?) but I think that the book still has value if you keep the lookout for such businesses. You might not find enough to turn $1000 into $1 million, but if you look long enough, especially in today’s market, you might be able to find a couple that will give you excellent returns.

  6. Harry Sit says

    @DoneToZen – Yes, you might be able to find a couple once in a while. But do you have enough conviction to dump 100% or a substantial portion of your investment into those handful of stocks, like the book said you should? Do you also trust the MACD, Moving Average, and Stochastic signals to trade into and out of those stocks? If not, it doesn’t really matter if you are able to earn 50% return on 0.1% of your assets.

  7. milt tomkins says

    The beauty of the Madoff scheme was that he “only” promised 10% a year….but anyway. This book is ok in my book..(pun)If you pick up just one idea from it, you can make money..It seems anyone thinks they can trade …but will more than likely get killed doing so… ….I learned a lot more about forex and stock trading strategies from 2 other great books. Hedge Fund Trading Secrets Robert Dorfman and Richard Arms’..STOP AND MAKE MONEY….both are riveting and very informative. You should check them out if you truly want to learn some great strategies that actually work

  8. Slow Reader says

    You read the whole book while waiting for an oil change? I take it you don’t get your car serviced at Jiffy Lube?

    I know I’m a slow reader, but this really makes me concerned about my skills!

  9. Harry Sit says

    Slow Reader – Unfortunately there was a long wait at the dealership when I went. Also I read fast when a book doesn’t make much sense.

  10. Phil Town says

    Dear TFB:
    As the author of Rule #1 I thought I’d respond to your criticism. First, you seem to suggest that ordinary people are not capable of buying good businesses when they are on sale, but it really isn’t rocket science, as Rule #1 tries to make clear and as thousands of successful amateur investors can testify. Certainly you are right that not all businesses are possible to value, but some are obviously undervalued by the market simply because some businesses fall out of favor. Those are fairly easy to spot. REITs, for example, were priced at about 75% of Net Asset Value in 1980 but were at about 140% of NAV in 2005. If the market doesn’t misprice things, how can that disparity exist? Right now you can buy Burlington Northern Railroad for about a 25% discount to the price Warren Buffett bought in at throughout 2008. You’d have to argue that Buffett doesn’t know what he’s doing or agree that the market can take a short term view to its long term detriment.
    BNI is undervalued now simply because it carries coal, commodities and far east shipping, all of which are in a down cycle.

    In Rule #1 I argue that ordinary people, the same people who run their own businesses and take care of their personal finances are capable of making much better decisions with their money than most of the professionals they are giving their money to.

    And, although you not alone in criticizing the idea that you can regularly buy a good business at 50% of its retail value, it happens often enough to make it the fundamental concept for the best investors in the world including Graham, Buffett, Graham, Lampert, Greenblatt, Ruane, Nygren and many more. In fact, Buffett once said that this principle is the single principle of investing used by the best investors for the last 100 years and it will be the foundational principle for great investors for the next 100 years.

    Regarding Madoff – what made him suspect wasn’t his rate of return. Many professional investors have done better and in fact, did better over the same time period. Eddie Lampert, for example, did 29% through the same time that Madoff did 14%, Buffett did 22%, Lou Simpson did 22% and Joel Greenblatt did 50% compounded. What threw up the red flag on Madoff was no one knew how he was doing it and it was too consistent. Everyone else’s strategy is transparent.

    And finally regarding using technical signals: I encourage novice investors to use technical signals with fundamental and value analysis until they are really good at the latter. Tech signals are a great insurance policy against getting the value wrong. You can even use them successfully on mutual funds in your 401(k). Had you been using these three simple signals (set up for funds) on Fidelity Magellan mutual fund for the last 8 years (or any other broad market fund for that matter) your compounded rate of return would have been above 10% per year for the last 9 years. On $100,000 invested in 2000, that ROI creates a portfolio worth about $235,000 today (assuming no tax). Without these tools, a buy and hold strategy has, to date, lost you about 30% of your portfolio and your $100,000 is now worth $69,230. It seems to me, in a market that is decimating the ‘buy and hold’ strategy, a change of strategy may be useful to consider before its too late.

    And finally, your comment that you ‘read fast when the book doesn’t make much sense’ might be a tad harsh considering Rule #1 has been positively reviewed by the New York Times and Publisher’s Weekly and endorsed by the publisher of Forbes, the senior editor of BusinessWeek, the former head of Microsoft, CNBC’s Jim Cramer and the former head of the SEC, among others.


    Phil Town
    [email protected]

  11. Harry Sit says

    Phil – Thank you for your detailed comments. Buying good stocks on sale is not new. Knowing for sure they are on sale as opposed to being false value is the challenge. Let’s mark Burlington Northern down and see how it goes. Would you mind giving out four more stocks that are on sale right now? I promise to track them and report the results annually.

    I also have another question. Are Susan and Doug Connelly in the book real or fictitious? If they are real, can you ask them to contact me?

  12. Phil Town says

    Dear TFB,
    Agreed, my friend. Knowing the value is the trick. Regarding BNI, I’m hoping it goes down like a brick because I look at it as a $90 value that I’m buying for $63, $50, $35, $20…. and so on. Each successively lower price is an accelerant to compounded returns. So, like Kenny Rogers, let’s not count the winnings ’til the dealings done. Like 10-20 years.

    CNBC wanted me to do a show like Jim Cramer’s that gives out stock advice. I just couldn’t do it. Their time frame is just too short. In my next book, UP! (Crown, September 2009) I write about the concept of consuming stocks – buying a stock on sale and then hoping it goes down. This is the heart and soul of high compounded returns. It requires really knowing your stuff, nailing the value and then steadfastly ignoring the fear and buying as the market bails out.

    But the catch is, you can’t do that and tell the world to buy at the same time. Encouraging other buyers has the unfortunate tendency of driving prices up, not down. For that reason, I’m going to decline your offer (other than to spout off about BNI since Buffett has already made it quite public) but I’ll be happy to let you know what I’ve bought when I’m done buying. Might be a while though. This is a load up the truck market and will be for quite some time.

    I will also say that anyone who can blithely list off a bunch of stocks they think are on sale is either much smarter than I am (not so remote a possibility) or not nearly well enough informed to be offering that advice. In my defense, I will say even Buffett is focused on a relatively few industries. Us normal folks do well to remember what Mark Twain said: “Put your eggs in one basket and then watch the basket.”

    All the best and keep up the good work. There are a lot of hurting people out there right now who need a new plan.


  13. Harry Sit says

    Phil – Thank you for stopping by again. So you’ve given yourself 10-20 years of wiggle room. If your picks go up, you claim victory like you did for the Connelly’s (I note that you ignored my second question). If they go down, you say you wanted them to go down and the time is not up yet. I got it. There’s no way to prove you are wrong. 20 years later, if I followed your rules, it becomes moot to prove whether you are right or wrong because if my investments had poor returns you certainly won’t cough up the difference.

  14. Phil Town says

    Dear TFB,
    I’m sorry if my response seems facile or evasive. Its not meant to be. No one can predict the short term direction of the stock market so trying to game it like my friends do on CNBC is just entertainment and pure speculation. It isn’t investing. Investing is what people do when they own a private business. Its something long term that doesn’t depend on the short term emotions of the market. Most owners of private businesses have a very good idea of their business value but could care less what the current price is because they aren’t selling. In a given 5 year period, the selling price of the business could flucuate quite a lot depending on the economy and might even be less than what they have invested for a time. But with more time a good business, will eventually see the market price equal or exceed the value.

    Same thing with us. We invest in good business like Burlington Northern, something with a quasi-monopoly, something durable. We buy when its out of favor for reasons that have nothing to do with its fundamental business model. Like right now. We know the value of the business. Not exactly but within reason. In this case we note that at $63 a share the cash flow will get us our money back (if we owned the whole thing) in less than ten years and from then on we’re playing with house money. That tells us the value is quite a lot more than the price. If the PRICE goes down, we buy more because we know the value isn’t going down, just the price. That means every new dollar we put in is going to accelerate our return by lowering our overall cost of the business relative to its value.

    I wish I could tell you for sure that BNI will be making us money in 3 or 5 years but I can’t. I can tell you that at this price if I bought the whole thing in just a few years I’d have my money back in my pocket from its cash flow and then whatever value there is in the business would be pure gravy. Or, alternatively, I cold use the cash to build more track, buy some smaller railroads and expand my business which will increase my cash flow and ultimately make my business worth more.

    I know that its quite likely if the recession deepens and the bailout package has little effect, baby boomers will start pulling their money out of the market, lowering the DOW into the 4000-5000 range and it may wallow along in a range of 5000-10000 for years. Eventually, however, it will recover and when it does the price for BNI will explode upwards and, eventually, our re-invested cash flow will pay off in a much higher valuation, just as if we owned the whole thing.

    There really isn’t any other way to look at it, my friend. Hoping an index will go up isn’t an investing strategy in this market. Trying to predict the short term price on any company isn’t an investing strategy in this market either. Both of them are sales strategies. Something to do to get people to buy what the broker is selling.

    And no, I won’t cough up the difference if you buy what I’m buying and you lose because that is a loser strategy, too. That’s like raising your kids based on what other people tell you to do. Its your responsibility to make those kinds of decisions on your own. I can point you in the right direction but if you don’t do your own homework and you lose, you have no one to blame but yourself. If I buy BNI simply because Buffett is buying it I’m not an investor, I’m a speculator. (Its not a bad bet but it is a bet rather than an investment and its important to know the difference). If I lose on BNI can I really blame Buffett? I don’t think so.

    At the end of the day, what makes the difference between investing and gambling is knowledge and that is what makes your blog valuable. You’ve created a forum for ideas to be exchanged and that helps people learn.

    Well, man, I’ve plugged away at this as long as I can. I’ve got to get back to editing my next book. We may not agree but I’ve enjoyed the discussion and I hope your readers have had an opportunity to see another point of view.

    I wish you great success with your investments.

    Now go play!



  15. Pelon says


    I agree that the market can be wildly inefficient in the short term, and what matters to most of us is not what the market does tomorrow or next year, but what it does over a long time horizon. Since we don’t all want to wait 10 to 20 years to see if your recommendations are correct, we need to find another way to evaluate your strategy. I see on your website that you borrowed $1,000 and turned it into $1,000,000 within 5 years. Could you please give us the list of the trades you made during that time period so we can see your strategy at work?

    With regards to Burlington Northern, how do you know what their cashflows will be over the next ten years? You can guess, but how do you know? How can anyone really know? Why is your guess better than the guy’s who is willing to sell?

    Like most people writing investment books, you invoked Warren Buffett’s methods, but why don’t you mention his often repeated advice to individual investors? Here are just some of his many statements:

    “A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money,” Warren Buffett

    When a shareholder asked for the single best specific investment idea Buffett could recommend to an individual in his 30s, Buffett said: “I would just have it all in a very low-cost index fund from a reputable firm, maybe Vanguard. Unless I bought during a strong bull market, I would feel confident that I would outperform … and I could just go back and get on with my work.”

  16. nomad says

    I stumbled across this site while attempting to discover the release date for Phil Town’s next book. Apart from kayak fishing sites, I’ve never been particularly interested in web discussion pages. However, this one caught my eye.

    My educational background is in the physical sciences and frankly business has always bored me to tears. However, when I realized that the mutual funds recommended by my CPA in 2002 were worth the same amount as my original cost I figured it was time for a change. My only problem was that I knew absolutely nothing about investing in anything; much less the stock market.

    About a year ago I heard Phil Town speak at a seminar, bought his book, and began investing in late October of 08 using his techniques. Against Town’s advice, I skipped paper trading and jumped right into the market. Since that time (roughly 3.5 months), I’m up 6.5 percent overall. The only two stocks that I’ve lost money on are ones that I gambled on based on the CNBC’s “money experts'” predictions. Incidentally, the two stocks didn’t fall within the parameters of Town’s method. If you factor out the aforementioned 2 stocks, I’m up about 10 percent in 3.5 months with Town’s stocks.

    I know what the arguments will be and frankly at this point they’re not unfounded; far too short of a time-frame to mean anything, beginners luck, etc. For that matter, I don’t know if this strategy is going to work long term myself. However, I do know that Town’s strategy has worked so far, I plan to use it exclusively in the future, and I would have made the same returns on my 02 fund investments if I stored my money in the attic.

    Provided this discussion remains open, I plan to come back to this site about every quarter and let you know how my returns are using Town’s method. Downstream, we may find that I’ve lost large sums of money, I’m a science guy who got in way above my head, and the authors of this discussion page are sarcastic geniuses. However, if I do well as an absolute novice navigating this treacherous market, the joke won’t be on me.

  17. Harry Sit says

    nomad – You give too little credit to yourself while giving too much credit to the book discussed here. Your positive return so far has a lot to do with your timing, October 2008, when the stock market made a low toward the end of that month. My investment in a mutual fund is also up 10% since I bought it on Dec. 5. I can assure you it had nothing to do with the book because I hadn’t read the book at that time.

    The discussion will always be open. Please do stop by and give us updates. Don’t be like that guy I followed for magic formula investing. When the time got rough, he stopped updating his charts. Regardless whether Rule #1 is a superior strategy, I hope you do well, even if it proves I’m wrong. Should I set reminders to e-mail you every quarter?

  18. nomad says

    Before we go any further here, I think it is important for everyone to understand just how green I am when it comes to the investing game. I had to take one business administration elective for a degree in Biomedical Science and other than that I took high school economics. The simple fact is that the only investing education I have comes from reading Rule Number One.

    While my ego would love to accept the notion that I have some intrinsic ability to time the market, I don’t think it is a reasonable conclusion. I took a look at my trading history today and discovered that I entered the market on 10-30-08. At that time, the Dow was at 9180. My calculations revealed that the Dow has dropped 14 percent since 10-30-08 and dropped 6 percent between 10-30-08 and 12-5-09; the day you bought your fund. Maybe I’m wrong here but it looks to me like market conditions forced my investments to work a little bit harder than your fund. Your timing was better than mine. That’s not to be unexpected because I don’t recall Town writing about when to enter the market with respect to the averages. Essentially the book suggests a method of how to find good companies, how to figure out what they are worth, how to know when to buy them, and especially how to know when to dump them. The buying and selling is based on the charts and not on the index numbers. I should say that, as it stands right now, I’m content selling based upon my charts.

    I reviewed my trades to make sure that the 10 percent number I quoted was real and in fact I’m up about 10 percent on my Town method stocks. I do admit that it was tough to ascertain the exact figure given that I’m running two IRA’s and an individual account with a couple of non-Town dreg stocks mixed in. However, I’m up right around 10 percent in 3.5 months.

    I understand that I could fall flat on my face in the upcoming months and should that happen I will be happy to update the post every quarter for a couple of reasons. First and foremost, I’m not accustomed to being hood-winked. The naive don’t last very long in my line of work. While I don’t anticipate the revelation, I want to know if I’m dealing with a snake oil salesman. That being said, I don’t have any to reason to believe that things are awry at this point given the 10 percent gains in 3.5 months in a market that has dropped 14 percent. I didn’t start investing to join a group or search for some sort of hero; I do it to make money. Should Town’s method not work, I will be compelled to this site to look for a new strategy.

    I would appreciate and e-mail reminder.

  19. Harry Sit says

    nomad – Thank you for remembering to stop by for an update. Is that +12.3% from your Oct. 30, 2008 entry point or from when you last wrote on Feb. 12? The fund I bought on Dec. 5, 2008 is up 26.8% since I bought it. I wrote about that purchase back in December. The symbol of the fund is PCRDX. With reinvested dividends and year-end distributions, my cost is $5.48 a share. The latest price is $6.95, up 26.8% in five months. I haven’t done anything to it since I bought it. You said I have a 6% advantage because of timing, but still … You see it’s possible to get a good return just because of luck.

  20. TravelingHeelFan says

    TFB- – Great blog. It’s always good to see someone else’s point of view. As for Rule #1 investing, it has worked great for me. Since 2006, I’m up 20% per year on a compounded bases. I picked up the book back in early 2006 at an airport and read it over a long international flight to Europe. It was the first book that made sense to me on evaluating companies. The hardest part of the process was finding companies that fit the Rule #1 profile. As for the technicals that the book describes getting in and out of stocks, that may cost you commissions and taxes but I’d rather pay that “insurance” as Phil calls it rather than see stock go from 50 to 100 to 2. Don’t think that can happen, look at GM. If buy and hold works for you, fine, but it didn’t for me. I lost too much money from 2000 to 2002. Buy and hold went out the window for me back then. All I know is if I had bought and held the S&P dating back to early 2006 when I adopted Rule #1 investing I’d be down about 30% as of today. I like the returns Rule #1 investing has brought me so I think I’ll stick with that for now.

  21. DaleK says

    Just comment spamming so that I receive follow-up comment notifications. I’m curious to see how nomad does!

    I’ll probably pick up the book and try the paper thing first. Still kinda antsy given I lost all I had in 2000 because I was stupid enough to buy on a “tip”. So, I’ll be playing with paper money this time around for a while.

    One of the reasons I lost money was simply because I didn’t have enough confidence in my knowledge and abilities. I was pretty green. Had I done more reading I might have listened to what my gut, and probably iirc what the technicals were telling me at the time – which was, “Are you insane? Don’t buy that!”

    In general – regarding investing or anything in life – I prefer to listen to many different perspectives, use what works for me, and leave the rest.

  22. nomad says

    I’m up 28.6 % right now. As I mentioned earlier, I have two IRA’s and an individual account that I work. I just cashed out the individual account and bought a boat. Therefore, my future numbers will reflect the two IRA gain/loss numbers. However, the 28.6 figure factors in the individual account at the time of withdrawal.

  23. Harry Sit says

    Hi nomad – Thank you for stopping by again. The fund I mentioned in comment #20 is up 43.0% since I bought it on 12/5/2008.

  24. junebug says

    your a rule #1 hater.. stop bragging about your investment and admit that mr towns methods work

    Junebug aka rex in effects aka mr crash bandit

  25. Brian says

    Interested to see how the battle between you and nomad works out. I notice nothing from the two of you for the past 5 months. Did both investments buy the farm? I’d think the way market has run since then (+ approx 800) that general float would have benefited both of you…

  26. Puxatowny Fill says

    This book is so boring, maybe I should bring it to jiffy lube just so I can finish it quickly and comment thoughtfully.

    Seems to me, Fill is selling hope so he can go yachting again on his kayak. Get Real People! Sell something that makes life better for people-you’ll have enough money.

  27. Mark says

    I noticed that this blog does not include any dates for when the comments were made, but they appear to be sometimes months apart. I also bought both of Phil Town’s recent books (Rule #1 and Payback Time) and have wanted to believe in his methods. I also attended one of his two-day seminar. I have only paper traded with these guidlines, with some pretty good success, although I realize that that this could be due to dumb luck, or the fact that the market is generally up this past year. I will say I am really troubled to hear that Town seems unwilling to share his past record with anyone. It should be pretty clear to him that the success of his books have at least as much to do with his trading success (as well as the trading success of the family he cites in both books) as it does to his method-arguably more so. It is that very proof as was offered in the book-that kind of profit potential that people are buying into, myself included, and not just his method. It would be a bit of a paradox indeed if it turns out that the system works, but the salesman has never achieved the success he claims. Come on Phil, we spent good money on your books, and have made you fairly wealthy as a result-we are entitled to the truth. Show us the proof.

  28. SJS says

    I stumbled on this thread about 18 months ago, right after Rule #1 was recommended to me…..I held off on commenting, but I’ve been actively investing since then…

    1) His system of identifying solid companies that have been trading at a discount is a good one. Instead of finding companies that have meaning to you and then analyzing them, I would suggest using a stock screener and working backwards. is a good website for this (I have no financial interest in this site). This methodology has lead me to stocks like VAR, DLB, CMG, BIDU, and ISRG. You can look up for yourself how they’ve done.

    2) The three tools he talks of is overly simplistic and actually lost me money on occasion, either by getting me into the stock too late, or stopping me out right before a huge upswing. It is no surprise that he abandons this approach in his next book Payback Time.

    3) More recently, I’ve read some other great technical analysis books that have given me a slightly longer term perspective on “getting in and out with the big guys.”

    4) Using technical analysis with fundamentally sound companies seems to be a good way to go for me personally, since it does offer an aura of protection if your fundamental analysis is slightly flawed and the stock tanks and stays depressed (making a stockpiling strategy worthless). Furthermore, if stocks extend way past their fundamental value, you won’t sell based on some arbitrary calculated number, only to watch it continue to sky (check out Amazon’s stock).

    • Peter says

      You wrote, ” I’ve read some other great technical analysis books that have given me a slightly longer term perspective on “getting in and out with the big guys.”
      Would you be willing to share some book titles that maybe others would benefit from?

    • SJS says

      Sure thing! Also, please share any other books you guys have used…I’m always willing to learn more.

      How to Profit in a Bull and Bear Market by Stan Weinstein is probably the most helpful one I have read… a few others were a little too dense for me info wise…

    • Peter says

      That Weinstein book was on my reading list, so that’s even better that you recommend it. I’ve ordered the book by Oneill on the CAN SLIM stuff, just to gain a new perspective. I figure knowledge is knowledge and even if I don’t use everything, I’ll have learned something. Any thoughts on the Can Slim? Sort of sounds like a diet plan to me.

  29. SJS says

    Also, since buying Payback Time and registering on the site, I’ve been contacted a few times regarding “investment opportunities.”

    One of these schemes essentially involved buying debt from collection agencies and trying to collect it yourself!

    If you are reading this Phil, why sacrifice your credibility by selling questionable products and services?

    If your investment advice is as successful as you say it is, why grovel for the extra $$?

  30. Peter says

    Of course Phil meant to be “evasive”. When you ask twice if the Connelly’s are real or just a made up example and the question is ignored, twice, then that is clearly a refusal to answer. What else could it be? Silly and naive to think otherwise. It’s certainly fine to include made up examples in a book to demonstrate a process, but when those examples seem too real and you ask the author and he refuses to say, that is a red flag as far as I am concerned.

  31. SJS says

    I could care less if he answered the questions about the Connelly’s or not….. the real question is does his system work?

    So I’ve been at it for a little less than 5 years now, using paper/small dollar investing for the first 2.5 years and and have invested much larger sums of money the past two years mainly.

    I used to screen stocks based on Rule 1 numbers (again, I have no financial interest in this site) and then use longer term technical analysis to help me set stop losses.

    Over the last 5 years, the S and P has gained 77% or so. I’ve done roughly 135%. Companies that are responsible for most of the gains are LL, GILD, AAPL, DECK, CTSH. I’m still holding AAPL and CTSH, sold off GILD (like a moron), and got stopped out of DECK and LL (thank God!).

    Yes, we have been in a screaming bull market, but without this system of screening for financially sound companies, there is no way I would have felt comfortable putting in large sums of money into any of these companies.

    I have to say that I am extremely thankful for being introduced to the Rule 1 philosophy and am definitely going to continue using it. I also highly recommend it to the novice investor looking to learn more about how to pick solid companies…..caution however that you need to maintain a ton of discipline to avoid chasing stocks that don’t exactly fit the selection criteria.

    • Peter says

      Oh I care, as most of us do in this small investment group we have. Not for the sake of contacting the Connellys, or even in the sense of having to know they are real for the sake of knowing if they are real, but in a credibility sense. If an author is deliberately evasive when asked a direct question regarding his work, it begs the question “why?”. Why not just simply say, “no, they were just used as an example”. Or “yes, but the names were changed”, etc. He was asked, he ignored the question. Then reminded again he didn’t answer, and again didn’t answer but said he wasn’t be evasive. I mean, come on. The system might very well work, and yes, that’s the most important thing. However, author credibility is worth considering.

    • ddp says

      To: Rule 1 users,
      I read an article that seemed to test his 3 technicals and they suggested moving the MA to 30 days and there would be less triggers. I looked at a few historical stock charts and it made sense.
      Question: I don’t do all the due diligence research and I accept his analysis and numbers (clicking through the disclaimer). Since I don’t have the confidence yet in these choices, I am buying small units rather than ~8 companies these types of investors’ models suggest. Also I consider looking at Vanguard and Schwab ratings of the stocks to get a sense of their agreements with the Rule 1 calculator of green price.
      Comments? (if you are going to trash the method, please be specific and civil, Thanks)

  32. Michelle says

    I noticed you mentioned holding CTSH. I recently bought them as well during a “buy” signal on that S2O site but now they are losing me money. The indicators don’t say sell yet so I think I’m supposed to hold on for the ride, is that right? Maybe it’s just my ERI kicking in but it seems like I’m breaking rule one.

  33. SJS says

    I found that the technical signals that Phil Town suggested in Rule 1 don’t work that well for me as I was getting whipsawed in and out. I use longer term technicals which fit my personal investing style a little better.

    CTSH is a solid company with solid financials, and is still undervalued. My bias would be to hold onto it. Currently, it is around 62.50, and well above the 200 day moving average, so it is a hold even by long term technical standards.

  34. William says

    The finance buff gets renumeration when there is controversy, not simple answers. Why else would there be such emotion driven arguments?

Leave a Reply

Your email address will not be published. Required fields are marked *