Don't lose money

How to get high returns with low risk? Phil Town offers an answer in `Rule #1' (www.crosswordbookstores.com), a book that guides you to `returns of 15 per cent or more in the stock market, with almost no risk.'

There are only two rules of investing, Warren Buffett would say. "Rule #1: Don't lose money... and Rule #2: Don't forget Rule #1."

The first rule can work for the majority, assures Town. It is easy to learn, and you don't even have to be that smart, either, he says.

How not to lose money? Invest with certainty, says Town. "Certainty comes from this: buying a wonderful business at an attractive price." Wonderful implies three Ms, viz. the business should have meaning, moat, and good management.

The business must have meaning for you, and reflect your values; "you understand it enough to want to own the whole thing if you could." Moat refers to the criteria of financial strength and predictability.

Business that is wonderful isn't enough; the price has to be attractive, meaning `a very big margin of safety,' the fourth M.

Thus, the `four straightforward steps' of Rule #1 investing, according to Town, are: find a wonderful business, know what it is worth as a business, buy it at 50 per cent off, and repeat until very rich.

Rule #1 is just about being a good shopper, cheers the author. "There are opportunities to buy wonderful companies at attractive prices - they really do exist - if you're willing to do your homework and say good-bye to mutual funds."

Meaning is important, because you buy a business, not a stock, the author reasons.

To infuse discipline into investing, he lays down the 10-10 rule: "I won't own this business for ten minutes unless I'm willing to own it for ten years."

The rule doesn't, however, preclude you from buying and selling the business over and over; rather, it makes you think as a long-term investor.

Identify your list of `wonderful' companies using three circles: passion (`what do you love to do, professionally and as recreation'), talent (`what things are you really good at'), and money (`what do you do to make money or what do you spend money on').

See how the words that show up in the circles point to a product, an industry, or a certain business.

"Anything that's in two or all the three circles is something you probably understand much better than most of the rest of us. It's probably something that has meaning to you, which automatically makes it an industry worth researching."

Elsewhere in the book, you'd read about `the three tools' to help you "have the courage to grab the stick from Mr Market, which is a good thing because we don't want Mr Market to beat us... "

Too imperative to ignore.

http://www.blonnet.com/iw/2007/06/17/stories/2007061701331200.htm