Rule #1 - Phil Town

Question 1

What are the 4m’s

Answer 1

meaning
good Management
a Moat
MOS - Margin of safety

Question 2

meaning

Answer 2

1) do you want to own the whole business and 2) do you understand it well enough to own all of it?

Question 3

10-10 rule

Answer 3

I won’t own this business for 10 minutes unless I’m willing to own it for 10 years

Question 4

3 ways to choose companies

Answer 4

1. What do you love to do professionally/recreation. 2. What things are you really good at? 3. What do you do to make money and what do you spend money on

Question 5

5 types of moats

Answer 5

• Brand - a product you’re willing to pay more for because you trust it - eg. Coke, Gillette, Disney, McDonalds, Pepsi, Nike, Harley Davidson
• Secret - a business that has a patent or trade secret that makes direct competition illegal or very difficult - Pfizer, 3M, Intel
• Toll - a business with exclusive control of a market - giving it the ability to collect a “toll” from anyone needing that service or product - media companies, utilities, ad agenicies
• Switching - a business that’s so much a part of your life that switching isn’t worth the trouble - ADP, Paychex, H&R Block, Microsoft
• Price - a business that can price products so low no one can compete - Wal-mart, Costco, Bed Bath & Beyond, Home Depot, Target

Question 6

Big five numbers to find out before you buy a business

Answer 6

• Return on invested capital (ROIC)
• Sales growth rate
• Earnings per share (EPS) growth rate
• Equity, or book value per share (BVPS) growth rate
• Free cash flow (FCF or Cash) growth rate
  All the big five should be equal to or greater than 10% over the last 10 years