How the Wealthy Use Down to Go Up
To get rich, learn to value companies and build a portfolio of businesses at a discount to their true value.
Follow the Stockpiling Strategy:
Determine the true (intrinsic) value of a business and buy stocks in those companies when they go on sale.
Continue to stockpile as long as you can buy them on sale.
Follow the 10-10 rule and don’t own a business for ten minutes that you wouldn’t own for ten years.
Make a significant profit by selling your businesses at or above their true value.
Three Ms Equal No-Risk Investments
Companies that can make you money are those with a big Moat that are managed by passionate and trustworthy people. Find companies with the three Ms and you have the recipe for making money.
Find businesses that relate to your passions, talents, and how you make and spend your money.
Conduct the three Ms analysis—only own companies that have Meaning, Moat, and capable Management.
Payback Time Means “No Fear”
Because they have uncertain earnings potential, some businesses may be overvalued at any price. Review the ten-year financial history and get a rear-view mirror look into businesses you understand. Gauge their future earnings potential and determine the Sticker Price. Buying investments at a significant margin of safety (MOS) will protect your minimum acceptable rate of return (MARR) when you eventually sell at or above retail value.
Don’t confuse price with value. Always determine the retail value of a business and never pay it.
Determine the payback time to get your money back. It will help you find price bubbles that MOS may not catch.
Eight Baby Steps to Wealth
Stockpiling maximizes your long-term returns when the near-term prices fall, turning down into up. It is prices falling below calculated MOS that create BIG Money opportunities.
To consistently turn down into up, follow the eight baby steps to wealth.
Find it: Screen the market for prospects. Are there any red flags?
Value it: Is the Payback Time good?
Watch it: Create watch lists. Use the tools available to monitor your candidates.
Buy it: Focus! Don’t buy more businesses than you can understand and manage.
Own it: Act like an owner. Track performance by—at minimum—attending quarterly company teleconferences and reviewing the company’s public reports.
Stockpile it: Continue to buy at or below your MOS/Payback Time Price whenever you have the money. Don’t buy in amounts so small that commissions affect returns.
Sell it: Sell if the Big Five numbers worsen significantly, or when price exceeds 20 percent of the sticker price, or if you need the money.
Repeat until you are rich!
Just the FACs, Ma’am
The Floors and Ceilings (FACs) are predictable patterns in the price charts that show you the appropriate time to buy and sell. You can stockpile any time the price is below the MOS/Payback Time price, but buying on the FACs will help you buy at the best possible price. Being patient and stockpiling near the floor price will maximize your long-term investment returns.
Be patient. You can invest monthly allocations of capital (MAC) when price is below MOS, but using the FACs is better.
To increase your rate of return, use the FACs and stockpile during short-term floors.