Buying a Company for Half Off | Phil Town

TL;DR

Learn how to determine if a business is undervalued and on sale using the Rule One Investing method.

Transcript

hey guys I'm Phil town from rule one investing and today I'm gonna teach you how to find out if a business you're looking at is on sale all right you've done the work and the market has come your way for a house or for a farm or for maybe something else you're gonna rent or for a stock you found yourself a wonderful business that's the main thing y... Read More

Key Insights

• 😚 Rule One Investing focuses on not losing money and buying businesses with a competitive advantage and reliable management.
• 🗯️ Determining the value of a business in 10 years is essential to finding the right price to pay.
• ⌛ Paying 10 times the owner earnings ensures a 10% yield on investment capital.

Questions & Answers

Q: How can I determine if a business is undervalued and on sale?

To find undervalued businesses, assess their competitive advantage, and trust the management team. Calculate owner earnings by subtracting expenses from rental income, and pay 10 times the owner earnings as the price.

Q: What are the key factors to consider when determining the price to pay for a business?

Understanding the competitive advantage of the business and trust in the management team are crucial. Additionally, calculate owner earnings by subtracting expenses from revenue and consider the costs of maintenance capital.

Q: Can the same principles be applied to investing in stocks?

Yes, the same principles can be applied to stocks. Look for companies with a 10% yield on free cash flow, and pay a price that allows for a 10% yield on investment capital.

Q: How often do businesses go on sale in the stock market?

Businesses on sale in the stock market are more common than in real estate. It doesn't require a nationwide crisis for stocks to be undervalued. Apple Computer, for example, was available at a 10% yield on owner earnings a few years ago.

Summary & Key Takeaways

• Determine the value of the business in 10 years by understanding its competitive advantage and reliable management team.

• Calculate owner earnings by subtracting expenses from the rental income, considering costs for maintenance capital.

• Pay 10 times the owner earnings as the price for the business, ensuring a 10% yield on investment capital.

• Apply the same principles to stocks, looking for companies with a 10% yield on free cash flow.