For those of you that haven't been paying attention, there's been quite a bit of comment fury around my post on Comments: New Rating for Rule #1. It seems Phil Town's investment theories generate quite different responses. First, let's cover a few of the comments in support of Phil:
I'm a big fan of Phil's so I feel the need to defend him. I first saw him at a "Get Motivated" seminar about a year ago...I was there to see someone else, but Phil's presentation was one of the best. Before seeing Phil, I had no interest in investing, but that has all changed. I started following his advice from his blog and we exchanged a few emails. When I finally got comfortable with the idea of investing in the market, I found one company and researched the bejeezus out of it. I ended up purchasing a few thousand dollars in this company's stock at the end of June '05 and today, I'm up over 60%! Did it take more than 15 minutes? Sure. Will the next investment I make take more than 15 minutes? Probably. Does Phil's method work? You bet it does! And he never tried to sell me a thing, in fact, he told me where to look on the Internet for FREE information.
As I've mentioned, I heard Phil speak on the same event tour. I was there to see others as well and I too liked Phil's presentation. He was very professional, smooth, and funny. However, that doesn't mean that his investment principles are correct. And one stock returning 60% is not a track record, it's one data point. You can't draw any conclusions from it. Finally, it sounds like this commenter spent a lot longer on finding the stock than Phil promotes.
Here's another pro-Phil comment:
I haven't started trialing Phil's method, and it'll be a while before I do (I agree that he's understating the time, although it MAY be because he's got good software, which he mentions in his podcast).
HOWEVER, all the people above who are claiming that he's utterly wrong and giving very very bad advice -- NO. You are operating under Modern Portfolio Theory, and as such you assume that the market is perfectly efficient and risky returns are random. Both assumptions are highly questionable, have never been proven, and people provide counterexamples every day. This doesn't mean that the efficient-market-hypothesis is false per se, it just indicates that there's more to it than Modern Portfolio Theory considers (which is no surprise, it's just a simplification).
Personally, I believe that the market is efficient as a whole, but the efficiency is caused by people buying and selling based on information they possess. Before they acted on the information, the market did not "know" that information. I also believe that although MPT offers a great way to manage risk when you're not able to control it, its assumption that the normal distribution applies is inaccurate.
(Oh, and by the way -- to the person who claimed that 50% of the Market will experience losses "because it's a market" -- easily disproven. 50% of the _futures_ market will experience losses because it's a zero sum game. The majority of stocks produce a profit because the economy is growing; it's not a zero sum game. And a market is by definition composed of trades which are profitable at the time to both sides: both the "buyer" and "seller" are giving up something they value less in return for something that they value more, so there's ALWAYS a gain to both sides.)
A good fun read that might show a little bit about the controversy in Modern Portfolio Theory would be "Fortune's Formula". It's not really about the controversy, but it manages to show it and make it interesting. (It's not about how to invest; it's more of a history, but as interesting as any sci-fi I typically read).
Now for the opposing side.
There were several comments ranging from "you're generous to give the book 5 stars" to "why did you even decide to re-rate a book that you think is only fair?" But here's one I kind of liked:
Relative to the market average (not in absolute terms), half of investment dollars will beat the average and half will not. This is what a market average is, so it's not "easily disproven".
Graham divides stock buyers into speculators and investors. He spends a lot of time in The II arguing against speculation, and that's what it seems like Town's method is. He wraps it up as investing (e.g., the 10-10 rule) but it's really about pulling the plug when the arrows tell you to. Sure, you might be able to get a 60% return once or twice, but can you consistently do it over the long term? Probably not.
And another:
Billy, just to set the record straight, MY opinions are based upon 22 years of investing in stocks, 13 of those as my sole source of income, not modern portfolio theory...whatever that is.
I love this last comment! ;-) Great attitude and on point. It's all theory until you practically apply it, then the rubber hits the road. I'll take the advice of someone who has experience over a person with a theory any day!
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