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Rule#1 formula
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Description:
Based on Phil Town's book, basic idea is adopted from the Graham/Buffett school of investing. Buy good companies when they're priced very low, combined with a margin of safety, just in case you make a mistake in the valuation.Basically you look at five growth rates over the past 10 years:
1. Return on Investment Capital
2. Book value
3. EPS
4. Sales/Revenue
5. Cash flow
If all of these numbers are above 10%, these are considered good companies.
Using these numbers and analysts numbers, you can guesstimate the PE and EPS and then arrive at a stock price (called the sticker price). You then divide this price by 2 to get what's called a "margin of safety" (MOS) price. Whenever the stock gets to this value, you buy it.
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