Mayank Dwivedi is a working professional, who is on a journey of personal wealth creation (and discovery).
Overall Book Review Summary
Overall Rating: Five out of Five
Five out Five (easy to read language, makes it easier to understand, technical aspects of stock investing explained in simple frameworks that an average joey can understand and use)
Relevance: Good for people at any stage of their life, planning to earn secondary income via stock market investing
Rule #1 Investing
If you don’t know what you doing, your journey is going to be either very slow or very dangerous
— Phil Town
Who is this book for?
This book is aimed at retail investors, who want to create wealth by investing in the stock market.
This book is ideal for working professionals, and people who are not experts at finance, who have as little as fifteen minutes per week to research and invest in the stock market.
This book will help investors at all stages - those who have just started investing, those who are planning to invest, as well as experienced investors.
Even though this book is influenced by investment concepts from Benjamin Graham and Warren Buffet, it is very straightforward book to read, understand, and apply.
Do not own a business for 10 minutes unless you are willing to own it for 10 years
— Phil Town
Kindle vs Paperback Book?
I bought a paperback version from amazon. However, the pages of the paperback book are thin, and words of the next page are partially visible while reading the front part of the page. This is annoying and confusing, and drives a poor reader experience. The font of the book is also smaller than what I am used to reading. Hence, I recommend reading this book on Kindle. The Kindle version of the book is 28% cheaper than the paperback, and you get Kindle quality reading with no double print to worry about.
Businesses that lack history to make a prediction about their future are inherently risky
— Phil Town
My Magic moment while reading this book
Often, new investors do not know which stocks to choose and start investing. They feel like a new transfer student to a school, and are ready to take on any advice that they come across. This is not a comfortable place to be in. Bad starting advice can cost you, before you learn over time from your mistakes.
While reading Chapter 3 of the book, titled “Buy a Business, Not a Stock”, I came across the concept of three circles. The First circle is a list of all companies you are passionate about (say restaurants, fast food chains etc.). The second circle is the list of companies where you are talented or have a skill. Example of the second circle can be skill in writing restaurant reviews, or running marketing campaigns for online food-tech companies. The third circle is where you earn money or spend money. This can be where you actually eat, or order food from. Intersection of these three circles gives you the list of companies/areas you know about, and where you can start investing.
Simple, right !
I immediately implemented this concept, and found my comfort area where I can confidently start investing. For me, it was IT and eCommerce industries, where my interest lies, where I am skilled, and where I spend money shopping on eCommerce sites.
This was my magic moment! I was not afraid anymore to dabble into the stock market.
I felt like I have found the first step of the ladder of stock market investment journey. Starting with companies I knew, am passionate about, and am already their paying customers :-).
This original concept of three circles is from the research done by Jim Collins, and the author acknowledges the research in the book. The explanation and implementation of the concept of three circles is done in detail, in two chapters in the book, and fits well with the author’s aim of 15 minute investing for retail individual investors.
A good dividend is one that’s paid out with the money the CEO cannot efficiently allocate to growth
— Phil Town
My Top three learnings from the book
Learning 1: How to identify good management: Many stock investment advice talks about focusing on good management. However very few talk about the framework to evaluate a good management on. The author (Phil) provides a clear framework, and a list of red flags to rule out stocks with bad management. Some red flags mentioned by the author are: CEOs taking home a large salary, CEOs allocating large stock options to them, CEOs not walking the talk, and trying to cover up problems in the company in shareholder letters, or even completely denying them. Sudden buying or selling by the top management indicates that the management does not have long term trust in the company. These red flags provide a framework to rule out stock because of poor management. If the management does not fall into any of these red flags, the stock can be considered for investing depending on the other rules provided in the book.
Learning 2: How to identify a Moat? A second most common generic advice in picking stocks is to select companies who have a competitive advantage, or the way Warren Buffet calls it - a Moat. The author presents a clear five point framework on how to identify a moat with examples. A company has either (a) strong brand trusted by its customers (Harley Davidson bikes), (b) a secret sauce - such as patents etc. which keep competitors at bay; (c ) Toll: business with exclusive control of a market either by exclusive license or ability to collect toll from anyone needing their product. (d) Switching: companies who have made there ways so deep into your lives that your switching cost to a different product is high (e) Price: low pricing power owing to contracts, economies of scale, operational excellence etc. The author complements this framework with technical metrics to support identifying a moat, which includes looking at historical sales growth rate, Earning Per Share growth rate, Free Cash Flow Growth rate, Equity growth rate and Return on Capital Employed growth rate.
Learning 3: When to sell? As you make loads of efforts to select the right stocks, at the right price; it is equally important to know when to sell. Author presents both a technical as well as non-technical framework to sell stocks. Sell a stock if it is not a wonderful company anymore. This means that the reason you bought the stock is no longer valid. Either the stock’s equity growth rate, or cash flow growth rate has fallen; or the management has been convicted of fraud etc. Thereafter, the author presents three technical tools to use to identify if big investors and fund houses are moving in or out of the stock. This was really insightful for me, as large investors or fund houses have access to more privileged information than an individual investor. Using MACD graphs, stochastic buy and sell lines, and Moving Averages, one can identify the right time to buy and sell by knowing when the stock moves into overbought or oversold zones. Even though the names of these tools are technical, their application is simple - look at the graph, and identify points given in the book to buy or sell.
Three things I liked about the book
Like 1: Building Confidence of readers: The author spends time building the confidence of a retail investor towards stock investment. Unlike other investment books, which dive into the technical and fundamental analysis of stocks, Phil starts by making the reader understand that stock market investment is not rocket science. He dispels various myths surrounding stock investment. The author understands the target reader - a full time working professional, not from a finance background, who has little time to research and invest. This shows in various techniques and framework provided by the author.
Like 2: Frameworks and Example: Throughout the book, the author presents learning in the form of a framework, and explains it by giving examples. Having a framework to work with makes it simple and concise. You no longer have to worry that there are so many things to consider before buying a stock. You don’t feel like you are missing out on some analysis before making the investment decision. Examples are framework to identify a moated business, identify good management, and decide when to sell.
Like 3: Balance between More and Less Information: Author balances between giving too much and too little information. He often uses grey background boxes to provide additional technical information for readers who are interested to understand how the math works. For readers who are happy to understand the framework and apply them, can ignore these grey boxes which have somewhat more technical background on these frameworks.
Two things that could make this book even better?
Opportunity 1: US focused frameworks: This book is probably written with US retail investors in mind. The frameworks given in the book can be largely applied to any stock market. However, they will have to be tweaked a bit. Example: 15% annual growth rate is good in the US, where NASDAQ and DOW Jones Index are growing at 10% YoY. However, for a developing country like India, a 15% growth rate is below average, where the Indian stock market index is itself growth at >15% annual growth rate. Having said this, the book is around 80% applicable to any stock market. The remaining customization needs to be done by the investors of that country. A chapter on how to customize this for different countries might have helped nevertheless.
Opportunity 2: Surviving the waves of Stock Market: This book is great for beginners, who are starting out in the stock market. However, every new investor remembers the big stock market crashes - the dot com bubble, the housing loan crisis of 2008. This makes the new investors jittery, on how to survive if such a market crash happens again, and wipes out their investment in a matter of days? It would have been good if the author included a chapter on this, which in my view would have made this a complete beginner to intermediate book for stock market investment.
Amazon Book Link
- Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week: Town, Phil: 9781905
Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week [Town, Phil] on Amazon.com. *FREE* shipping on qualifying offers. Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week