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Rule #1 Investing - The First 30 Days of Reving the Growth Engine
My number is 10 Million by Jan 1st 2019.
As part of my growth engine to get me there, I will be using individual stocks. I first came across Phil Town's Book "Rule #1" about a year and a half ago (have I been reading Adrian's posts for that long?) on Adrian's 7million7years.com web site. I read it quickly, bought my first stock (Garmin) according the book's valuation principles and then promptly let everything fall by the wayside without bothering to actually implement the part of the strategy where you follow Rule #1 - Don't Lose Money.
Earlier this year, I resolved to start over. I read the book again and started applying the entire strategy. Oct 8th marked my first transaction. Playing with ~$27K (about 14% of my portfolio) I began monitoring a selection of about 10 stocks that I screened according to Phil's recommendations. Since that date I've moved in and out of Google (currently waiting for another buy signal) and am currently invested in both Panera and Chipotle.
In these first 30 days I've earned 8% on the capital I put to work. Yes, 8% in a month! Beginner's luck? Maybe, but I'm hoping it's an indication of Rule #1's potential and view it as confirmation that diversification really does limit returns.
A closer examination of my total portfolio further highlights this fact.
Portfolio Value as of:
10/07/09: $184,457
11/08/09: $188,060
30 Day Return: $3,603 or 1.95%
Examining the Return I found that: $2,168 came from the $27K I put to work with Rule #1. The other $1435 came from the remainder of my portfolio in mutual funds.
Let me restate it another way. 60% of my return came from the 14% ($27,000) of my portfolio I had invested in individual stocks. The other 40% of profit came from the remaining 86% ($157,000) that I left in mutual funds. Ok, my eyes are starting to open.
Next I asked myself, "what would have happened if I'd gone all in on the new strategy and committed my entire portfolio to it?" Well 8% return on $184,457 is a profit of $14,756. Wow, that would have been great!
I've been a classic mutual fund investor up til now, so this is a big step for me to take. So far the writing on the wall looks promising and has encouraged me to take bigger steps in "un-diversifying" my portfolio. We'll see what the next 30 days has in store.
I'm done revving my engine, I'm putting it in gear.
Jeff
As part of my growth engine to get me there, I will be using individual stocks. I first came across Phil Town's Book "Rule #1" about a year and a half ago (have I been reading Adrian's posts for that long?) on Adrian's 7million7years.com web site. I read it quickly, bought my first stock (Garmin) according the book's valuation principles and then promptly let everything fall by the wayside without bothering to actually implement the part of the strategy where you follow Rule #1 - Don't Lose Money.
Earlier this year, I resolved to start over. I read the book again and started applying the entire strategy. Oct 8th marked my first transaction. Playing with ~$27K (about 14% of my portfolio) I began monitoring a selection of about 10 stocks that I screened according to Phil's recommendations. Since that date I've moved in and out of Google (currently waiting for another buy signal) and am currently invested in both Panera and Chipotle.
In these first 30 days I've earned 8% on the capital I put to work. Yes, 8% in a month! Beginner's luck? Maybe, but I'm hoping it's an indication of Rule #1's potential and view it as confirmation that diversification really does limit returns.
A closer examination of my total portfolio further highlights this fact.
Portfolio Value as of:
10/07/09: $184,457
11/08/09: $188,060
30 Day Return: $3,603 or 1.95%
Examining the Return I found that: $2,168 came from the $27K I put to work with Rule #1. The other $1435 came from the remainder of my portfolio in mutual funds.
Let me restate it another way. 60% of my return came from the 14% ($27,000) of my portfolio I had invested in individual stocks. The other 40% of profit came from the remaining 86% ($157,000) that I left in mutual funds. Ok, my eyes are starting to open.
Next I asked myself, "what would have happened if I'd gone all in on the new strategy and committed my entire portfolio to it?" Well 8% return on $184,457 is a profit of $14,756. Wow, that would have been great!
I've been a classic mutual fund investor up til now, so this is a big step for me to take. So far the writing on the wall looks promising and has encouraged me to take bigger steps in "un-diversifying" my portfolio. We'll see what the next 30 days has in store.
I'm done revving my engine, I'm putting it in gear.
Jeff
Comment
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Comment by Alfred Castillo on November 14, 2009 at 12:43pm - Congrats man!
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Comment by Neil on November 12, 2009 at 9:32pm -
Didn't they serve Kool Aid in Jonestown?
My tolerance for that type of risk is much lower than yours. I guess I don't think I would feel in control as much with the stock market as setting up that amount of active trading. I'm focusing on prepping for business ventures that I "feel" I can control better.
Adrian's advice is spot on. If you do this with a portion of your portfolio you will reduce your gains mitigate but some of the risk as well.
Still, this is *your* plan, not mine and I applaud you for seeing it through. Doing nothing is a far worse idea.
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Comment by Adrian on November 11, 2009 at 5:10pm - Just remember the 45% market swings THE OTHER WAY from not so long ago and you'll soon remember that Kool Aid is just sugar mixed in water ;)
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Comment by Jeff on November 11, 2009 at 5:00pm -
This is crazy. It's day 34 and I'm up 11.56% for a gain of $3118 on ~$27K.
If I'd have only put my entire portfolio to work I'd have made $21,314....in 34 DAYS!!
Normally I'd be happy with 10% in a year....let alone a month.
Some one stop me. I think I've become a Rule #1 Kool-Aid drinker.
Good luck to all...Jeff
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Comment by Adrian on November 10, 2009 at 11:41pm
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Scott, Jeff's experience and my experience [of investing according to the book] have both been positive ... but, hardly a trend doth that make :)
BUT, I would encourage those who are interested to follow Jeff's example and dip a toe in the water:
1. Buy the book ... feel free to use your own adjectives if you don't ;)
2. Paper trade until the process makes sense
3. Real-money trade with a small portion of your portfolio and build up from there, as and when you feel really comfortable ... after all, there's NO training ground better than training with your own REAL money!
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Comment by Scott on November 10, 2009 at 7:36am - Wow, that's terrific Jeff. I still haven't read that book for some dumb reason. I'll have to get to it! I look forward to watching you progress.
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Comment by Adrian on November 9, 2009 at 12:40am
- This is a great move, and time will tell if it's a winner (the strategy) ... but, mutual funds are a sure loser to the extent of the the fees that they charge!
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