Principles of “Enlightened Investing”
The video above is the incredible talk that #1 NY Times bestselling author of Rule #1. Phil Town gave at our Hidden Riches event which we created as part of the launch for your book Your Hidden Riches. Phils talk is about how to invest your money based on Warren Buffet’s rule #1, “Never lose money.” No matter what your experience of investing money has been in the past, you want to watch this video. There’s a reason the sub-title of his book is, “Simple Strategies for Successful Investing in 15 Minutes a Week.” What he teaches is really simple, takes very little time, and is very safe at the same time. NB! The gift offered in this video is no longer accessible
The principles that Phil teaches about investing are really lessons for living. I so love his approach to investing because it’s so well-aligned with what we teach in The Passion Test. For example, in deciding what companies to invest in, he teaches what he calls “The 4 Ms.” What are the 4 M’s?
- Margin of Safety
Make Decisions Based on Meaning
Phil says never invest in a company unless it has personal meaning for you. Does that sound familiar? Meaning connects you with your life’s purpose. Through the Passion Test you learn the 5 things that matter most to you. Then when you begin to make decisions based on those, life becomes meaningful. You feel like you’re on purpose.
It only makes sense that when you are making decisions about how to spend or invest your money, you should base those decisions on what really matters to you. “Whenever you’re faced with a choice, a decision or an opportunity, choose in favor of your passions.”
So, Phil says look at where you spend your money already. These are the things that are important to you. Whether you realize it or not, you know a lot about those companies and how they serve their customers or clients because you are one of those customers.
Put Your Money Where It Will Be Protected
When Phil talks about a “moat” he’s referring to the water that surrounded castles in the past. The water protected the castle from enemies putting ladders up, scaling the walls and overcoming those inside.
Phil says that when you invest your money in a company, make sure the company has something that makes it difficult for competitors to “scale the walls.” An example would be a company with patents for its processes, but patents are only a partial protection. While Apple computer has patents, what really protects it is its proprietary software and the way all of its products work together so well. That’s difficult to duplicate and means Apple is likely to continue to have a sustainable business for a long time.
In the rest of your life, this principle is built into who you are. You are unique. There is no one else like you. You have unique gifts and talents, along with a unique set of passions that define your life’s purpose.
Your unique combination of skills, talents and passions is what sets you apart. No one will ever be able to compete with you as long as you are clear about these things and use them to fulfill the real needs of others. This is your personal ‘moat.”
But to have that protection, you have to be clear. You have to know what your passion are, what your skills are, and what your talents are, plus you need to use them that serves others in ways that they find meaningful. When you do that, then you will always have the money and resources you need to live a fulfilled life.
The Quality of Management Determines the Quality of the Results
Phil advises us to look at who is managing the companies we are considering for investment to make sure they are acting like owners, not mercenaries. In other words, he says look for managers who from their words and deeds are clearly interested in the long term health of the company, not their own short-term gain.
In your life, you’re the manager in charge. But often the conditioning or programming we’ve grown up with causes us to act in ways that are not in our own long-term interest. You don’t have the luxury of changing managers, so you have no choice but to change yourself, if you are going to become a better manager of your life.
This is the reason we teach and recommend The Work of Byron Katie, because by investigating your own thoughts, you can change the way you respond to the people, situations and circumstances in your life so you are able to act in your own long-term interests.
Make Sure There is a “Margin of Safety”
Phil’s approach to investing recognizes that people, and stock markets, get emotional. People respond emotionally to changes in the news, in a company’s results in a given quarter, and many other influences. But he says, when you have used the Rule #1 rituals for determining if a company is sound and will continue to be valuable, then you can invest without being influenced by the short-term emotional swings in the market.
He says there are times when the market will underprice a company because of the emotional swings that happen from time to time. In his book, he provides a simple, but clear way to determine what is the appropriate price (what he calls the “sticker price” like the sticker price on a car) to pay for that company. Then he says, wait until that company’s shares are selling for 50% of what you know it’s worth. This is your “margin of safety.”
If it turns out you overvalued the company when you came up with the sticker price, then the margin of safety protects you. But it also means that if you correctly valued a company, you can make very significant gains in a short time. Phil says don’t worry about having your money in the market all the time. Just keep an eye on the stocks that meet all your criteria and then invest when the market has underpriced them enough to give you this 50% margin of safety.
This is a great principle to live your life by in general. No matter how thrilled or excited you may be about some direction you plan to take, be sure you allow yourself a significant margin of safety.
Janet Bray Attwood
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