Book Review: Payback Time by Phil Town

by Ron Haynes

payback time When I was contacted to review Phil Town’s latest book, Payback Time, I was thrilled. I read his first book,Rule #1, and when I used the principles he outlined, I actually made quite a lot of money investing in individual stocks.

In the past year, I’ve done more investing along the lines of How A Second Grader Beats Wall Street and have made a lot of money there as well. But I’m currently in the process of selecting some businesses to investigate.

The book’s major premises:

  • Price and value are not always in sync. Having worked as a commodities buyer for several years, I can readily testify to this.
  • Mutual fund managers aren’t all they’re cracked up to be.
  • Once you determine a business’ value, if its stock goes on sale, buy more. Town calls this “stockpiling” (essentially, it is a buy low and sell high strategy which so many people know, but fail to do).
  • Invest only in businesses you actually understand. Really. If you don’t have a genuine understanding of the business, or at least a deep interest, don’t invest.
  • Make sure that business has a strong competitive advantage.
  • Investigate the management like you own the company … as a stockholder, you do.

So what is “payback time”?” It is the price of the business that will be repaid in X number of years out of earnings the business generates. If you spend $27 per share on a stock and it earns $3 per share, it should have a 9 year “payback.” Town recommends only buying stocks with a payback of 10 years or less. The lower the better.

Concentrate your energies, your thoughts and your capital. The wise man puts all his eggs in one basket and watches the basket.Andrew Carnegie (worth an estimated $250 billion in 2009 dollars)

This isn’t active trading. Town recommends sitting on the sidelines and keeping your money in a savings account when the business you’re interested in is not on sale. It is a conservative, “watch that basket” type of investing.

Should you buy Payback Time? If you’re interested in value investing and have the time, resources, motivation, and inclination to research different businesses, you would probably benefit from this very interesting, very well written book.

About the author

Ron Haynes has written 1001 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.


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{ 3 comments }

Marcus

Looks like a good read. Thanks for the review.

Jim

I bought the book about a week ago and have already finished it. The book is well-written and can easily be grasped by just about anyone. Bottom line :

* Buy businesses you THOROUGHLY understand.
* Make sure the business has a definable competitive advantage (Phil Town calls this a “moat”)
* Make sure management runs the business as if every dollar they have to their name is invested in it.

Phil then analyzes the “Big Five plus Debt”: ROI, sales growth rate, earnings growth rate, equity growth rate, operating cash growth rate, and total long-term debt. You then tie it all together – if you have a company that meets the above 3 “M”‘s (motivation, moat, and management) and has “big 5 + debt” that meets certain minimum requirements, you then calculate what the “value” of the company is. If the current price of the stock is half of the calculated value (the “margin of safety”) then you have a company worth “stockpiling”, or buying even as the price keeps going down. As long as the story hasn’t changed, you have a future winner on your hands. Just be patient – this strategy could take up to 10 years to pay off!

jumbotron

payback time is a rehash of rule #1. not much meat in this one either. i’ve heard town speak in person he’s definitely a good speaker but it is clear he’s not an investor. was making a bunch of mistakes in valuing companies. isn’t aware of high level valuation, a lot of unsubstantied facts, too much beating the drums for the little guy. book is written okay but theres not much to it. highlight is the moat section which has some worth.

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