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The Secret to Investing Success
Advice from Phil Town
The stockpiling strategy can help you make money… a lot of money.
The best investment strategy I know is so counterintuitive, so shockingly upside down, such a crazy way of thinking about investing that hardly anyone who uses it wants to even try to explain it. It’s not at all hard to do, but it is hard to explain. It just sounds so . . . impossible. But smart investors do it all the time and, man, does it work! I mean it really works. It’s an “I can do whatever I want the rest of my life” kind of works. It works so well, it’s the secret to the investing success of the best and richest investors in the world. Seriously.
I know that sounds like hype, but honestly it’s impossible to overstate the effectiveness of this strategy. It really is the basis of the biggest fortunes in the world, including those of quite a number of Forbes’s World’s Billionaires list. For example, #3 is Carlos Slim Helu, the Mexican telecom entrepreneur who is worth $35 billion and is currently buying into cheap media, energy, and retail assets, including the New York Times, using this strategy. Lakshmi Mittal, #8, of India, created a $19 billion fortune and now runs the world’s largest steel company, ArcelorMittal. He built ArcelorMittal using this strategy in Eastern Europe in the 1990s after the Berlin Wall came down. Number 15 is Bernard Arnault of France, who built a $16 billion fortune by acquiring Christian Dior with this strategy.
Number 16 on the World’s Billionaires list is Li Ka-shing of China, who made $16 billion acquiring energy, banking, and utility companies with this strategy. Charles Koch and David Koch are ranked #19 with $14 billion each, which they got by using this strategy to build Koch Industries—one of the largest, privately held corporations in the United States. Michael Otto of Germany is ranked #23 and is using this strategy to take advantage of weak markets in the United States to buy up shopping centers in America. Don Bren is #26. He used it to become the sole owner of the Irvine Company and bank $12 billion. The Irvine Company is one of the largest construction companies in California and the developer of about a fifth of Orange County.
The list of billionaires who used this strategy to become mega-wealthy goes on and on but wouldn’t be complete without mentioning that the world’s second wealthiest man, Warren Buffett (worth $37 billion), the world’s best investor, used this strategy of investing to build his immense fortune and to increase his ownership and compounded return in companies like American Express, Washington Post, GEICO, and Coca-Cola.
This strategy is also the basis of thousands of little fortunes, including mine. In fact, as any of the billionaires I mentioned above would agree, it’s much easier to use the strategy if you are a small investor. Being a big investor is actually a huge disadvantage in using this strategy. Mr. Buffett once said, “Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money.”*
I used this strategy to build my wealth by buying shares of bioscience, software, and other private companies. And soon, if you pay attention and are willing to do a bit of fun work, you’ll discover that this incredible strategy can be the basis of your fortune, too.
STOCKPILING
I call this amazing strategy “stockpiling” . . . as in “stash,” “accumulate,” and “collect.” It means exactly as it sounds—stockpiling, as in piling up stocks. Not just any stock at any price, though. The essence of stockpiling is to buy stock in a business you’d be excited to own all of, then hope the price goes down so you can “stash,” “accumulate,” and “collect” as much as you can afford at as low a price as possible. Sounds strange, I know. But again, all of the billionaires I listed above and many more on Forbes’s World’s Billionaires list are stockpilers of businesses. (Note: This list might have changed by the time you read this but not the stories behind these guys’ wealth-building strategies.)
Buy a Business, Not a Stock
“Buy a Business, Not a Stock” was a chapter title in my first book. It’s such a key way of thinking that I can’t reiterate it enough: You must stop thinking that stock investing is any different from buying a business. When you buy a business you’re buying shares of the business. If you buy some percentage of the total shares, you become a part owner. Buy all the shares and you own the whole business. There is no difference between that process and buying public stock in a business. As long as you treat owning shares of public stocks as different from owning a piece of a business, you will fail to understand and execute the stockpiling strategy. A typical stock investor is unhappy when the price of his stock goes down, because he has no understanding of the true value of the business that stock represents. But that’s because typical stock investors are not investors at all. They don’t understand stockpiling, so they inadvertently have become speculators and outright gamblers.
The unfortunate truth is that the financial services industry has conned many millions of people into their game of stock speculation via mutual funds. I’ll have a lot more on that in the next chapter. For now, let’s just remember that for this book and for the rest of your investing career, you must think of stocks as shares of a business, and yourself as the owner of that business. So if you buy just ten shares of Coca-Cola, you’re a part owner of Coke—not a stock investor in Coke. Got that? When you begin to think like this, you’re joining some truly great investors like Buffett, and you’re on the first step toward becoming a solid stockpiler of stocks, er, businesses.
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Excerpted from Payback Time by Phil Town Copyright © 2010 by Phil Town. Excerpted by permission of Crown Business, a division of Random House, Inc. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher. |
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