Monday, October 25, 2010

Rule #1 Analysis Spreadsheet: Updated with Payback Time

A while ago, I posted my Rule #1 Analysis spreadsheet for you.  I've had that sheet for a couple of years now.  Since then, Phil Town came out with a new book called Payback Time.  This second book of his changes the investing strategy a little bit, but remains true to the fundamentals set out in Rule #1.  Essentially, you still need to find great companies at great prices, and Phil adds one more tool to help you decide whether or not it's wise to "stockpile" or accumulate the stock of a particular company.

He comes up with a term called "payback time", which sounds like the name of an action flick, but it is really about how long it takes for a company to give you back your entire initial investment in earnings.  Phil uses the current EPS and extrapolates it into the future and sums up all of the earnings.  At some point in the future, the earnings per share will sum up to the share price.  That is the payback time.  For one to start accumulating a stock, the payback time should be 10 years or less.

So, I've updated the spreadsheet to include the calculation of payback time.  If you've seen the previous version, you'll notice that there are 2 more tabs.  The first is the "Stock Price" tab, where you simply enter in manually the current price of the stock.  The second is the "Payback Time" tab that shows what the payback time is.  Piece of cake!

If you have any questions, leave a comment or email me.  You can find my contact info in the About Me page.

Update February 17, 2011: I've updated the sheet.  Go to the Investing Resources to download the latest sheet.