I’m not posting this video just because of the historical interest (to that end, Phil Town – of Rule #1 Investing fame, and supporting actor in a recent post – does advise to “get the heck out of the market”) as it aired on August 17, 2007 … but because of the explanation that Phil Town gives about how Rule # 1 is NOT about buying and holding … equally, it’s NOT about trying to time the market, but it IS about:
1. Finding a quality stock that is ‘on sale’ (as MANY stocks are right now), and
2. Moving in / out when the ‘Big Guys’ do (i.e. when the major mutual funds buy or sell huge quantities of your favorite stock/s).
The major mutual funds control the short term price of stocks as they decide to move in/out of positions; the Rule # 1 investor takes advantage of this by buying into – or selling out of – a stock that they would otherwise be willing to buy/hold …
… but, the Rule # 1 investor has one advantage: they can buy into / sell out of a stock in the time it takes them to log into their online trading system (eg E*Trade, Scottrade, etc.) and press the BUY/SELL button.
The mutual funds, on the other hand, can take weeks to buy into / sell out of a major position for fear of causing a major price correction if they move their huge volume of stocks too quickly.
Warren Buffett has commented on this advantage of the small investor:
During a shareholders meeting in 1999, Warren Buffett lamented that he could generate 50% returns if only he had less money to invest.
I’d even accept a paltry 25% return … how about you? 😉
PS If you’re interested in learning more about Rule #1 – but, are not yet ready to buy the book – then listen to these podcasts: http://www.philtown.com/podcast/