"Both low and high,
Rich and poor together." -- Psalm 49:2 (NKJV)
If you read and liked Rule #1 and are using that method, you probably will be disappointed in Payback Time. If Rule #1 seemed appealing, but was beyond what you could apply on your own, you'll probably find Payback Time easier to use.
I once attended a major investing seminar conducted by one of the most famous motivational speakers in the world. He spent two hours on an exercise where we were supposed to learn to buy low and sell high. Most people were delighted with that lesson, even though we only learned the principle . . . not how to implement it. I was shocked to see how little it takes to please those who don't know much about stock investing. But I assume you are well beyond that level.
If you are fan of Rule #1 (as I am), let me cut to the chase: Payback Time primarily gives you a buy-low-and-hold version of Rule #1 along with an update concerning online resources available and a more complete Web site to help you perform the details. Of the two books, Rule #1 is for those who want to be very active investors. Payback Time is for those who want to do less work and pay less attention to the market day-to-day.
Lest you take that point lightly, let me mention that I once had a book contract to write a similar book. I returned the contract after a few months of struggling to explain in simple language with not too many words how to do some similar evaluations. I found it to be harder than it was worth doing. As a result, I admire Phil Town for sticking with his writing to produce a book that is clear, simple, and not too hard to implement.
Do I take exception to anything he had to say? Sure I do. Anyone would. But the advice is pretty sound.
I thought the best part of the book was in defining the sell discipline, something few investment books take seriously. I think he sets a pretty high target, one that may cause you to miss some well-timed selling opportunities.
The main problem with the method is that to have lots of opportunities you require stock market collapses occurring reasonably often. During a period such as the 1990s (especially on the NASDAQ), you might find it difficult to apply the method to stocks you understand well that are dramatically under priced. In today's environment, I suspect bargains by this method are few, for instance.
My main quibble with the book is that Mr. Town spends about 20 percent of the content explaining that mutual fund returns aren't very good, the expenses piled onto mutual funds cause your returns to be much lower, and sharing his view that you cannot count on Social Security. All of this material was worth about two or three pages, not fifty.
Do your homework!
Editor's note: This review has been published with the permission of Donald Mitchell. Like what you read? Subscribe to the SFRB's free daily email notice so you can be up-to-date on our latest articles. Scroll up this page to the sign-up field on your right.