Money expert Phil Town on the common investment strategy you need to ditch right now
- Phil Town, investment advisor, hedge fund manager and best-selling author told CNBC the biggest mistake investors make is relying only on expert advice.
- He says investors should make investments only in companies they believe will have long-term success.
- Town closely follows the investing strategies of Benjamin Graham, Warren Buffett's mentor.
When it comes to investing, financial institutions spend millions, if not billions, of dollars on marketing campaigns trying to convince investors that without their expertise and knowledge, all their investments will go bust and leave them penniless.
Phil Town believes otherwise. The former Grand Canyon rafting guide turned professional investor thinks that ordinary investors simply need to educate themselves on the market and quit feeling intimidated. "The biggest mistake people make is to assume that all of these people who are experts in the market know more than you do."
Town, who turned $1,000 into $1.45 million in just five years, has written two New York Times bestsellers — "Rule #1" and "Payback Time" — outlining his investing strategies. His mantra: "Investing can be as easy as knowing how to shop around and find something great for an even better price."
One of the biggest things to understand, he says, is the value of the business over a long period of time. "Most people feel like, Oh man, there's no way I can do that. It's too much work, not realizing that the market has thousands of companies in it, and shoot, you know there's a couple out there that you can understand. Are you willing to become educated enough to choose a few companies that you really want to see in the future do well?"
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Town closely follows the investing strategies of Benjamin Graham, Warren Buffett's mentor. One of Grahams biggest strategies was value investing — a strategy for picking stocks that investors believe are underperforming or trading below their intrinsic value and therefore considered cheap. Eventually, these stocks will recover and the investor will profit.
Town says that value investing is not popular among fund managers who not only try to outperform the market but each other. "All fund managers are dealing with a very important problem that you don't deal with as an individual investor. That is, if they don't keep up with their peer group on a quarter-to-quarter basis three or four quarters later, they're fired."
New investors feel intimidated by Wall Street jargon and the perceived effort it takes to understand the markets. But they often don't realize the market is made up of thousands of companies and it's likely they already have an understanding of the business without even looking at a balance sheet. The caveat is that novice investors still have to be willing to educate themselves on the companies they want to see succeed in the future.
"The advantage we have is that you have cash and if a company comes down for a reason, you understand. And you know that reason is going to be a problem for one to three years. You can buy that company when the hedge fund managers are selling it. They're selling it for a good reason for them, which is, I gotta keep up with my peer group and they're all selling it. And you're buying it for a good reason for you, which is, I don't have to keep up with anybody's peer group. This is gonna be great. If it takes three years to get there, who cares. I know its gonna be a bigger company in 10. My money's safe."
Many universities and education websites are currently offering free courses for beginning investors to help people during the coronavirus pandemic. If you've run out of movies to watch to escape the reality that is 2020, take advantage of the opportunity to grow your money and secure a better future.
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CHECK OUT: An NFL player walked away from a $925,000 salary to pursue his 'passion' - here's what he's doing now via Grow with Acorns+CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.