Some of you have been doing some thinking and digging around in the new book by Phil Town called PAYBACK TIME. You want to know why you shouldn’t buy and hold a wonderful business we buy on sale instead of trading it. Trading has a transaction cost, can be inaccurate in the short run and will certainly cost you some of your profit.    It also has the advantage of getting you out of a stock that is about to take a huge nose-dive. Its not perfect but it is pretty good insurance and it reduces the amount of effort you have to put into determining whether the business is a good one and whether you got the price/value thing right for Rule #1 investing.

Phil Town’s Payback Time presents the buy and hold strategy of Phil Town investing in a whole new light with step by step instructions for implementation.  Its the price of the business that will be repaid in a very short number of years out of earnings.

Therefore, in 5 years you have your money back (assuming you don’t need any additional working capital to keep it going).

Of course Mr. Town teaches, that with public companies, we’re not going to be able to buy the whole thing.  But if you buy right, if we use Payback Time as a measure of the purchase price, we should properly expect that the market will properly price the business as time goes along and we will see a profit on our investment.    In fact, we might even be able to get our money out of the investment in a short time - a year or two - and what we leave in the deal is all house money.

And to jack up our profit, we can add some cool techniques to generate cash flow using Puts and Calls with absolutely zero risk.   Phil Town knows that seems crazy but the whole origin of options was to reduce or remove the risk of owning something scary like a wheat crop.