The lowdown: Discover a numbers-driven investment strategy that is perfect for the casual investor with The FALCON Method summary
If you read The Rich Dad’s guides… you’ll know just how important investing can be to build wealth.
It is important to know that an investment isn’t just a bunch of numbers on a screen – it is your hard earned!
Good investing lays somewhere between being a financial savant, and being a lucky person who can spot an opening…. that is where the FALCON Method comes in.
The three key takeaways from this book are:
- Investing in shares requires an understanding of how companies generate cash
- Use a ‘buy and hold’ stock portfolio
Lesson One: Investing in shares requires an understanding of how companies generate cash
There are plenty of ways to invest, but it is common practice to recommend stocks as a great way to increase wealth.
It is best to look at a company like a black box…. with an input and output pipe attached.
As an outsider, you have no idea what happens inside the box, so you’ll have to focus on the pipes.
The input pipe is revenue made from sales and whatnot. The output pipe is the expenses.
The most important pipe to look at is the profit… here are three things to look for when analyzing profits.
- payments to shareholders… those who bring great ROI for investors are always good to look for
- share buybacks… when a company buys their shares back, limiting the number of shares available to the public
- retained earnings… how much is circled back into the company for future expansion
Lesson Two: Use a ‘buy and hold’ stock portfolio
If you’re looking to be some successful day-trader who is constantly gambling on the market, look elsewhere. This is not for you.
For most, the way to success is simple: Use a specific criteria to rank companies, buy the best of the best, and update/sell/buy every 12 months.
The only trouble with this is that sometimes it will generate companies that you have NO IDEA even existed; It is unwise to invest in a company you don’t know about.
So, while using quantitative criteria will take the emotion out of selling, it is still nothing compared to the FALCON method.
Lesson Three: The FALCON Method
The FALCON method is a way we can choose well-performing stocks in companies we give a shit about… here is a (very) brief, 10,000 feet explanation… The full explanation is in the full book, or you can YouTube parts you’re unsure about.
- Select a group of top quality companies that have been paying dividends for at least 20 years and haven’t reduced the amount paid during this time.
- Identify the stocks which could be bought cheaply…. companies make money, but people set stock prices. Humans are emotional and fickle beings, so there will always be a great time to buy. For example, when there’s a stock market ‘panic’ people rush to sell, which, should be your invitation to buy
yourshortlist of stocks based on dividend yield, free-cash-flow yield, and shareholder yield.
- Use weighted multifactor ranking to rank the survivors… use the factors listed in step three, and add in the Chowder Rule.
- Make personal judgements…. by this stage, you’ve looked at your stock options quite a lot. At this stage, you make a judgement or add any other data, like return on invested capital.
*THE CHOWDER RULE*
My Personal Takeaway
I am a complete novice when it comes to investing, so I really like how this book holds your hand throughout.
When I do look to invest in stocks, this is definitely a method which I will use.
Put it into action
Start doing some research!! If you’re looking to invest one day soon, then looking into the FALCON method may be a great way to get started.
Start by doing the research now, and keep tabs on what you find. That means that when you’re ready to buy, you’ll have a hit-list.
You should consider buying this book if…
This book is perfect for a newbie investor, or someone who is just looking for a system to their investing.
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