Does Phil Town’s Rule Number 1 – 15 min a Week Stock Trading System Work?

After trying Phil’s Rule #1 system for 6 months and not seeing the results of my efforts, I am leaning towards saying “no.” However, by doing this system, I probably learned more about investing in individual stocks that I ever thought that I would. So, for that reason, I am not sorry one bit for taking on the activity.

I therefore began to search around for evidence of anyone’s success through a Google search. I pretty much hit a dead end, and could not find anyone that really tried the system and found success.

So, what exactly does Phil’s Rule 1 system involve and what made me intrigued enough to give it a try?

The thing that made me try Phil’s system was that it is the only individual stock picking strategy that is actually 1) systematic, 2) repeatable, 3) formulaic, and 4) most importantly, has a way to block emotions from coming in to investing. In a way, it is the most similar approach to dollar value averaging and index mutual fund asset allocation I could find.


Description of Rule 1 System:

1) Search for and identify stocks to invest in – These should only be companies that you would be proud to own, trade for > $1 per share, and have > 500,000 average daily trading volume. Ok – good. I agree with this approach. The type of companies you should invest in should be at the intersection of what you love to do, what you are good at doing, and what you can earn money doing.

2) Next, identify if the company has a “moat” – What he explains we are looking for here is >10% growth rate  over 10 years for the following things: Return on investment capital, sales revenue, EPS growth, Equity per share, and free cash flow growth. He does a very nice job explaining exactly how to calculate these numbers, and Phil also offers a very good free calculator on his website ( that I have used and would highly recommend. We also make sure that the company has enough current free cash flow to be able to pay back it’s long term debt in 3 years or less. OK – I agree with this as well.

3) Research the management and make sure the CEO is good and that no insider selling is happening – OK I agree with this.

4) Calculate the appropriate sticker price, or what the stock should be selling at given it’s current EPS and EPS growth rate. We then calculate the Margin of Safety price (MOS) to make sure that we buy the stock a significant enough discount to shield ourselves from mistakes and be able to achieve higher returns.

5) Once you ID a company that fulfills all of these fundamental requirements, it is then time to use technical analysis tools to make sure you are either buying or selling at the right time. Phil recommends using three technical tools to make sure of this – 1) MACD indicator, 2) Stochostics, and 3) 10 day moving average. Without going in to all of the details of these (Phil does in his book), Phil recommends that you only buy when all 3 of the tech. indicators say “buy” and that you only sell when all 3 indicators say, “sell.” I felt like this was really good because it eliminates the emotionally urges investors have to sell off at the wrong time and buy when prices are too high. Remember, you only buy the stock if 1) all technical indicators say to, and 2) it is trading below the MOS price. If a stock doesn’t fit these requirements, we put it on our watch list and review the current price each week to see if it has been discounted enough by the market to be under our MOS price.


So, that’s Phil’s system at a high level! How did I fare using it?

Since I wasn’t ready to commit my own real money to using his system before trying it out, I did 6 months of simulated trading/investing with this system using an Excel spreadsheet and my Google Finance watch list.

The companies listed below were ones that I found that fit the fundamental criteria above and were placed on my watch list. However, there were only two stocks during the 6 month period that came in below my MOS price that I calculated, Apollo and Research in Motion. I took this as a good sign because I didn’t want to be investing in just any company.

During the period that I tested out this system (August 2009 – January 2010), the S&P500 index return was 11.2%.

The returns for my trading activity for Apollo and Research in Motion were as follows (not included trading commissions or taxes):

  • Apollo – 2% gain, 1.4% gain, 6% gain, 0.3% loss
  • Research in Motion – 12.4% gain, 3% loss, 6.25% loss

If you sum up the returns, you get a total return of 12.85%. However, if you subtract 1% from each return for commissions, it is easy to see how the total return dips below the return of the market (and you haven’t considered taxes yet).




Apollo Group


ITT Educational Services

Capella’s Education



Varian Medical

Vasco Data Security

American Ecology

Research In Motion

Hittite Microwave


Petsmed express

Quality Systems

Factset Research Systems


meridian bioscience


Decker’s Outdoor




Jacob’s Engineering


Hansen Natural

Mobile Telesystems MBT

America movil amx


Western Digital Corp WDC

Turkcell TKC


EOG resources EOG

Immuncor BLUD

China Mobile CHL

murphy oil MUR

Gildan Activwear GIL

Endo pharma ENDP

Compania de bebidas ABV

Pharm Product Development PPDI

American Oriental Bioengineering AOB

Lincare LNCR

China Automotive Systems CAAS

Gamestop GME

Ross Stores ROST

Best Buy BBY

Amedisys AMED


Synaptics SYNA

Google GOOG

So, to summarize, Phil’s system is very interesting, and I feel that I learned a lot from it. However, I still do not believe that it beats portfolio theory, asset allocation, and investing in index mutual funds.



  1. Thanks so much for reading! Please let me know if I can answer any questions for you.


  2. ValueInvestor says:

    Thanks for the post, it was helpful. The only problem I see (assumming that you properly calculated the numbers) is that even Phil wouldn't say that in any given 3 month period his system will beat the market. He accurately predicted both exiting the market right before the crash and entering when the Dow was around 6800. These are both on youtube, he was on national TV when he made these predictions.

    So over years, if you avoid losing money (Rule #1) and make sometimes modest, sometimes amazing gains, you will crush the market.

    • You make a valid argument. The 6 months I used here is not a completely exhaustive study by any means. This 6 month exercise was to get me introduced to the system and see if it had value for me to change my ways.

      Personally, I didn't see enough potential to switch my entire financial strategy over to it, even though I liked the system it gave. However, that's just me. It might work for other people.

      Have you been able to use Phil's system to beat the market consistently? Any details you could share would be great!
      My recent post January 10% Blog Income Give Back Charity Drop

  3. Chris Bray says:

    I have to agree with the other comments. I think you may be using unrealistic time periods to show whether and investment method is good or not. By default, your own “preferred” method of staying in a fund requires your lifetime to yield a good return.

    I also am inclined to think you may not be using the methods like it's supposed to be. I use this method personally and in the past 6 months alone have seen 30% returns on stocks like CAAS (China Automotive Systems). But you have to be willing to do the homework. Quick fix investing does not work and never will. But you can significantly higher returns than a fund in 5-10 years if you stick to it.

    • Hi Chris! Thanks for sharing your experiences. I will be the first to admit that this analysis isn't perfect by any means. The trouble I experienced with this system is that while some of the stocks did well, others declined, bringing down overall returns.

      Have your experiences been that this method only produces positive returns? What other stocks have you had success with?
      My recent post Sensible Spending and Saving For You And Your Family

  4. Hi guys,
    Can someone please tell me where did you think your numbers from? for example, I couldn't find any site that gives the ROIC 10 yeras back…


    • Hi Jude! I did this analysis back in 2010, so this might not be the most current info. However, I used MSN Money to find all of the information.
      My recent post The Pros and Cons of a Down Payment Assistance Program

  5. Peter10 says:


    Hi Jacob, can you let us know, where did you find these companies' 10 year old equities, which is
    needed to calculate the “Sticker Price?” (Meaning is there a place to find it for free, and if not for
    free, where would be the cheapest place to find it?)


  6. I think you didn't learn what you were suppose to from his book. I read his book the same time period and executed his value strategy and guess what? Returns of 30-50% in two years. I would argue that the companies you selected do not meat all of the 4m's. You can't just find a company that is attractively priced. The company has to have meaning and you have to understand the industry and it has to have a moat. If not then you'll end up with results like you had on Apollo and RIMM. I had talked myself into RIMM,but guess what, I didn't really know enough about the industry or the company. I was lucky and made a little money just by buying at the right time off technicals and selling when they said sell. I did not make my wonderful returns off RIMM. I made them off AAPL, LULU and FLIR. Research the company and make sure it meets all the 4Ms!

    • Thanks for reading Buddha and sharing your experiences!

      Did you have an overall return of 30-50% on all your stock investments over the 2 years? Also, I'd be curious to hear how the market faired during the time period you were trading in.

      I'll admit that this analysis is not and was not perfect. Since I was not really convinced of the strategy, I didn't spend as much time understanding the companies, and instead, just stuck to analyzing the numbers.
      My recent post City Living: The Perfect Lifestyle for the Retired?

  7. Most people who work the rule #1 system are too anxious. They see a stock at a low price and buy. You have to wait for stochastic, MACD and moving average to all indicate a buy situation.

    I used Rule #1 in conjunction with covered calls and did very well, but the most important thing about any stock system is setting a stop loss!

  8. I just stumbled on your page and thought I’d give my .02 worth. I’ve used Phil’s system exclusively since 2007. In 2013 the value in my portfolio was almost 5 (4 point something) times what I started with in 2007. From Jan 2014 when I was all cash to now (14 months later) I am up 29.19%.
    I’m certain that Apollo and RIMM (BBRY) have not qualified as Rule#1 companies in the last 10 years as their growth rates were too low. But I did profit from some on your list and major profit from Apple, Decker, Under Armour, Devry and others not on your list.
    I’m not sure where you went wrong but I’d say you should give it another chance.

    • Ray,
      Why does Phil provide the weekend Seminar in Alabama at no cost? It seems there is a catch. Or is he truly giving back to the world?
      Any insight? I am planning to attend in December.

      • The seminar is a wealth of information. I attended and learned even more. He does have training classes that are quite expensive that he gives to advanced students – those who do the seminar and want to go further. He does no selling at the seminar, but sometime later, weeks, someone will offer the other classes to you. Best I can tell, they are not hard sell at any point. But the free seminar does not ‘hide’ or limit information to get you to buy the class. It is truly valuable, IMO.

  9. From what I can tell by following the guidelines that Phil says to follow and from reading the reviews here the chances of ever finding a stock that meets the Criteria are slim and none making it worthless. If you could then yes it should make money.

    • I find them all the time. You have to do your homework, but they are out there. There’s tons of Rule 1 companies, but finding them ‘on sale’ is the difficult part.

  10. Anyone use to find Rule#1 companies?

  11. I like Dave Ramsey and his financial philosophy. My family is debt free and we are on Baby Steps 6! I am a self taught investor of mutual funds and lead a small group of like minded investors at my work. I have always believed in Graham’s philosophy of “value investing”. I have just never found someone who has the heart of a teacher for business stock investing. I like what I see in Phil Town and his Rule #1 Investing and think I will give it a try. Thank you all for your insight and if anything, I will learn even more!

  12. Hi Jacob,

    Thanks for sharing your experience. I’m with the majority of the others who mention that 6 months is definitely too short to really tell. I’ve read Phil’s book and listen to his Podcast (worth the listen) and I’m with you in regards to how much I’ve learned. I have no clue whether his approach will work in the end, but there is a lot of logic there that I would have never considered prior to coming across Phil’s strategies.

    I think it is worth noting as well that Phil really pushes the need to want to purchase a company with the hope that you’ll keep it “forever” (or at least a very long time). His thinking is that we hope the company remains super strong and provides a great return on invested capital so that we never want to sell. However, he mentions that once the price gets to value or above, then that is the time to exit and find another great deal.

    Thanks again for all you do to share your knowledge.

  13. Frank B. says:

    I might not heard Phil statement correctly “I turned $1000 into 5.5 million”. For me to do the same thing :: I would need a 13% return, compounded monthly for 60 months,,, with no losers ????

  14. I don’t think he did it in 5 years.

  15. It looks to me like if you had kept a few of the stocks for 5 years, you would have done pretty well for yourself.

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