Phil Town's Stock Portfolio REVEALED! (Rule #1 Fund Annual Report)

Hey guys, welcome back to the channel! In this video, we are going to be talking about Phil Town's stock and options portfolio because we actually get this revealed to us now.

Phil Town has announced, or he has released or filed the first Rule One Fund annual report with the SEC. So now we get to have a look at it and see what stocks he is holding in that Rule One Fund.

Firstly, I wanted to say a massive thank you to Tom from Investing with Tom for sending me the link to this annual report, so thank you very much, Tom! I definitely encourage you guys; I'm going to leave this link down in the description. Go and have a look at Tom's video. He was quick on this one; he had a video out as soon as he saw this, so I definitely encourage you guys to go check out Tom's video on this finding, on this SEC filing because it's very interesting.

You guys know that Phil Town is someone that I definitely look up to, and I model my investing strategy off of his style that he teaches throughout his books, you know, with the meaning, moat management, margin of safety method, that Warren Buffett kind of method of stock market investing. So I was really excited; now we actually get to look inside Phil Town's portfolio.

So let's get on with it! Let's do exactly that. Of course, leave a like on the video if you do enjoy it or if you find it useful. But for now, let's have a look inside the portfolio.

First things first, the first thing that's immediately noticeable is that Phil is holding a lot of cash. Essentially, his fund is worth 66 odd million dollars, and he's keeping 21.2 million dollars in cash. So he's keeping 32% of his portfolio on the sidelines. It's essentially one-third cash, two-thirds investments.

But what's really interesting is that if you dive in a little bit deeper and we start to have a look at, okay, well, what's in this investment portfolio that he's got, he's actually got 22.9 million dollars out of that 44.4 million dollars investment portfolio. He's got 22.9 million sitting in a money market fund.

Now, a money market fund is basically considered cash because of the types of investments that are made within that fund. Essentially, they limit it to things like T-bills, so U.S. Treasury bills, and commercial paper, so these really kind of short-term, ultra-ultra-safe kind of investments. It's short-term, it's ultra-safe, it's highly liquid, so people basically just assume that a money market fund is cash.

So he currently holds, out of the 44.4 million investment portfolio, Phil holds 22.9 million dollars in a money market fund. So if you look at his whole portfolio, the whole 66 million dollars worth is pretty much two-thirds cash, one-third actually invested in stocks.

Next up, let's actually talk about what stocks he has invested in. Well, firstly, his biggest position is in Bank OZK, which is worth—his position is worth about four million dollars. He talks about this bank a little bit more in his note to shareholders at the start of the report. Basically, he talks about how he really likes it; he likes how it's run, they don't take on too much risk, all that sort of stuff.

And, you know, there's a lot of discussion about why the stock dropped so far and why Phil bought it and all that sort of stuff up in the top section, which I'm not going to go into. But his biggest position, surprisingly, actually—wouldn't have thought it would be a bank—but it is! So there you go!

Then his next largest position is in Sturm, Ruger & Co., which is essentially a gun manufacturing company. Now, I was actually very surprised to see this. He's got about 3.1 million dollars invested in this company because I think reading Phil's books and listening to his podcast and his YouTube channel and all that, I thought that he was much stricter with his ethics around his investing.

So yeah, I was actually—being honest—I was pretty disappointed when I saw that his second biggest position is a firearms manufacturer. Man, 15,000 people in the United States died in 2019 from gunshots! So obviously, it's not something that I would go backing. Obviously, those sort of companies sit way outside my set of values, but I don't know— it seems to be a much more popular, you know, accepted thing in America, which is kind of sad if you ask me.

It kind of shows you how far things have got to progress still in America, but that's just the way it is. But overall, I certainly don't dislike Phil because of this or anything like that. Of course, I respect Phil; I admire him for how he goes about his investments. I’d love to meet him one day, so #let'sgetphilontheyounginvestorspodcast! We need to get him on. We've been close twice, but we still haven't quite gotten to him.

But anyway, moving on—his third largest position is in a company called CF Industries Holdings, which is a manufacturer and distributor of agricultural fertilizers. So he has just over three million dollars in that. But as you can see, his portfolio isn’t really too heavily weighted to anyone's stock.

These top positions are only kind of like three, four million, and his lowest position is like one, two million. So he's got ten stocks total in that portfolio. But unlike Berkshire Hathaway, where, you know, the top three stocks have so like a massive weight in the portfolio, Phil Town doesn't really see it like that.

So overall, he owns those three stocks; he owns Boeing, Gildan Activewear, Ulta Beauty, Berkshire Hathaway, Goldman Sachs, Southwest Airlines, and Saratage Growth Properties. So all of those positions are kind of between, you know, one or two million dollars each.

Now moving on, what I find really interesting about this annual report or looking into Phil's stock portfolio is that he also talks about his options portfolio, which actually gives us a lot of insight, which you may not think it would.

So I want to talk about that a little bit because we got to remember what options are. Options are essentially contracts between two investors, and the contract gives the holder the right to either buy stocks at a predetermined price—so that's called a call option—or it gives the holder the right to sell stocks at a predetermined price, and that is a put option.

So for the buyer of a put option, it's essentially like insurance. So you've made this investment, and you're saying that I have the right, but not the obligation, to sell my shares to you at this predetermined price. So then again, Phil's not doing this; he's not buying put options; he's the person that's selling these put options to other investors.

So what Phil's essentially saying is that I will be willing to buy your shares off of you at this predetermined price if you choose to take that deal. So essentially, what this is saying to us is—it’s saying that these are the companies that Phil wants to buy more shares in, and it's even telling us at the price that he would be comfortable buying those shares.

For example, the first company that he lists in his options portfolio is the Bank of America. So he's saying here that he's willing to buy 3.6 million dollars of Bank of America stock off of other investors if the price went down to 17.50.

Now these contracts in particular expired on the 3rd of April 2020, and from what I can see, the price never got down to 17.50. It looked like it got close at about 18, but it just wouldn't have gotten low enough. So in that instance, Phil's sitting back there and going, "Ah, bummer!" You know, I wanted to buy those stocks at 17.50 from these other investors; however, it just never quite happened.

But Phil still gets a profit even though he wasn't able to buy those shares that he wanted because, of course, he wrote the options contract, and he sold that options contract for another investor to hold. So even if the contracts expire worthless, Phil still makes money from writing the contracts and selling them to other investors.

So it's actually a pretty smart kind of tactic for his style investing, where he's ultra long-term focused. He knows what he wants to buy; he knows the valuation that he wants to get in at, but he's just waiting on the sidelines until he sees those prices become reality.

You can just write options and sell them. If nothing ever happens, then he just sells worthless contracts and collects the money. If the companies do fall to that point, then he's happy to buy the shares because he wanted to buy them anyway. So very interesting!

You can see he's essentially got a massive long list of other companies that he's written put options for as well. So you can see, like Sanderson Farms here, he would be willing to pay almost buy almost two million dollars worth of stock for Sanderson Farms at a strike price or an exercise price of ninety dollars.

Berkshire, he wants to buy more of at 180. He wants to buy more of Gildan Activewear at 22.50. Boeing he wants to buy at 225, Ulta Beauty wants to buy at 190. And then that's interesting—here Boeing's listed again for 165.

So this is really interesting because essentially that's saying that Phil Town would be interested in getting into Boeing even heavier at 225, but really he'd be extremely keen on getting into it at 165. As you can see, he'd be willing to put a million dollars worth into Boeing at 225, but he'd be interested in putting 1.5 million if it reached 165.

So that gives you even more insight as to the price he'd be comfortable with but the price he's really eyeing off. Furthermore, he's got CF Industries here at 27.50; he'd like to buy it. Goldman Sachs, he'd like to buy it at 170, and Ulta Beauty's put in another one there for 175.

So overall, that is an insight into Phil Town's stock portfolio and his options portfolio. So man, we're getting so much information here! We're getting exactly what's in his portfolio, and we're also getting what's on his immediate watch list and the prices that he'd be interested in buying at.

Now, of course, that does not mean—we should be buying the stocks when they hit this price just because Phil is. As you can see just from that example before, it's all about what companies work well for you, what's inside your circle of competence, and your values.

For instance, his second largest position is in a company that builds things that are designed to take other people's life—that's not my cup of tea. I'm not investing in anything that's remotely to do with that. So obviously, this is where the circle of competence, different values, etc., that's where we start to come into our own as individual investors with what stocks we would be interested in buying.

But nonetheless, this is very interesting because you can almost reverse engineer some of this information to see his thinking, his growth strategy, and whatnot to actually see a little bit more of an insight into Phil Town's mind.

So anyway, super interesting! Like I said, I've left that link down in the description below. Definitely go and check out Tom's video as well. Leave a like on this video if you did enjoy it or if you found it useful; I super appreciate it!

Of course, check out Profitful if you're maybe brand new to this, and you don’t know what I'm talking about when I'm talking about Phil Town's investing strategy, meaning, management, margin of safety. If you want a step-by-step explanation, well, first of all, you can just straight up buy his books and read them.

But if you want it to be more of an in-depth kind of presentation and show you how to go through each step, definitely check out Profitful: Introduction to Stock Analysis is the course that you'll be wanting to have a look at for that.

But apart from that, that will do me for today, guys! Thanks for watching! Now go play! [Music]