In one sentence: A chance remark about a friend's employer, Terumo, becomes a live demo of how Phil and Danielle go from a name to a first read: Google, the company site, a chart, the Rule of 72 for a growth rate, and a P/E sanity check, with a long detour on Buffett's cash.
Key ideas
- Ideas come from ordinary conversations. Danielle's friend works at Terumo, a Japanese medical-technology company, and the "no competition" remark caught Phil's ear. People rarely think of their employer as an investment. [01:00–06:00]
- Information is far easier to get than it used to be. Phil recalls his father seeing Standard Oil in the newspaper in about 1960 with no way to learn why it was priced as it was. Today much is free, though most people still don't know how to use it. [06:00–08:30]
- First moves. Google the name, open the "who we are" page, then check the stock chart and basic figures (market cap, P/E). Terumo is on the Tokyo Stock Exchange and has a US-traded ADR. [09:00–14:30]
- Your first impression may be too narrow. "Medical bags" turned out to be a broad medtech business (vascular, blood, cell therapy, diabetes, dialysis). The "no competition" idea was true only in a small corner. [10:30–13:30]
- Rule of 72, done by hand. Count how many times the price doubled, divide the years by the doubles, then divide 72 by that number. About $4 to $20 in 15 years is roughly 2.25 doubles, one every six years, about 12% a year. [16:00–22:00]
- Look at the period, not just the whole. From 2009 to 2021 the price rose from about $4 to about $25 (roughly 18% a year). Since 2021 it has gone nowhere, so the long-run figure is closer to 12%. [22:00–25:00]
- Be careful with free charts. Google's charts can be incomplete and the yen and dollar charts looked inconsistent. Phil says not to rely on them. [25:00–26:30]
- Growth rate and windage. Phil draws a line through the peaks and valleys and asks if the stock's growth is below the business's growth in the long run. His firm's tool scores how predictable a series is (he cites 85–90 as good) so that the growth guess has less subjectivity. These are his own tools, not yet public. [26:30–33:30]
- A P/E of about 38 implies high growth. Phil reads that as the market pricing in roughly 19% growth, more than the company is now delivering. So it is very unlikely to be on sale in a strong bull market, and there is no rush. [35:00–37:30]
- When something does look cheap, move fast. Phil tells of a colleague who took too long on a recently listed company; it doubled in two months. If it might be on fire, treat it as on fire and go see it in person. [37:30–39:30]
How it maps to RuleOne
- The first steps are what the screen automates: /stocks/ lists the companies, and each /stock/TICKER/ page lays out the numbers and links to filings.
- Terumo, as an OTC ADR with lighter reporting, is the kind of name the screen does not cover, as Phil notes in episode 490. That is a boundary of the tool, not a verdict on the company.
- The predictability idea matches RuleOne's own consistency checks on growth series; use them to decide how much windage to allow.
Buffett, Munger and Graham links
- Windage and the Rule of 72 sit in the Rule #1 method, not in Buffett's letters, but the idea that price should follow business value in the long run is Graham's "weighing machine" (The Intelligent Investor, ch. 8, and Buffett's 1993 letter).
- Circle of competence: Phil leans on an earlier look at Intuitive Surgical to feel comfortable with the industry (Buffett's 1996 letter on knowing the circle's edge).
- Wonderful businesses rarely go on sale without an event. That is the Munger "wonderful company at a fair price" idea in waiting form.
Words to know
- ADR: a US-traded certificate that represents shares of a foreign company.
- Rule of 72: divide 72 by a growth rate to get years to double, or by the years to double to get the rate.
- Windage: room for error you build into a growth estimate.
Try this
Pick a company you use or hear about at work. On a stock page from /stocks/, find the price now and ten years ago, count the doublings, and use the Rule of 72 to get a rough annual return. Then ask whether the last three years match.
Check yourself
- How do you get a growth rate from $4 to $20 in 15 years with the Rule of 72?
Answer
About 2.25 doublings; 15 ÷ 2.25 is about 6 years per double; 72 ÷ 6 is about 12% a year. - Why does a P/E near 38 say the stock is unlikely to be on sale?
Answer
Phil reads it as the market already pricing in around 19% growth, which is more than the company is now growing. - What did the first look at Terumo teach about first impressions?
Answer
The company was much broader than "blood bags", and its supposed lack of competition applied only to a small part of the business.
Short quotes
"If it looks like it might be on fire, it's probably on fire. Treat it like it is." (Phil, ~39:00, auto-transcribed)