Payback Time- Rule of 72

When doing you research on companies of value as an investor here is a really important rule. Phil Town, the author of Payback Time, uses the Rule of 72 pretty much all the time. Divide 1 into 72 and you get 72. It isn’t perfect but it’s quick and dirty and does not require a calculator. Lets look book value per share (BVPS) in 1999 (the oldest number) is .40. In 2004 it was 8.41.
Now if you begin doubling .40. double the 1st time and get .80. Double the 2nd time to 1.60. Double three times to 3.20. Double 4 times to 6.40 and then part of a double to get to 8.41. Phil Town will examine the number of years. For example the year 1999-2000 is one year, you get the idea right? Phil Town found 5 years with 4 doubles. That’s a double almost every year. Are you tracking?

You gotta love the rule of 72 for quick and dirty work. You get to where you can just glance at the numbers and then quickly do the doubles on the oldest number and see if the equity growth rate is high enough. The rule of 72 will save you loads of time in doing your RULE #1 research for businesses on sale. Now go load up the truck.