InvestED: The Rule #1 Investing Podcast · Phil Town & Danielle Town

Eventing

·40 min·5 clips

Phil and Danielle Towne discuss managing owned companies that experience negative events causing major stock price drops. They define an "event" as something that creates uncertainty about whether a business will survive, typically resolving within one to three years. The episode contrasts how institutional fund managers respond to events versus long-term value investors who can tolerate longer resolution periods. Phil explains that fund managers operate on quarterly timeframes and exit at the first sign of uncertainty lasting beyond one year, creating a self-fulfilling cycle of selling that drives prices down 20-50%. Long-term investors benefit from this dynamic by having the patience to wait three years for resolution. When you own a company experiencing an event, the critical question is whether it fundamentally changes the company's story or represents a temporary setback. Phil shares the Bank OZK example where a short seller revealed the regional bank made its largest loan—nearly $1 billion—to an empty life sciences building in San Diego without tenant leases. This contradicted management's stated strategy of only lending after developers leased up buildings with their own capital. When management gave contradictory explanations, Phil's fund exited entirely because the story had fundamentally changed to include speculative lending. The Chipotle case illustrates Phil's biggest regret: selling during a pork commodity price event when the stock seemed overvalued. He missed massive subsequent gains because he couldn't buy back in after the price shot up. Phil now believes companies growing internally at 20%+ annually are so rare that investors should never sell them, even when overvalued, because they're nearly impossible to re-enter. Phil introduces the concept of "anti-fragile" companies from Nicholas Taleb—businesses that benefit from industry downturns by overtaking weaker competitors. These companies can generate 30% annual returns versus the market's 13% in bull markets, turning $10,000 into $160,000 versus $36,000 over a decade. Sprouts Farmers Market exemplifies this, sitting stagnant at $22 for years before jumping to $135 in a year when the market recognized its value. The conversation emphasizes that true investing success requires unemotional discipline to hold anti-fragile companies through 50% price drops. Phil acknowledges this emotional test determines whether someone suits this investing approach. The tone is conversational and experience-driven, with Phil sharing specific numerical outcomes from real investments. The discussion targets investors who already own concentrated positions in high-quality companies and need frameworks for event-driven decision-making. Phil's fund recently received Morningstar recognition as number one in their peer group over five years, lending credibility to the approach.

As heard by us

A practical discussion of what to do when a company you own has an event.

Phil Towne and Danielle Towne take on a practical problem: what to do when a company already owned by the portfolio has an event. They separate the kind of news that is mostly noise from the kind that creates enough uncertainty, or enough certainty of damage, to make the holding…

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Why you'd press play

When your stock throws an event, this keeps you from reaching for the wrong lever.

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