| The Motley Fool's pose as the "fools" who point out | | | | the future is not so easy without a crystal ball. |
| the foibles of the "wise" (those in power) is | | | | And both David and Tom warn that you'll still lose |
| entertaining, but in this book they fail to point out the | | | | money on some losers -- or perhaps their lawyers |
| Emperor's biggest invisible "garment" -- capital gains. | | | | insisted they add that. And to their credit they agree |
| They pose as the champions of us small investors, | | | | that the small cap stocks, which are certainly more |
| but fall into the same growth-in-market-price trap the | | | | speculative and risky than the large cap stocks, |
| Wall Street establishment wants us locked into. | | | | should be only a small portion of your overall portfolio. |
| Oh, from that perspective, they give lots of good | | | | Yet even with the large cap Rule Makers, you'll invest |
| advice. I have no doubt that anybody who follows all | | | | in more losers than winners. |
| their guidelines will find stocks that will go up in price. | | | | This book was written during the market euphoria of |
| Though I seriously doubt that more than a tiny | | | | mid-1998, and so the Fool also fall into what Dr. |
| fraction of this book's readers follow all their rules | | | | Jeremy J Siegel in THE FUTURE FOR INVESTORS |
| (they lay out a lot of rules in this book). | | | | calls the "Growth Trap." That is, overpaying for |
| I have no doubt that David and Tom are sincere in | | | | stocks because of their prospects for growth. The |
| their intention to empower small investors, I just | | | | Fool brag about not paying any attention to a stock's |
| believe that most small investors who want to follow | | | | P/E (or Price/Earnings ratio). If your research shows |
| their advice take the logical short cut -- they go to | | | | a stock is a rule breaker or rule maker company, you |
| the Fool's website and see what the brothers are | | | | should buy it without worrying about the price. This is |
| recommending now. | | | | asking for poor returns -- even if the stock grows as |
| David and Tom can't be faulted for this -- gurus and | | | | you expect. |
| teachers of all kinds have pushed for | | | | This was a common delusion during the dot com |
| student-independence only to be thwarted by | | | | boom -- the Internet was growing so fast, how could |
| student-dependence . . . probably since the first | | | | prime Internet stocks not be worth whatever the |
| fire-master tried to get his students to try new | | | | market was asking? |
| ways to barbecue a sabre-tooth tiger's steak. | | | | As the Fool put it -- "At what point this century |
| Yet who can fault the students? All this research, | | | | should the investor in a spectacular business like |
| analysis, application of ratios, studying of business | | | | Coca-Cola or Schering Plough or Hershey's or Johnson |
| plans, deciding whether a given company is a true | | | | & Johnson have worried about the immediate |
| rule breaker or faker breaker . . . takes a lot of time. | | | | valuation of their stock stubs?" |
| Time which -- I'd argue -- would be better spent | | | | The answer should be obvious -- at the time they |
| either making more money in a part time endeavor | | | | planned to buy said stock stubs. |
| or just enjoying activities with your family. | | | | After that, they should cash their dividend checks |
| That's why so many people send their money off to | | | | and pay no attention to the market price -- which is |
| mutual fund managers in the first place -- they | | | | far less attention than the Fool pay to "immediate |
| believe they don't know enough to buy individual | | | | valuation." |
| stocks. Or they know that buying many stocks is | | | | And it's clear from the context in the book that The |
| less risky than buying the stock of one or a few | | | | Motley Fool assumes that good stocks are simply |
| companies. The Motley Fool ignore the risk of buying | | | | those that go up in price. So at bottom, The Motley |
| individual companies and the benefits of | | | | Fool advocate that put your money into investments |
| diversification, which they say is overrated. | | | | that may not return you any money until you sell. |
| From the standpoint of Modern Portfolio Theory, | | | | I don't recall seeing the word "dividend" anywhere in |
| they stand accused of encouraging people to take | | | | this book. Maybe I missed it, but any mention of |
| on more risk than necessary . . . with the hope that | | | | dividends was not important to rate a listing in the |
| their one winner out of four will make up for the | | | | index. |
| three losers. | | | | They praise the rise in market price of Coca-Cola, |
| The book is divided into two parts. The first is | | | | but don't point out that not only has its market price |
| written by David and tells you how to find stocks | | | | have gone up tremendously over the years, it has |
| that are "Rule Breakers." That is, small companies | | | | paid out an ever-increasing amount of income. |
| that have revolutionary products that are going to | | | | So Tom fails to bring on what in my opinion is a |
| kick the rear-ends of their industry giants and grow | | | | prime attribute of "Rule Makers" you want to invest |
| the companies into powerhouses. | | | | in -- they share their success by paying an |
| There's a lot of good advice that should help such | | | | ever-increasing amount of dividends to stock holders. |
| "foolish" investors avoid many obvious losers. | | | | I applaud the Fool's criticisms of mutual funds. |
| However, you will also have to learn how to tell a | | | | However, they make no mention of exchange |
| promising rule breaker from a faker breaker such as | | | | traded funds, which have the advantages of mutual |
| Boston Chicken. | | | | funds without the disadvantages of actively managed |
| Once a company has grown past the rule breaker | | | | mutual funds. |
| stage, it becomes a tweener and either dies or goes | | | | EFTs were not as popular when this book was |
| on to become a rule maker. Tom writes the second | | | | written in 1998 as they are now, but Spiders (an EFT |
| half devoted to finding these Rule Makers -- | | | | that tracks the performance of the S&P 500 |
| companies large and sucessful enough to dominate | | | | index) had been available for 5 years old. But a simple |
| their industries. | | | | way to invest in the broad market is too easy for |
| He explains a lot of criteria, all of which make a lot of | | | | these brothers. The Fool would rather have you |
| sense. (Though I think many accountants could argue | | | | spend your evenings analyzing annual reports. |
| with the Foolish Flow. Yes, excess inventory is bad. | | | | If you really enjoy the game of researching |
| But stores need some inventory if they plan to open | | | | companies and picking individual stocks, and you have |
| their doors tomorrow. So how much is too much? | | | | the time to indulge in such luxuries, allocate a small |
| Same with accounts receivable and accounts payable. | | | | portion of your total portfolio to the Fool's |
| He turns these accounting rules upside down.) | | | | investment plan. Research and analyze to your |
| Yet, when all's said and done, you still need a lot of | | | | heart's content. Have fun. (Meanwhile, I'll be on a |
| insight into the businesses of these companies to | | | | tropical beach). |
| properly evaluate them -- and most of us don't have | | | | But please keep the vast majority of your money in |
| that, certainly not for every industry. After you use | | | | diversified interest and dividend paying investments. |
| the math to choose potential winners, you still need | | | | After 10 years, compare the money you've received |
| some good judgment to pick the ones you think will | | | | from your income portfolio with that of your "Foolish" |
| win. | | | | portfolio. I bet you'll be glad that you kept 95% of |
| Analysing successful companies in easy in hindsight. | | | | your money invested in proven income investments. |
| Predicting which ones will survive and thrive far into | | | | And maybe you'll head for your own tropical beach. |