Rule Breaker Portfolio

Insouciance
Of clowns, young children, and happy adults

by David Gardner (DavidG@fool.com)

ALEXANDRIA, VA (Oct. 13, 1998) -- The Fool Portfolio slid Tuesday, twinkletoeing down the tightwire 0.94%. This uninteresting performance bettered the Nasdaq, which slipped a bit further down the tightwire, off 2.37%. The S&P 500, on the other hand, played a role something more like the spotter below the tightwire, still at risk but much safer, losing just 0.28%.

So what are we up now? Man, it's been changing so much day in and day out that just getting one's bearings is challenge enough. The official tally as of market close looks like this:

 
              1998      History 
 FOOL         +27.38%   +327.50% 
 S&P 500      +2.52%    +117.03% 
 Nasdaq       -3.88%    +109.59% 
 

I was watching the circus yesterday with my wife and two children, having a lovely time sitting there in the dark under the big-top tent and asking myself what the clown has that most of the people in the audience don't. And it's really very simple. It is insouciance. (Great word, otherwise known as carefree indifference, or a blithe spirit.) A lighthearted lack of concern. And not to generalize, romanticize, or otherwise oversimplify the four-year-old or two-year-old mentality, but that's mostly shared by young children too. The two little creatures sitting on each of my knees (until my circulation stopped, at which point they were repositioned on my wife) were able to watch with wonder, with surprise, and without anxiety. Their simple laughter was a sincere and uncomplicated response to the colorful antics that popped up in front of their eyes, one non sequitur sequence after another.

This is the fundamentally Foolish mentality, possessed -- nay, enjoyed -- by clowns, young children, and (methinks) most happy adults... the ones I know, anyway.

True Fools recognize that life is a drama, deadly serious, and important, but their response to that is eminently contrary and Foolish: They simply do not act it. They are not deadly serious. They do not position themselves in such a way that pressure or unexpected outside events can unduly dictate their own destiny. They believe they are responsible for creating their destiny far more than destiny is responsible for creating them. Consequently, they do not buy on margin, they do not try to "time" the market, and they do not dabble in options. They win the investing game by the rules that make it easiest to win, buying and holding good companies, and then they get on with the rest of their lives.

I have no idea what my stocks or the market will do on any given day. In this way I'm very similar to my two-year-old son, who brings no such pretension or expectation to watching the circus. It is enough for us both that the circus is the circus -- fun, worthwhile, and pleasantly surprising. We both go to our respective circuses (I to the market, and he to the clowns) with the expectation that they are an inherently good thing, and will delight us in surprising ways that contribute significantly to our well-being. We believe that life is good and that the circus is both a reflection of that and a reminder of that. We are insouciant.

The Foolish Four (aptly named) is an investment approach well in keeping with this approach to life. One invests in good strong things, without pretension, and unemotionally transfers one's assets from one group to the next -- carefree -- as the years go by. History has proven this to be a way to beat the stock market, in a world in which many academics and syndicated columnists have "proven" it can't be done. Only a Fool would try, right? Even on days in which one of the Foolish Four crumbles -- Eastman Kodak (NYSE: EK) dropped eleven bucks today after a slowdown in revenues -- the approach itself still does fine. Though the Foolish Four dropped 4.64% today -- a horrible performance -- it remains up 7.43% this year vs. a flat Dow, a down Nasdaq, and a 2.5% gain for the S&P 500. This outperformance is perfectly in keeping with the approach's traditional beating administered to the market averages.

This Foolish Four insouciance could not be more different from the spastic activity of hedge-fund managers, or the what-have-you-done-for-me-last-minute mentality of day traders. The interesting thing -- the truly interesting thing -- is how the Foolish Four and other such approaches beat the returns of these people.

We got a call on The Motley Fool Radio Show from an older woman who'd been managing her money just fine, thank you, for lo these many decades. Following our compliments to her for her long-term outperformance -- and for doing it herself -- we couldn't avoid pointing out that it's not people like Jeanne from Encinitas who necessitate international bailouts, no sir. Ain't the Fools out there who need help, my friends. It's the Wise. A rather contrary take, given that individual investors have traditionally been treated by the institutions and the financial media backing them as if they're lemmings whose increased presence in the market "shows" that it's overvalued. Au contraire. It is the increased presence of average people like you and me in the stock market that is making it more stable. And rational. And logical. And safer. The more people we have taking responsibility for their money and their actions, the better off the world is. Wall Street will try to tell you it's the very opposite -- though if you look through the pomp and circumstance, you'll find the very same people turning to the government looking for a handout -- I mean, hedge-fund bailout.

Hmmmm.

So let's continue to clown our way through our investing lives -- and our lives in general. We'll do better, we'll be happier, and (this much for sure) we'll have a lot more fun. I can't ask for much more out of life. It starts, of course, with insouciance.

Tom and I will be in San Jose, CA, this Thursday, signing books and shaking hands from 2:30 to 3:30 PM. It's at the San Jose Convention Center. Just drop by booth #718 at the Nat'l Association of Investment Clubs (NAIC) Congress and Expo. And bring along a friend, of course -- help get someone else started investing Foolishly!

Finally -- this just in from our Fool HQ desk -- have you ever wondered how many Fools want to see Jerry Springer vanish from the face of the Earth? Or how fast we actually drive? Or who's willing to admit they've stolen a Slurpee? Or how often some Fools are trading stocks? For answers to these revealing questions and more, check out the just-published results of our recent Foolywed Game contest. You might be shocked. You might be surprised. And, if you're really insightful, you might have won! (Makes an amusing read even if you didn't play.)

See you on the boards.

Fool on!

David Gardner

WE DELIVER - Get Fool Portfolio Nightly Reports
delivered straight to your e-mailbox every evening!

Today's FoolWatch: all the latest in Fooldom.


Bookmark Live Fool Port Quotes

10/13/98 Close
Stock Change Bid ---------------- AMZN -1 13/16 91.38 AOL - 3/8 93.00 T + 5/16 58.88 DJT - 3/16 3.00 DD - 15/16 59.00 XON +1 3/16 73.00 INVX - 3/4 10.75 IP --- 46.06 IOM + 1/16 3.63 KLAC -1 5/16 26.13 LU -2 3/16 64.44 SBUX -1 1/4 34.88 COMS - 5/16 28.00 TDFX - 3/8 10.00

Day Month Year History Annualized FOOL -0.94% -10.68% 27.38% 327.50% 41.46% S&P: -0.28% -2.18% 2.52% 117.03% 20.32% NASDAQ: -2.37% -10.89% -3.88% 109.59% 19.32% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 93.00 2457.45% 9/9/97 580 Amazon.com 19.11 91.38 378.13% 5/17/95 1960 Iomega Cor 1.28 3.63 183.11% 10/1/96 84 LucentTech 23.81 64.44 170.65% 4/30/97 -1170*Trump* 8.47 3.00 64.58% 8/12/96 130 AT&T 39.58 58.88 48.76% 2/20/98 200 Exxon 64.09 73.00 13.90% 2/20/98 215 DuPont 59.83 59.00 -1.39% 2/20/98 270 Int'l Pape 47.69 46.06 -3.42% 7/2/98 235 Starbucks 55.91 34.88 -37.62% 8/13/96 250 3Com Corp. 46.86 28.00 -40.25% 8/24/95 130 KLA-Tencor 44.71 26.13 -41.57% 1/8/98 425 3Dfx 25.67 10.00 -61.04% 6/26/97 325 Innovex 27.71 10.75 -61.20% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 66030.00 $63448.13 9/9/97 580 Amazon.com 11084.24 52997.50 $41913.26 4/30/97 -1170*Trump* -9908.50 -3510.00 $6398.50 5/17/95 1960 Iomega Cor 2509.60 7105.00 $4595.40 10/1/96 84 LucentTech 1999.88 5412.75 $3412.87 8/12/96 130 AT&T 5145.11 7653.75 $2508.64 2/20/98 200 Exxon 12818.00 14600.00 $1782.00 2/20/98 215 DuPont 12864.25 12685.00 -$179.25 2/20/98 270 Int'l Pape 12876.75 12436.88 -$439.88 8/24/95 130 KLA-Tencor 5812.49 3396.25 -$2416.24 8/13/96 250 3Com Corp. 11715.99 7000.00 -$4715.99 7/2/98 235 Starbucks 13138.63 8195.63 -$4943.00 6/26/97 325 Innovex 9005.62 3493.75 -$5511.87 1/8/98 425 3Dfx 10908.63 4250.00 -$6658.63 CASH $12005.75 TOTAL $213752.25

Are you a Foolish investor?
The Motley Fool Recommends...
Industry Snapshot
New format! A stock idea, industry overview, top players, and financials -- every two weeks! Get more info or order.

Fool Port Reports
The nightly scoop on the Fool Port Report, delivered straight to your e-mailbox. Get more info or order.

Foolish Eight Stock Screen
Here at Last! Foolish Eight Stock Screen. Get more info or order.

Other Fool Products...
Subscriptions
Primers
Reports
Investing Tools
Books
Fool Gear

Shop FoolMart!








Note
The Fool Portfolio was launched on August 5, 1994, with $50,000. It was renamed the Rule Breaker Portfolio in October 1998. The investing strategy began with the first investments of the Fool Port and has evolved with time and experience. In July 2001, the portfolio began adding $12,500 each quarter (We missed Jan. 2002, so we added $25,000 in April 2002). We skip a quarter if we have enough uninvested cash or cash available in stocks we would prefer to sell to make new investments. All transactions are shared and explained publicly before being made, and returns are compared in each week's column to the S&P 500 (including dividends where noted) and the Nasdaq composite. For a history of all transactions, please click here.