Friday, August 20, 1999

Coming Out


Borland International. Silicon Graphics. The Kaufmann Fund. The Baron Asset Fund. Cathay Pacific Airlines. Creative Labs. The Evergreen Global Opportunities Fund. Over the last six years, in what they keep telling us is the best bull market in history, I've lost money.

I started investing in 1993, when I started my first job and opened an IRA. I got some Wise advice (I had a full-service broker). I read some classic investing books... okay, I skimmed them. I was a programmer in Silicon Valley, so I figured that gave me an edge in understanding tech stocks. I read widely -- hey, I read The Economist. So I figured I had great hunches. Like Hong Kong -- people must be overestimating the effect of the Chinese takeover! I'll invest in Hong Kong!

I planned to do research. I figured I'd learn the boring stuff -- the financial details like analyzing a balance sheet -- later. I'd order Annual Reports and SEC Filings and tell myself I'd read them. What little I did learn probably hindered me. Like the P/E Ratio -- that scared me away from investing in Netscape or Yahoo! or Microsoft. Too "expensive," I rationalized.

Recently, I found the Fool. The Fool prizes honesty, rigorous self-examination, and pluralism. And so the Fool has given me the courage to come out, to tell the world: "I am a lazy investor. Lazy and greedy. I want to make lots of money, but I don't want to have to do any math or read any balance sheets."

The Fool teaches that this is okay. That's the purpose of the Foolish Four -- beating the market and doing hardly any work. Beyond that, the implication is that there are many kinds of investors, and the trick is to find an investment strategy that fits your
strengths and weaknesses -- your vices and virtues.

I should probably stick with the Foolish Four. But I have other vices besides sloth and greed: prudery, vanity, and restlessness.

Prudery. I'm damned if I'm gonna invest in Philip Morris. Frankly, I'm not sure I wanna invest in GM. I hate cars. Go ahead, call me a weenie. If there's one thing I don't want to agonize over on Yom Kippur, it's my stock portfolio.

Vanity. I want some credit. I don't want to make money just because I followed the formula. The money's great, but some guy who made up the formula gets all the credit.

Restlessness. I'd like to tinker. I'd like to learn something. I'd like to ease a toe into the more complex strategies, like Rule Makers, where you are obliged to know something about your companies. But gingerly.

So here's my new strategy, born of sloth, greed, prudery, vanity, and restlessness:

1. Half my IRA goes in "ethical Foolish Four." Every eleven months, I run the "Beating the Dow - RP" and "Beating the S&P - RP" calculators on the Fool's calculator page. That gives me eight stocks. I match these up with the Domini and Citizen's indexes (which list socially and environmentally responsible companies). I order the matches by RP, the ones from the Dow list first. If there are at least four, I take the first four and invest in them Foolish-Four style. If there are at least three, I do the same. If there aren't three, I wait a month and repeat. I don't expect this to do as well as pure Foolish Four, but close. And I'll sleep better.

2. The other half goes in "apprentice Foolery." I pick three stocks that have the following criteria: 1) I feel like I understand them (as far as my laziness permits), I know and like their products, I can't imagine the world in five years without them; and 2) they were discussed favorably by one of the Fools, either through an analysis or a recommendation for addition to one of their Ports. In other words, someone I trust did the annoying research. I know they'd prefer that I learned to do it myself; that's precisely why I trust them.

That's the plan, Fools. I have one last vice which is a Foolish virtue -- stubbornness. I think I'll try this new strategy out for another six years or so. I'll let you know how it goes. As for you... does your investing strategy match your personal balance sheet of vices and virtues? Know thyselves, Fools!
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