The Motley Fool Announces Changes to Disclosure Policy

Last month, a Reuters Breakingviews writer resigned after it was discovered that he'd written about -- but failed to disclose -- stocks in which he had an ownership stake.

Reuters didn't find evidence that the writer benefited from "improper trading," but the disclosure failure was a violation of Reuters' ethics policy. Despite rules prohibiting such behavior, the incident "tarnishes" the company's reputation, AOL DailyFinance asserts.

Here at the Fool, we take disclosure very seriously. Every employee, contractor, and freelancer is required to sign the Fool Disclosure Policy and trading rules upon being hired. Employees and newsletter writers use a unique, robotic compliance officer -- known as Marthetron, after the inimitable Fool legal eagle Marthe LaRosiliere -- to assure that we're not trading based upon knowledge of upcoming publications. Within 24 hours of trading a security, we are required to report it to the Compliance department. Upon any suspicions, we face an audit.

That said, we aren't quite like Reuters. One of the many taglines we've used in Fooldom over the years is that we are investors writing for investors. As our Fool Disclosure Policy states, "Many financial publications do not permit their writers and editors to own stocks. The Motley Fool not only permits, but also encourages its staff to invest in common stock." We think it would be hypocritical to preach the power of investing in common stocks while prohibiting our writers, editors, and analysts from doing the same.

Today, I want to highlight two important changes we've made to the Fool's trading rules:

  • We must hold any stock we own for at least 14 days. (No day trading allowed!) This has been reduced from a minimum required holding period of 30 days.
  • We cannot write about a stock in the period from two days before to two days after purchasing or selling the stock. This has been reduced from a minimum required blackout period of 10 days before/after.

Why? In the words of Chief Legal Officer Lawrence Greenberg, "Given the speed with which information circulates, the longer periods didn't benefit the audience, but they deterred Fool personnel from investing."

Our updated disclosure policy and trading rules are now in effect. You can read the full details, or ask a question on our Fool Disclosure Policy discussion board. And remember, you can always view a Fool employee's or contractor's profile for his or her stock holdings (mine are listed here, for example).

Brian Richards is the managing editor of Fool.com. He does not own shares of any companies mentioned. Brian also has a recommendation for Reuters: Make writers disclose their relevant holdings at the bottom of an article.


Read/Post Comments (33) | Recommend This Article (97)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 10, 2010, at 11:58 AM, vriguy wrote:

    I'd say it is acceptable to even let them buy and sell within the 2 d+ or - time frame, as long as they clearly disclose that trade in the article. We're thoughtlful investors, and we can differentiate between someone "talking his book" and someone laying out an investment thesis for consideration.

  • Report this Comment On November 10, 2010, at 12:00 PM, TMFThump wrote:

    There are equally compelling arguments to both sides of this issue, which I won't bother to examine. Suffice to say, The Motley Fool is known for and appreciated by its customers for having very transparent policies. This change effectively moves TMF considerably closer to those who tarnish the investment services business and detracts from your bulletproof reputation. I don't have much concern over the 14 day holding requirement, but withholding comments two days prior and two days after making stock transactions is a development I'm very disappointed with. You might as well have no restriction at all, rather than claim to be righteous and transparent through a policy that provides no real barrier. It's like claiming to promote safety on the autobahn by imposing speed restrictions, and then setting the limit at 150mph.

  • Report this Comment On November 10, 2010, at 12:02 PM, chk2595 wrote:

    This "pumping up" or "piling on" practice comes up every so often. For reasons I cannot explain, it never enters my mind as I deal with "Fool" and it contributors. That is why I go back to them time and time again.

  • Report this Comment On November 10, 2010, at 12:03 PM, dstwhit wrote:

    This is fantastic news. When I first saw the title, I was worried restrictions would increase--thank goodness it's just the opposite.

    I believe this will allow both TMF employees and subscribers to benefit even more from the incomparable expertise of both TMFers (most notably Tom E!) and board contributors (who share their investment ideas with TMFers) through even more timely and open communication.

    Although you usually get what you pay for, in the case of TMF (particularly Stock Advisor), you get so much more than you pay for--it's the best investment I make every year.

    Thanks, TMF!

  • Report this Comment On November 10, 2010, at 12:05 PM, mdtopper wrote:

    On a slightly different note: what ever happened to buy and hold? Does the Fool now promote strategies that would have investors (readers or writers) buy and sell in extremely narrow time spans (less than a week is apparently now deemed necessary for the writers). if we go to the trouble of researching sufficiently to know we have made a good investment decision, why would we need to sell in the next few DAYS?

  • Report this Comment On November 10, 2010, at 12:14 PM, Ruhaan wrote:

    I support this. Sometimes 10 days could be very onerous on individuals when you find a compelling opportunity. And I think with the disclosure in place one can understand clearly whats in place.

    - Ruhaan

  • Report this Comment On November 10, 2010, at 12:15 PM, lemoneater wrote:

    I appreciate MF's strong stance on ethical disclosure. However, I think it is only fair to reduce the waiting period for employee trading to a more reasonable amount of time.

    Three cheers for the MF analysts. Hip, hip, hooray!

  • Report this Comment On November 10, 2010, at 12:40 PM, TMFMileHigh wrote:

    @killtheump,

    >>withholding comments two days prior and two days after making stock transactions is a development I'm very disappointed with. You might as well have no restriction at all

    I disagree. Under the old policy, I had to go 20 days (10 before, 10 after) without writing about Apple in order to buy shares.

    While I think there's a benefit to remaining silent for an extended period like this -- it removes even the hint of a conflict of interest -- it hamstrings me as a writer and analyst. I want to own Apple, but I'm also obliged to cover the company.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On November 10, 2010, at 12:55 PM, TMFBreakerRob wrote:

    @killtheump (Doug),

    The ten day restriction often meant that I wouldn't feel free to talk about a company at all. Two days is cool, although I would have been just fine with five days. One thing for sure: Any policy will disappoint some people....although I have to say I understand your concern. And I still think you're a reasonable guy. LOL.

  • Report this Comment On November 10, 2010, at 1:28 PM, dlomax77 wrote:

    I agree with chk2595. Fools don't lack professional integrity. I still would prefer that contributors disclose that they are about to purchase, or recently have purchased shares of stock on which they're reporting.

  • Report this Comment On November 10, 2010, at 1:30 PM, TMFThump wrote:

    Thanks for your understanding, Rob. I recognized and accepted that the policy deprived the community of Fools from receiving information at times. The concession was worth making to ensure conflicts of interests were being minimized.

    MileHigh - I don't want to deprive you of an opportunity to invest in a great business, but owning Apple when you are assigned to cover them is not something I'm entirely comfortable with either. I enjoy and value many of Rick Munarriz columns on tech stocks, and the fact the he doesn't hold an interest in them is critical to his credibility. Posting to the boards regarding stocks you own is acceptable but disclosure needs to be clear. That should be a self-imposed discipline applying to everyone, regardless of whether their alias begins with TMF.

  • Report this Comment On November 10, 2010, at 2:17 PM, TMFMileHigh wrote:

    @killtheump,

    >>I don't want to deprive you of an opportunity to invest in a great business, but owning Apple when you are assigned to cover them is not something I'm entirely comfortable with either. I enjoy and value many of Rick Munarriz columns on tech stocks, and the fact the he doesn't hold an interest in them is critical to his credibility.

    That's a perfectly reasonable point of view. And I, too, like Rick's coverage.

    My take on this is pretty simple: I own many of the tech stocks I recommend (in Rule Breakers and here) because I think it's important to stand with subscribers. Eating my own cooking, you might call it.

    Not everyone agrees this is the right approach, of course. That's fine. Diversity of style, thinking, and investment approach is what makes us motley.

    Thanks for writing and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On November 10, 2010, at 2:22 PM, siempresuamor wrote:

    It is really dumb that you can only recommend stocks that you won't and can't buy. It makes all the articles published just that much more useless. There is no reasonable counter argument to this point.

  • Report this Comment On November 10, 2010, at 2:32 PM, dstwhit wrote:

    I think if TMFers are going to post and be able to buy within 2 days, it should at least be 2 BUSINESS days AND they should clearly state their intent to buy or sell within, say 5 business days, at the bottom of their article. If it's just 2 days total, then they could write an article on Friday and potentially play off any changes on Monday.

    I trust TMF as a whole, and I haven't noticed any movement of markets by their articles or recs, but there is the possibility, and that could really harm the trust we all need and want to foster here.

    dstw

  • Report this Comment On November 10, 2010, at 3:40 PM, ikkyu2 wrote:

    I like reading the advice of people who have skin in the game and who disclose their interests as the Fool does. I'd rather have a Fool reporter be happy to write their articles in the knowledge that it's not going to keep them from putting their own financial affairs in order. I appreciate the transparency that the Fool offers and believe the changes to the disclousre policy are in everyone's interest.

  • Report this Comment On November 10, 2010, at 4:29 PM, BillyTG wrote:

    Sounds good.

    Curious, how exactly do you audit? Are writers required to email you proof of trades, etc, or is this whole thing honor system?

    I mean is there really anything stopping a writer from opening a separate brokerage account that TMF doesn't know about, like Bretton James did as he shorted Keller-Zabel?

    http://www.youtube.com/watch?v=EekRJ8I3b6I

  • Report this Comment On November 10, 2010, at 5:45 PM, mikenpdx wrote:

    there are arguments to both sides, for sure, but I kinda like it when someone is able to put their money where their mouth is.

    what i wonder is, what are the rules around owning or buying a stock before it is recommended to readers?

  • Report this Comment On November 11, 2010, at 12:15 AM, ChrisFs wrote:

    It seems like you are loosening the rules, making them less relevant. This is disappointing. For a site that pioneered buy and hold to consider 10 days to be too long to wait and 30 days to be too long a holding period speaks volumes about the time range that most writers seem to be writing about. It seems that when some one writes that a stock is one to be held for the long term, they are talking 6 months or perhaps a 9 months at the very most, and they have to be able to buy them within 3 days otherwise the opportunity is lost.

    This shines a light on the type of trading that seems to be recommended.

    This does not improve your reputation. My only kudos go to you clearly announcing it in the first place.

  • Report this Comment On November 11, 2010, at 9:05 AM, TMFGebinr wrote:

    Hi everyone,

    Thanks for chiming in. I'd like to share my own perspective, if you will.

    As a group, TMF employees tend to be of the buy-and-hold mentality. We're not giving up on that. Just because we can now get in and out of a position with a 2-week turnaround doesn't mean we're going to. However, it does let us more quickly get out of a position that turns sour quickly, if we need to.

    The 10-day window before and after (a total of 20 days, nearly 3 weeks) was a bit onerous (though I knew about it going in). I work for Stock Advisor and occasionally I'd find myself in the uncomfortable position of waiting 10 days without any public comment on a company, making a purchase or sale, and then something happens that our members have a right to receive information and analysis about. I was prevented from contributing to that until the 10-day after window had expired, so I was prevented from helping our members. Reducing this to a 2-day-both-side window goes a long way to relieving that kind of situation and provides better service.

    In regards to disclosing what we own, we are required to keep an up-to-date list of positions held on our public profile pages. In addition, the company is allowed to audit our brokerage activity. Yes, it is built on trust. So far, though, we've found that if you trust people to do the right thing, they end up doing that. Similar to our take-as-much-time-as-you-want vacation policy. Our employees actually end up taking less vacation than average because they know they're trusted to not abuse the policy.

    Cheers,

    Jim

  • Report this Comment On November 11, 2010, at 9:58 AM, ABloke wrote:

    I am fine with this. If your technology allows, maybe it would be fair to the subscriber to change the disclosure to something like "The writer of this article last bought/sold Stock X in the last 5/10/30/over 30 days". I don't think anyone should try to predict what they might buy in the future.

    From a personal perspective, Tom E sometimes lets us know what he transacted after the 10 day notice period. I would be delighted if he were to share such info in a shorter timeframe. I feel this benefits me as a subscriber.

  • Report this Comment On November 11, 2010, at 7:59 PM, Mary953 wrote:

    I believe that you should understand at least somewhat the area that you invest in. That means a doctor would do better with medical related stocks than he would with banking and steel. I avoid any stock if I cannot understand what the company does. How can I decide if the company does a good job if I don't know what a good job looks like for that arena?

    Hopefully, the Fool employs people who understand the industries that they evaluate. To then tell them that they cannot invest in those very companies seems like the conflict of interest to me. In that situation, would I invest or would I advise others that I have found a gem of an investment? Let us know that you are planning to invest as well and then go ahead and write about the next fantastic idea! And then invest along with those of us that have been convinced.

  • Report this Comment On November 11, 2010, at 8:30 PM, nwav8tor wrote:

    So, is this new two day restriction calandar days or market business days? Considering weekends, this is a HUGE difference...Does the policy fine print specify?

  • Report this Comment On November 12, 2010, at 6:28 AM, flyguy090 wrote:

    It's sad to see TMF weakening its disclosure policies.

    While you are at it, why not make a policy that none of your articles should end with an entreaty to the reader to subscribe to one of your paying newsletters? It's very irritating that virtually all of your articles end in this manner and undermines the integrity of your message.

  • Report this Comment On November 12, 2010, at 11:10 AM, TMFBrich wrote:

    @nwav8tor,

    The restriction is two market days, not calendar days.

    @flyguy090,

    The Fool is a business, and subscriptions are one way we make money.

    Brian Richards

  • Report this Comment On November 12, 2010, at 2:25 PM, MikeGG1 wrote:

    There are 2 aspects to the embargo rules. The first is that, once an employee has taken a position, he/she is barred from commenting if something needs to be commented on. The other is that, having made a comment, they are then barred from following their own advice for a couple of days.

    Unless they are dealing in large transactions, their dealings are not going to influence the markets. A larger embargo might be appropriate if they were dealing in more than 1% of company, say, but I doubt if that would ever happen.

    However, their article could influence the market, but isn't that what it is supposed to do?

    Personally, I have no argument against an embargo of 2 market days, because it enables them to 'Put their Money where their Mouth is!' or 'Practice what they Preach!' rather than 'Miss the Boat' to quote a few cliches, provided there is full disclosure in the article as to what they have done, or will do.

    Mike

  • Report this Comment On November 12, 2010, at 7:36 PM, snsrus1 wrote:

    I feel for you, Brother Greenberg - those "you're not my client" conversations with officers and employees are always tough. As you are no doubt aware, the plaintiff's bar will surely be looking for bullish commentary on stocks with low average daily trading volume. Good luck with that....

  • Report this Comment On November 15, 2010, at 4:38 PM, mattmcneil wrote:

    This is a big disappointment. Motley Fool - your credibility has just taken a nosedive as you are now just a trading house with everyone talking up their own book.

    To anyone who thinks this is a good idea and that it's just columnists having some "skin in the game" you need to seriously rethink this and consider just how inappropriate it is to write financial analysis that reaches millions of people where the author stands to profit from forming public opinion. Who's interests do you think he/she will put first? Yours or theirs?

    There is a reason Reuters fired that employee. It's a massive conflict of interest. If Motley Fool wants to continue to be credible they should go even further in the other direction (6+ months). These authors are all so-called buy and hold "investors" anyway right? Not those disruptive "traders" who go in and out of positions all the time.

  • Report this Comment On November 16, 2010, at 5:26 AM, byzantic wrote:

    I join others in disapproving strongly of this change - for similar reasons.

    You should reverse it if your work is to remain useful.

  • Report this Comment On November 16, 2010, at 1:04 PM, MaxPower13 wrote:

    mattmcneil, byzantic, and others who don't approve of this change - if you don't trust the MF writers in the first place, and you obviously don't, then why are you here? Are you taking financial advice from people you don't trust? That doesn't make any sense. In roughly 5 years as a subscriber, I've never had any reason to doubt the integrity of anybody affiliated with the MF, and that's why I keep subscribing and reading.

  • Report this Comment On November 17, 2010, at 10:42 AM, RLoder wrote:

    Actually I wouldn't mind the change if you could click on a link to see all the writer's common stocks currently owned/shorting and recent buy/sell transactions (of course no quantities or even price bought/sold needed).

    For sure someone is going to be a hypocrite and do the opposite of what they write, it is just a matter of how often.

  • Report this Comment On November 17, 2010, at 1:44 PM, Notfooled1 wrote:

    @flyguy090,

    The Fool is a business, and subscriptions are one way we make money.

    Brian Richards

    From what we've all seen, subscriptions are the only way you folks make money. Happy Holidays to y'all.

  • Report this Comment On December 05, 2010, at 3:05 PM, devans10KK wrote:

    If a writer can influence a market, it would be more fair to subscribers to receive warnings of an impending sale to give readers a chance to not be duped, along with a three day head start.

  • Report this Comment On January 25, 2011, at 11:45 AM, TMFMileHigh wrote:

    @RLoder,

    >>Actually I wouldn't mind the change if you could click on a link to see all the writer's common stocks currently owned/shorting and recent buy/sell transactions (of course no quantities or even price bought/sold needed).

    I've had to do this for all eight years I've been writing for the Fool. Find all my holdings here:

    http://my.fool.com/profile/TMFMileHigh/info.aspx

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

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