Dueling Fools: Rule Breakers Rebuttal

I love it when the dyed-in-the-wool value investors quote Benjamin Graham as if they own the rights to him. They don't. Quoting from his seminal work, The Intelligent Investor:

"It was the speculator who looked out and saw future developments before other people did. But today, if an investor is shrewd or well-advised, he too must have his lookout on the future ... where he rubs elbows with the speculator."

In other words: Speculating is only gambling when it isn't well informed. I think our team at Rule Breakers is as well informed as they come. Seriously, ask Charly Travers what the fox p3 gene is. He'll give you the whole clinical breakdown. It's incredibly impressive, if also a little spooky.

But I digress. My point is that, while Graham wasn't a speculator, he at least understood the need to look beyond balance sheets and cash flow statements in the search for multibagger returns.

The near-death of a Rule Maker
He has a point. The numbers will only tell you so much. And they won't prevent you from being wrong from time to time.

But being wrong is more dangerous with Rule Maker investing, where you're seeking to hit a lot of singles and, in the process, score a lot of runs. Rule Breaker investing, conversely, recognizes that you'll be wrong plenty. The difference is that when you're right, the result won't be a single -- it'll be a grand slam to win the game.

With Gap (NYSE: GPS  ) , which was profiled as a Rule Maker in Rule Breakers, Rule Makers, the 1999 Foolish book that first introduced both strategies, Tom Gardner struck out looking. (Sorry, boss.)

Don't believe me? Check out Gap's chart from the past two years. Then have a look at how the amateurs and pros participating in our Motley Fool CAPS investor-intelligence database rate the stock:

Metric

Gap

CAPS stars (5 max)

*

Total ratings

338

Bullish ratings

191

Bull ratio

56.5%

Bearish ratings

147

Bear ratio

43.5%

Bullish pitches

49

Bearish pitches

40

Data current as of March 8, 2007.

Yeesh. I've seen prettier pigs at the annual Stock Show here in Denver.

Put the Rule Makers in their place
Every portfolio should have a few Rule Makers. Stocks such as Oracle (Nasdaq: ORCL  ) , Taiwan Semiconductor (NYSE: TSM  ) , and Nokia (NYSE: NOK  ) are likely to churn out slow and steady returns for my portfolio for years.

But slow and steady doesn't always win the race when it comes to beating the market. Sometimes, the tortoise flips over onto its shell and, when that occurs, the hare -- that is, the Rule Breaker -- wins big. Make sure you run several in your personal race to riches.

Go back and read the rest of the arguments. Then vote for the winner.

How great is growth? Four of the dozens of stocks in the market-beating Motley Fool Rule Breakers portfolio have more than doubled in two years. Care to find out who they are? Get 30 days of free access to the service.

Gap is a recommendation of Motley Fool Inside Value, the Fool's value-hunting newsletter service. Check it out free for 30 days.

Gap is also a Motley Fool Stock Advisor pick.

Fool contributor Tim Beyers, ranked 751 out of more than 23,900 in our CAPS investor-intelligence database, is a regular contributor to Rule Breakers. Tim owns shares of Oracle, Taiwan Semiconductor, and Nokia. All of Tim's portfolio holdings can be found at his Fool profile. His thoughts on growth stocks, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy just wants you to be rich.


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