9 Things You Should Do Instead of Buying Stocks

Most know Scott Adams only as the creator of Dilbert. But after a recent meeting with him at his Silicon Valley office, we think we know him a lot better than that.

We watched him draw Dilbert on a touch-sensitive PC that we're still salivating over. We got a closer look at one of the two local eateries that he owns. We heard first-hand about his new book, Dilbert 2.0. It was an engaging and entertaining conversation -- right up to the moment one of us mentioned stocks.

Whoops.

Here's what really caught our attention
Adams' passion for personal finance is matched only by his utter disdain for stocks. That's right, this keen observer of business and management trends believes that most people, himself included, cannot beat the market buying individual stocks -- especially when the companies behind those stocks are run by drunk chimpanzees.

It's a fair point -- drunk chimps can't do much. And yet, according to finance professor Kenneth French -- one-half of the team that revealed the market-beating potential of small cap value stocks such as Buffalo Wild Wings (Nasdaq: BWLD  ) -- investors paid $99.2 billion in fees trying to beat the market during 2006 and were on pace to spend more than $100 billion this year.

Confusing the confusopolies
And that doesn't even address today's business climate. After meltdowns at Lehman Brothers and Washington Mutual, it's easy to imagine Dogbert, CEO of Confusopoly Corp. (Ticker: HUH), convincing the world's bankers that an active market for commercial paper would melt Greenland. Or that ritual cat sacrifices are the key to global liquidity.

Laugh all you want, but bankers at Bear Stearns, Merrill Lynch (NYSE: MER  ) , and elsewhere are the same Harvard-stupid morons who thought that credit derivatives weren't all that risky. Who's to say they wouldn't believe a cartoon character? Or that they wouldn't find synergies between CDOs and cat sacrifices? They're eerily similar, after all -- both begin with the letter "c."

Adams cites a severe distrust of weasels -- er, management -- as his reason for swearing off individual stocks. Makes sense to us. Investors were right to distrust the optimists at Citigroup (NYSE: C  ) and AIG (NYSE: AIG  ) .

So what should you do?
Adams has nine steps that he says, when performed in order, can help you to generate -- and protect -- your wealth. We think his suggestions are pretty Foolish and thus, with his permission (thanks, Scott), publish them here:

  1. Make a will.
  2. Pay off your credit cards.
  3. Get term life insurance if you have a family to support.
  4. Fund your 401(k) to the maximum.
  5. Fund your IRA to the maximum.
  6. Buy a house if you want to live in a house and can afford it.
  7. Put six months' worth of expenses in a money market account.
  8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement.
  9. If any of this confuses you, or if you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner.

You're not in Elbonia any more, Dilbert
Adams' nine steps look pretty familiar to us Fools -- we've always advocated paying off debt, saving for retirement, and having a substantial emergency fund. But avoid stocks altogether? We respectfully disagree.

But we do agree that if you're going to try to beat the market with stocks, you need to know what you're buying -- and you need to understand and trust management. That's why we and several of our Motley Fool Rule Breakers teammates recently spent a week in Silicon Valley meeting with executives at Exelixis (Nasdaq: EXEL  ) , Hansen Medical (Nasdaq: HNSN  ) , VMware (NYSE: VMW  ) , and several other of our scorecard companies.

If you'd like to get the full story on what we discovered, as well as write-ups of each company we visited, simply click here, and we'll send you all of our trip dispatches, absolutely free.

Neither Tim Beyers nor Austin Edwards owned shares of any of the stocks mentioned in this article at the time of publication. Tim is a member of the market-beating Rule Breakers team, which counts Exelixis, Hansen Medical, and VMware among its holdings. Buffalo Wild Wings is a Motley Fool Hidden Gems recommendation. The Motley Fool owns shares of Exelixis and Buffalo Wild Wings. Its disclosure policy is thinking up new torture devices for Catbert, evil HR director, who jut took a gig consulting to some of Wall Street's biggest firms.


Read/Post Comments (13) | Recommend This Article (54)

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 October 23, 2008, at 6:15 PM, CBoddiger wrote:

    So to generate wealth the #1 thing I should do is write my will? Yeah, I worry alot about my wealth after being dead.

    Oh wait, to PROTECT wealth I should write a will. Quess probate and inheritance tax have both been done away with.

  • Report this Comment On October 24, 2008, at 10:31 AM, Macintosh100 wrote:

    A "Will" does not protect just you, it protects people who depend on you. Also, when you create a will, you also should be creating a Healthcare Power of Attorney, which lists your wishes if you are incapicitated.

    "Quess Probate"?????

    You do understand that if you have a will or a trust you are better protected from Probate and inheritance tax.

    Research, Research, Research before you comment.

  • Report this Comment On October 24, 2008, at 1:52 PM, MarineJim wrote:

    EXCELLENT ADVICE FROM DOGBERT'S'DAD'.

    A WILL IS THE ONLY WAY BESIDES A TRUST TO LEGALLY ENFORCE YOUR WEALTH DISTRIBUTION AND PROTECTION DESIRES AFTER YOU DIE.

    PROBATE IS THE GOVERNMENT'S MECHANISM TO RECLAIM AND REDISTRIBITE YOUR WEALTH.

    WHICH DO YOU PREFER?

    WILL OR PROBATE-YOUR CHOICE

    YES ON TERM INSURANCE UNTIL AGE 65 AFTER WHICH THE MORTALITY COSTS, THE COSTS OF INSURANCE- RISE DRAMATICALLY- ACTUARIAL FACTS NOT COMPANY MANIPULATION. SEEK PROFESSIONAL ADVICE IF YOU STILL NEED INSURANCE AFTER AGE 65

  • Report this Comment On October 25, 2008, at 11:32 AM, JSinvestmentguru wrote:

    I think people should work on their money pile without regard to their planned time of death, re- ignore the old theory to get less aggressive at retirement age. The money pile and management can be gradually transitioned with gifting as you age (to avoid estate taxes) and your children are mature enough to add to the pile and not take away from it. If the money pile is adequate you don't need to worry about long term care- your children will provide it for you and they will be appropriately rewarded for it. I try to take my kids around to my broker, etc and explain my investments so they will gradually understand how to maintain the money pile. Unlike goverment, which is making a money pit for our grandchildren, families should embark on agressive investment strategies to create money piles. A family money pile, like a corporation should be managed without regard to a single individual's retirement planning or death. Of course a Roth plan when changed after a death to an inherited Roth will have manditory withdrawals but will still acrue tax free growth at the same time.....And then later the next person might pass along another Roth and so forth...Is any of this what he means by making a will? JS

  • Report this Comment On October 27, 2008, at 6:40 PM, hempmaven wrote:

    Think you guys need to look into the difference between a Will and a Trust...If you have a Will, you will go through Probate and it costs alot !!! A trust distriubutes your money and property without the need for Probate. At least this is the case in just about every state I have investigated...If you create a Trust, the only need is to write a "Pour Over Will" which takes care of anything you might have left out of the Trust...

    PS...I do think either writing a Will or creating a Trust is a stupid way to "grow your money" ???

  • Report this Comment On October 31, 2008, at 1:57 PM, mediapro wrote:

    How did we get so lost on the Wills part of the article.

    Seems to me the important advice sounded a lot like Burton Malkiel (A Random Walk Down Wall Street). I know that name is anethema to Fools who like to play in the stocks sandbox, but lest we forget, his basic tenets proved by one hundred years of market observation:

    1. Markets are efficient, and no one can EVER predict direction of a market, much less an individual stock.

    2. Green eye shade technical analysis (aka the Squiggly lines approach) has been proven so fallible that it's laughable intelligent people still believe that you can watch historical patterns in stock movement and predict the future.

    3. More than 80% of actively managed mutual funds fail ANNUALY to beat the S&P 500 returns.

    4. Inevitable market bubbles are created by the Greatest Fool theory, that things will continue to go up and up until the Greatest Fool buying at the top proves them all wrong.

    Seems to me that Dilbert's Creator's most sound advice was to stick you dough in the WIlshire 5000 and a laddered bond portfolio and forget about it until one retires.

    But what fun is that!

  • Report this Comment On October 31, 2008, at 8:44 PM, stingraywillie wrote:

    I'd replace number one with this one, and have a top 10 list. His concepts all look pretty sound and in fair order:

    1. Invite our Heavenly Father into your life and submit all you have to Him, His Son/Our Savior Yeshua, and the good news truth He desires us all to practice and help spread.

    Regarding the Will:

    If you have a significant sized life insurance policy(s) (say, over $2M) what's even better than a standard Will is having a Will that activates a Trust upon the testator's death. Then point the life insurance, by putting a clause in the beneficiary space, to pay the proceeds to the Trust. The Trust is setup to care for and pay the beneficiaries of the Trust. This process avoids capping whatever death tax might be in force at the time, and helps protect the beneficiaries of the Trust from squandering their inheritance or being taken advantage of by after-death vultures (like annuity and insurance con artists). It also allows avoids the high-cost of the Trust setup by delaying it until actual death. A good thing about that is if you later change your mind, and don't need a Trust upon death (because your insurance policies lapse your you lower them) you simply change your $300 Will instead of losing out on $5K+ for having a lawyer setup a Trust in advance.

    peace to you,

    Willie

  • Report this Comment On November 01, 2008, at 12:02 AM, walmart100 wrote:

    I'm 44 and have a 401k, Last year I moved 75% (100k) out of agressive growth mutual funds and into retirement preservation funds. I based that on the fact that we couldn't sell our house for what we had into it.

    We still haven't sold it and now we're paying on our second year of 2 mortgages. Soon to be the third in April. We have renters with intentions to buy as soon as their property is sold..

    I know I made a smart decision last year, but should I sell those preservation funds now, and pay the fees and buy? I'm trying to avoid greed and so I've bought in small increments since the market bottomed out. But my choices within the 401k are limited., I feel very limited... should I cash out and get a check?

  • Report this Comment On November 01, 2008, at 9:19 PM, CapKarl wrote:

    Keep the 2 issues separate:

    401k; Cash out and pay taxes? NO! Make a promise to yourself never to cash in your RETIREMENT funds before retirement.

    "...sell those preservation funds now, and pay fees and buy?" -What fees are you talking about? There should be no fees to exchange funds within a 401k.

    You are only 44. You've sidestepped a hugh market drop. Congratulations, but that won't do you much good if you miss the rebound so move 75% into some diversified stock funds and forget about it for 10 years.

    Real estate; you are pretty much locked in there. Hang on, keep paying and you will eventually come out okay on the other side.

  • Report this Comment On November 05, 2008, at 10:24 AM, spatricka wrote:

    Regarding the 9 things to do instead of buy stocks: Might be better to establish a trust instead of a will. Kindly expand on the term life insurance statement, e.g., how much? Thanks

  • Report this Comment On November 07, 2008, at 8:27 PM, journeywithme wrote:

    There are many people who, for whatever reason, choose to avoid the stock market. If you are adverse to risk; I can understand why. But there are real wealth building opportunities in the stock market if you understand how it works. I like the list, but I wonder if you could do better investing heavily in a few of the most profitable businesses. If Warren can do it, why can't I? (lol)

  • Report this Comment On November 12, 2009, at 10:52 PM, mikegranger wrote:

    I totally agree with the list, and paying credit cards in time is so important. Keeps your wallet and credit score happy. Found some insanely high CC interest rates on http://www.google.com !

  • Report this Comment On November 12, 2009, at 10:53 PM, mikegranger wrote:

    I totally agree with this list, to pay the credit card in time is just so important!

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 761096, ~/Articles/ArticleHandler.aspx, 10/1/2014 9:02:34 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement