9 Things You Should Do Instead of Buying Stocks

Most people 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 firsthand 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 drunken chimpanzees.

It's a fair point: Drunken chimps can't do much. 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 Celgene (Nasdaq: CELG  ) -- investors paid $99.2 billion in fees trying to beat the market during 2006 and were on pace to spend more than $100 billion in 2008.

Confusing the confusopolies
And that doesn't even address today's business climate. After meltdowns at Bear Sterns, Lehman Brothers, and AIG (NYSE: AIG  ) -- and more recently at Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) -- it's easy to imagine Dogbert, CEO of Confusopoly (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 saving America's auto industry.

Laugh all you want, but bankers at Bear Stearns, Morgan Stanley (NYSE: MS  ) , 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 Sirius XM Radio (Nasdaq: SIRI  ) and Las Vegas Sands (NYSE: LVS  ) .

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), we 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 InterMune, VMWare, and several of our other scorecard companies.

If you'd like to get the full story on what we discovered, read in-depth write-ups of each company we visited, and gain full access to our exclusive members-only website, we invite you to take a free, 30-day trial of Motley Fool Rule Breakers. To get started, all you have to do is click here -- there is no obligation to subscribe.

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 Motley Fool Rule Breakers team, which counts InterMune and VMware among its recommendations. Bank of America is an Income Investor choice. Our disclosure policy is thinking up new torture devices for Catbert, evil HR director, who just took a gig consulting to some of Wall Street's biggest firms.


Read/Post Comments (5) | Recommend This Article (24)

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 January 17, 2009, at 11:06 AM, etamar2 wrote:

    Nice guys, this time the advertisement comes with some valuable advice and a humorous but worthy story.

  • Report this Comment On January 17, 2009, at 12:15 PM, emonkee wrote:

    Uh huh. and your 401k and IRA are going to be in what? Pork bellies? Not stocks?

  • Report this Comment On January 17, 2009, at 2:09 PM, Fredlee009 wrote:

    Great advice to give when the market is bottoming, LOL LOL Here is where millions are made, by buying great companies at or near all time lows....Now IS the time to be buying stocks, just not any stocks. And patience would be required. Buy any good companies stock, know you might lose 20 percent more of value max, and hold out till it doubles. Then sell again, and wait for the market to tank again, im sure it will soon...

  • Report this Comment On January 17, 2009, at 2:11 PM, Fredlee009 wrote:

    Buy companies that wont go under in any recession...Utilities...Oil...Nat. gas....Grains..Now companies in these areas are necessarily going to do stellarly, but they will be in business in two years if they are related to the above mentioned areas, and have solid balance sheets. Also gold mines are rather historically low right now too...

  • Report this Comment On January 17, 2009, at 6:25 PM, Fatsmoo wrote:

    Personally His comment with Siri cant be further from the truth.....now is the time to watch that as well as DPHIQ.........the auto bail will in turn bail them also........

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