Most know Scott Adams 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 point when 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 Southwestern Energy (NYSE: SWN ) and XTO Energy (NYSE: XTO ) -- 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 Stearns and Lehman Brothers and a record year for dividend cuts -- Freeport-McMoRan (NYSE: FCX ) and General Electric investors were affected, among others -- 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 saving America's auto industry.
Laugh all you want, but bankers at Merrill Lynch, Barclays (NYSE: BCS ) , Deutsche Bank (NYSE: DB ) , 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 Ambac Financial (NYSE: ABK ) and Charter Communications (NYSE: CHTR ) .
So what should you do?
Adams has nine steps that he says, when performed in order, can help you to generate (and protect) wealth. We think his suggestions are pretty Foolish, and thus, with his permission (thanks, Scott), we publish them here:
- Make a will.
- Pay off your credit cards.
- Get term life insurance if you have a family to support.
- Fund your 401(k) to the maximum.
- Fund your IRA to the maximum.
- Buy a house if you want to live in a house and can afford it.
- Put six months' worth of expenses in a money market account.
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.
If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner.
You're not in Elbonia anymore, 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 be able to trust the management of the companies you own.
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, VMware, and several other of our 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 all of our growth-stock research, 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.
This article was originally published on Oct. 23, 2008. It has been updated.
Tim Beyers doesn’t own shares of any of the companies mentioned. Austin Edwards owns shares of Freeport-McMoRan. Tim is a member of the market-beating Rule Breakers team, which counts Exelixis and VMware among its holdings. The Motley Fool owns shares of Exelixis. Its 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.