FOOL ON THE HILL
An Investment Opinion
Farewell, Fool Dale Wettlaufer (TMF Ralegh)
October 14, 1999
Longtime readers may wish to know I have come to a fork in the road and that I intend to take it. The time has come for me to move on after a happy four-year relationship with The Motley Fool.
It's been an interesting journey, to say the least. I joined the Fool as a message board moderator right after leaving the brokerage business, which in 1995 was, for the most part, not ready or capable of taking advantage of the opportunities brought to business by the Internet. Within a year, I was invited down to Alexandria, Virginia to join the Fool full-time, working with the dynamo known to the world as MF Templar, Randy Befumo.
The idea was never to come here and make a bunch of money on stock options. Remember, the year was 1996 and you didn't have the ridiculous IPO activity taking place that you see today. The idea was to come here and work with intelligent people who shared a desire to improve their abilities to analyze businesses. Changing the world was a secondary goal and fed well off the first goal, but my priorities lay in taking advantage of the intellectual freedom afforded to me by the Fool.
Not that I want to sound selfish there, but I took it for granted that the world was going to be changed in favor of the individual investor by the Internet, whether The Motley Fool existed or not. I think we helped accelerate things by asking (sometimes necessarily browbeating) companies to open their conference calls and pay attention to individual investors. I think we've done a very good thing in pointing out the deficiencies of the mutual fund model. And I think we've done a good thing in putting together a business where people can get together to share their insights and advance their analytical skills. Say we never existed, though. You'd still have Yahoo! and Silicon Investor, you'd have John Bogle, and you'd have someone fill in the education niche somewhere. So I hesitate in taking too much credit for revolutionizing the world.
I look at the investing mentality of the Fool as its most unique attribute. So many organizations are devoted to get you the knowledge or inside word that's going to give you an edge in trading. A failing of one of my favorite news-oriented websites is that it grades itself over one-week, three-week, one-quarter, and half-year time spans. That's a heartbeat or two in the career of an investor and in the life of a company. Too many online brokers today want to give you an edge in trading.
The commercial where the punker office boy and the executive agree to "research" K-Mart is particularly amusing, as if looking at a price-chart and an earnings estimate constitutes research. Or the one where the young mother "thinks" she just made $2,000 or whatever. Or how about the class of immigrants who can't speak English but love this country because of its online trading? If you can't say "I'm going to the store," how can you read an annual report or SEC filing? What passes for "investing" today is worrisome. "My Dad is retired, but daytrades" is a very sad phrase, in my opinion, because I'm pretty sure how that's going to end for a number of people.
That we've emphasized intelligent discourse and a true investing philosophy over trading is something I think the Fool should be proud of. Few other publications are geared this way. If you look at pretty much anything outside of Squawk Box on CNBC, the discussion is geared toward who's made or missed their earnings estimate this quarter or you get 80-year-old widows calling "experts" on the former Buy, Sell, or Hold to ask "K-Tel, Buy, Sell or Hold, short- and long-term, please."
Hey, not that millionaire sell-side analysts are all helpful, either. Here's a line of reasoning I don't get: "We believe Compaq can achieve its announced price cuts and thus hit our earnings estimate. We further believe the company deserves to trade at a 20% premium to the S&P 500 and inline with Gateway and Dell. Thus, we believe Compaq can trade at $45-50 in the near-term." For that wonderful wisdom, none of which has anything to do with analyzing the true intrinsic value of Compaq, the analyst makes a boatload of money. Or as a retail investor, you get the honor of being so low in the food chain that the analyst writes one report for you and tells the institutional investor something totally different. The retail investor and the company being covered see the "buy" rating and the institutional investor hears what the analyst really thinks (nudge, nudge, Coca-Cola Company).
Finally, you get the mutual fund industry. You know the Fool's problems with it. People in the industry know the problems with it, too. Most years, you pay for no negative economic value-added to a bunch of people who profess long-term investment but who turn over their funds at a 70% yearly rate. That's an average holding period of 1.4 years. Further, most of these funds have so little conviction in their best idea that they put 1% to 2% of the fund's assets into it. It's hard to come up with 50-100 ideas that are going to beat the market, after tax, every 1.4 years, even when you're a fund manager with tons of resources.
Ironic, isn't it, that I'm about to tell you that I'm joining a mutual fund company? I don't think so, actually. I've accepted an offer to join Legg Mason Fund Adviser in Baltimore, where I'll be working as an analyst on Legg Mason Special Investment Trust, Legg Mason Value Trust, and some other funds. The people I'll be working with -- Bill Miller, Lisa Rapuano, Robert Hagstrom, and my former and future colleague Randy Befumo, among many others -- think as true investors should think. They invest in a company and don't kick it out of the fund because it's accomplished a level of gains predetermined to merit a sale.
They're not afraid to think of themselves as value investors, buying companies at a discount to the net present value of the future cash flows it can create for investors, and own companies such as America Online, Dell, and Amazon.com. Among many "value investors," the social pressure from peers would be enough to keep away from owning any of these. While they might like things that other classic "value people" own, such as Berkshire Hathaway or Freddie Mac, they prefer to try to figure out what's going on with companies such as Amazon.com and why they're worth so much rather than stand on the sidelines like some of the classic value people and decry all .com companies as nothing more than a bubble.
That the people at Legg Mason try to figure out companies based on their intrinsic merits, and not based on their being a "technology company" or an "Internet company" or "growth" company versus a "value" company is why I wanted to join them. Independence of thinking in the face of contrary prevailing opinion is one characteristic of successful investors. Another characteristic of successful investors is the ability to think. "We've got to get long on the Internet" is a different thing than "Amazon.com is a great company on its own merits, here are the qualitative and quantitative reasons why."
What I'm going off to do is work with rational, businesslike investors. Looking back, I hope that's what we and I have promoted here; looking forward, that's what I want to do, whether it's working on mutual funds, running a holding company, or running a McDonald's franchise. The wrapper isn't nearly as important as the philosophy. I'm confident that I'll be working with people that follow the correct philosophy.
I've said my good-byes and thank-yous to everyone here, so this isn't going to be an Academy Awards-type speech. But I do want to say thank you again to everyone and reiterate my desire to maintain a friendly association with the Fool. It's been a pleasure working here and getting to know so many fun and intelligent people.