Rule Breaker Portfolio
Rule Breaker Information and Principles
Principle 2

By David Gardner
updated March 20, 2001

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Rule Breaker Principles

We are maximizing our long-term returns with our own money to the best of our ability.

The Rule Breaker Portfolio contained, at its launch date on August 4, 1994, an initial amount of $50,000. Some people invest more and many people invest less. We chose $50,000 because it represents a middle territory for our readership. It's also a solid amount for keeping commission costs down, and enables one to diversify sufficiently. If you have further questions about this, please go directly to our Fool's School -- do NOT collect $200 -- and read our 13 Steps to Investing Foolishly. We wrote those articles to help all people in all situations.

The Rule Breaker portfolio is, first of all, our own money. No mock portfolio here, so no decisions made lightly, either. It may be so obvious as to not bear mentioning, but we'll mention it anyway: This is our money, not your money. Your money is your own, and you make all the decisions about it -- unless you've decided to hire someone else to manage it for you... which is, itself, a decision you made. Just as we will not second-guess you or talk you down, we hope you'll return the favor. We will try to help you, occasionally challenge your thinking, and offer any criticism constructively. We hope you'll return that favor.

Now, because it is our own real money, we are investing with the intention of maximizing our investment returns over the long haul. The stocks picked, the allocation chosen, all of these things are designed with the intent of stackin' up the bills. We hope eventually to be scouring the neighborhood for empty barrels, just because we no longer have enough of our own to wheel our mounds o' greenbacks outta the house. We'll close the paragraph with this word again: maximize.

There is only one exception. We exclude from investment consideration some companies whose products we believe to be harmful to the world at large -- companies whose business models are predicated on the sales of stuff that, while it may be legal, is nevertheless damaging. So even if such a company appears to be a good investment, we will ignore it. That is the only exception to our stated mission, which otherwise is completely dedicated to and predicated upon the maximization of our investment returns.

This is our decision, and we don't have any big attitude about it. We're not self-righteous. What we exclude, you may well wish to include. And what we include, you may yourself be excluding. Everyone's different. As we wrote in You Have More Than You Think: "Buy what you are."

Next, note our outlook. It is different than most. Most focus too much on short-term returns. They are unable to see the proverbial forest for the proverbial trees. The two most guilty of this fallacy are the financial media -- aiming its microscope on the here and now, in order to get you to pay attention -- and Wall Street -- trading in and out on a daily or weekly basis, judging its returns by the quarter.

A perfect example of where we differ from most was our ownership of stock in Iomega. We bought the stock early on and sat and held it through highs and a subsequent drop (once selling a portion to redeploy the money into another investment). While the stock went up, the media focused on how much it had gone up and called it "hype." While the stock went down, the media's coverage effectively forgot that it had ever gone up. When the stock was well down from its highs, our investment in Iomega was still up many times over the market's benchmark return since our purchase. Yet on CNBC they have asked us about how we'd failed with Iomega.

Typical.

Just make sure you understand this is typical, so that you don't let yourself fall into the same trap of short-term thinking.

Finally, in our aim as investors to maximize our long-term after-tax returns, we maintain a high degree of open-mindedness and flexibility. We observe the lessons of organic evolution and note that the best way to survive is -- when changing conditions make it necessary -- to adapt. So we are not ultimately wed to any given form of investing, any single approach, any one investment. We are wed only to our goal of achieving the best, most consistent, long-term returns achievable.

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