Rule Breaker Portfolio
Don't Mimic Us

Randy Befumo gives some important advice in this classic column, which first ran February 10, 1997. Despite the success of the Rule Breaker Port, you should not blindly follow our trades. We are not this good. Our mission is to educate. We have made huge gaffes in the past and we most certainly will make them in the future. Learn what you can from us, blend it with your own knowledge and experience, and invest for yourself.

By Randy Befumo
September 15, 2000

There is a reason we say we do not manage your money
The Fool has enjoyed quite a bit of success over the years. The real-money portfolio, begun on August 4, 1994, has more than doubled the S&P 500 and has come close to doubling the Nasdaq Composite in its relatively intermediate lifespan. The faces of Tom and David Gardner have regularly graced magazines and televisions across the country, both as digital glitterati of the investment world and co-writers of Business Week's number three bestseller in 1996, The Motley Fool Investment Guide.

Despite the various wildly unsuccessful projects we've aired in the past, like Running With the Market -- a real-money portfolio that finished down more than 60% after less than six months in 1995 -- the company's reputation as a hip place run by savvy investors has not changed.

"We are not this good"

Let's face it -- if we had wanted to start the Fool Fund, we would have had to hire a staff of 30 to deal with the incoming calls from investors who wanted to put their money with the Fools. There is a reason that we have not done this, and it ain't because we don't have the dough to hire 30 people. To paraphrase both Tom and David Gardner at various points over the years, "We are not this good."

The statistical likelihood is that, despite the fact that we are pure of heart and downright Foolish, we will underperform the market for a substantial period of time. Like a few years, maybe. Our goal is to outperform the market over 20-year periods -- not two years, not two days, and certainly not 10 minutes.

It's the education, stupid
So, why do we have this stupid portfolio if we do not think highly enough of our stock-picking abilities to make a ton of cash investing other people's money? We have it for its educational value. There is more to learn from our little portfolios and how they are managed, co-managed, passively managed, and occasionally pretty mismanaged than all the mutual funds in the world have to teach you.

Every market day, rain or shine, someone shows up to explain our performance. Some days, this person is very happy and whoops up a short-term performance that, in the end, is an insignificant statistical speck. Some days, this person talks about the long-term because the short-term performance was, in a word, abysmal. Some days, they will completely ignore the day's events. Nevertheless, you get to see the daily ups and downs and second-guess every decision before the trade is complete. In hindsight, you can see where the right call was made and where someone was obviously IUI -- investing under the influence.

Don't mimic us!
If you have been blindly following every Fool trade, stop. No good can come of this. Even if the investments are successful, you will be left forever in the dark, never really understanding the mechanics of each decision and never knowing when you are parachuting down with us into Dien Bien Phu to get slaughtered by the Viet Minh.

Certainly, if a Fool idea sparks the fire of investing inspiration, go nuts. But, if you are a recent arrival and have decided that you need only blindly do whatever the Fool does rather than thinking for yourself, you are going to probably lose a lot of money. We are not that good. In fact, sometimes we can be quite dumb. We will probably underperform the market for a substantial period of time.

The Rule Breaker Portfolio is run by one very busy Gardner brother and an incredibly diligent helper, Jeff Fischer, with some input from a few people around the office. Given that The Motley Fool is a business growing at double digits on a monthly basis, and that Tom and Dave have a growing responsibility to deal with the press and the public to benefit the entire company, I would estimate that about 10 to 15 hours each week, counting everyone, is spent doing research for the Rule Breaker.

This is essentially the same amount of time almost anyone could spend if they dedicated one weeknight and one weekend afternoon to the pursuit of investing. You are not getting some kind of incredible, intensive, institutional-quality research for free. You are getting a Foolish educational product that is designed to help you help yourself become a better investor. Our goal is to teach people how to catch fish, not to run a tuna trawler.

Your Turn:
Tell us what you think about the Rule Breaker strategy and its educational mission on the Rule Breaker Strategies discussion board.

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  • Don't Mimic Us disclaimer





  • Rule Breaker Portfolio


    9/15/00 as of ~5:30:00 PM EDT

    Ticker Company Price
    Change
    Daily Price
    % Change
    Price
    AMGNAMGEN INC0.190.28%67.63
    AMZNAMAZON.COM(1.25)(2.79%)43.63
    AOLAMERICA ONLINE(0.69)(1.23%)55.31
    ATHMAT HOME CORP CL A(1.00)(5.69%)16.56
    CRAPE CORP - CELERA GENOMICS GRP(4.75)(4.71%)96.00
    EBAYEBAY INC(1.00)(1.46%)67.44
    SBUXSTARBUCKS CORP0.812.14%38.75

      Day Week Month Year
    To Date
    Since
    8/5/1994
    Annualized
    Rule Breaker(1.79%)(1.90%)(3.91%)(19.32%)1,211.29%52.31%
    S&P 500(1.02%)(1.92%)(3.42%)(0.23%)219.77%20.93%
    S&P 500 (DA)(0.97%)(1.84%)(3.28%)(0.22%)234.02%21.80%
    NASDAQ(2.01%)(3.60%)(8.82%)(5.75%)432.54%31.45%

    Trade Date # Shares Ticker Cost/Share Price Long-Term
    % Gain *
    8/5/944020AOL0.4555.315962.67%
    9/9/972640AMZN3.1843.631196.21%
    12/16/981160AMGN21.4467.63215.35%
    12/17/991260CRA39.7696.00141.47%
    7/2/98470SBUX27.9538.7538.62%
    2/26/99600EBAY50.2667.4434.17%
    12/4/98900ATHM28.0416.56(40.93%)

    Trade Date # Shares Ticker Total Cost Current Value Long-Term
    $ Gain *
    8/5/944020AOL1,816.44222,356.25293,132.25
    9/9/972640AMZN8,408.40115,170.00132,585.70
    12/17/991260CRA50,093.00120,960.0070,867.00
    12/16/981160AMGN24,875.5078,445.0053,569.50
    2/26/99600EBAY30,158.0040,462.5010,304.50
    7/2/98470SBUX13,138.6218,212.505,073.88
    12/4/98900ATHM25,236.1714,906.25(10,329.92)
     
    Cash: 
    Total: 
    44,898.01
    655,410.51
     

    * Our long term totals include both our realized and unrealized gains. For instance, we have sold portions of AOL and Amazon in the past, and those realized gains are included in our total returns for these stocks.



    Note
    The Fool Portfolio was launched on August 5, 1994, with $50,000. It was renamed the Rule Breaker Portfolio in October 1998. The investing strategy began with the first investments of the Fool Port and has evolved with time and experience. In July 2001, the portfolio began adding $12,500 each quarter (We missed Jan. 2002, so we added $25,000 in April 2002). We skip a quarter if we have enough uninvested cash or cash available in stocks we would prefer to sell to make new investments. All transactions are shared and explained publicly before being made, and returns are compared in each week's column to the S&P 500 (including dividends where noted) and the Nasdaq composite. For a history of all transactions, please click here.