<THE FOOL PORTFOLIO>
Uncompromising Honesty
Tonight, the fifth Rule-Breaking principle

by David Gardner (DavidG@fool.com)

ALEXANDRIA, VA (Dec. 2, 1998) -- The Rule Breaker portfolio fell off a couple of percentage points today, in the face of an only slightly down market. We typically dislike days in which Amazon.com loses 10 dollars a share. Yep. And I'm not too big on AOL, Starbucks, and Lucent losing a dollar or more in a given day's trading, either.

We never like watching 2% of our assets wither away in single day. POOF! Heck, even with 25% of our portfolio ($89,000) in cash right now, we still got harmed.

That said, perspective please! It's just one day. (And I'd say the exact same thing if we had been up 2%, or up 8%, or down 12.5% -- and yes, we've managed to do ALL of those before!) A friend pointed out to me the other day that four years ago we started this portfolio with $50,000. Today, we're sitting on $89,000 in cash, alone. If that's not positive proof of the blessings the stock market can bestow, show me something that is.

SHOW ME THE MONEY!

OK, tonight, we introduce our fifth Rule-Breaking principle. You can find the other four in the adjoining listbox, if you're new to this little nook of cyberspace. We will be introducing two more after this, before publishing them all together later this month. Please keep in mind that the initial publishing of each (like the fifth one tonight) is only a rough draft, because we're most interested in hearing your reactions -- any supportive comments, as well as (in particular) constructive criticisms.

That'll give us the opportunity and time enough to reconsider our thoughts, if necessary rework them, and then publish these "living principles." That then gives us a document we can point to at any given moment to anyone -- novice or experienced, new to the Fool or not -- and say, "Here's what we believe and this is how we operate." We're most of the way there, already. And once our next book is published, in concert with the change in this portfolio's name and the publishing of its portfolio management principles, the circle will be complete. Complete, but ever open to changes and improvements.

Ever open to Breaking its own Rules.

So, these things said, after you read this I encourage you to let us know your thoughts about the principle directly in our brand-new Rule Breaker Portfolio message board, which has debuted to smashing success. Lots of good and Foolish input there already. While I can't respond personally to every note in that message board (I'd never get our next buy announcement done), I do read every post there without fail. And any constructive comments I agree with will be incorporated into that principle.

Which is:

#####

We manage our portfolio under the normal constraints of our personal and work lives. It may shock you how unimpressively normal this is.

At The Motley Fool, Inc., we have four core values that guide us in our daily strivings. They were dreamed up not by me, or by Tom, but rather by all of our employees following a weekend of group discussions we held a couple of years back. We had met to determine what we all asserted to be true and important, what we held in common. The very first of our core values is the most important, and it is honesty. Here is the way we put it:

We bring an uncompromising honesty to all our endeavors, great and small.

Given this guiding principle in our day-to-day work lives, you'll possibly now see why we have fashioned this particular Rule-Breaking principle of portfolio management. Here's why: I want to demystify who we are and what we do at Fool HQ.

I'm David Gardner. I have invested my own portfolio for 15 years now, in the stock market. (That may sound like a lot or a little depending on your own perspective. From my point of view, I'm too old to be a novice and too young to be an "expert." I like it that way.) Five years ago, my brother and I started a newsletter to share our interest in investing, and our enthusiasm for it, with as many people as that newsletter could reach. We wanted to reach, to teach -- but to do so in a strikingly original and amusing way (those were the profs we always liked most in our own schools). Anyway, through a nice mixture of luck and hard work, Tom and I converted our newsletter into an online site, and here you find us today trying to do what we've always been doing: striving to educate, to amuse, and to enrich our customers.

We believe people should manage their own money, and that's what we're doing and what we're teaching others to do. One of our primary beliefs is that personal responsibility is not only crucial to the management of one's money, but of one's life! We are here to teach as many people about money as we can, hoping that THEY will be better off and that SOCIETY will be better off for them. The more people taking control of their own lives, the less we'll have people looking to their government, or their boss, or their parents or kids, you name it, to do it for them. At the same time, even as we try to create a better world full of people taking control of their own destinies, alongside that we are trying to create a worldwide community of people united by our beliefs as a form of support system. There was a great void in this, before the Internet came along... but at this point I need to get back on topic. Please excuse! So back to the goods.

I am not an institutional investor. I do not have a Quotron. I do not use a Bloomberg box. I have not met the management of most of the companies I invest in, and unlike Wall Street analysts, I don't get to sit down behind closed doors with management and have them share privileged information about their upcoming earnings prospects. The information you get from me and from us here in Rule Breaker Portfolio Land is mostly just our own opinions -- although it is informed by what we learn from our community. (We listen very carefully.) So if you're thinking we have any specialized form of information that helps us out -- because we're the Internet finance guys, and we MUST know lots of insiders -- you're wrong. We are quite removed from the businesses we invest in, even though we try to minimize that distance by being familiar with their products and services.

Speaking of being wrong, we're frequently wrong. That has led to a long litany of memorable losers in our portfolio. Part of this is bad thinking, but part of it is also because we don't always have enough time to "do things right." (Heck, I'm frequently late with my reports.) Case in point: In 1997, we lost to the S&P 500 for the only year ever, so far. That was largely because I failed to find sufficient time to reinvest our cash that was just sitting on the sidelines in money markets. Long-time readers will know that if we had only taken the time to put that cash in a Spider or an index fund, we would've beaten the market. Why didn't we? We shake our heads. We're just everyday human beings who simply don't achieve all that we'd like.

If this is sounding like a Jimmy Swaggart "I have sinned" confession, I am sorry! I guess I have sinned. But seriously, Jeff and I and Paul and anyone else making regular contributions to the portfolio need you to know that we are not always on top of our own stocks.

I was on CNBC a couple of years ago when I was asked about a recent Iomega news development. That development was so recent that I hadn't heard of it -- it had just occurred that morning! I slightly embarrassed myself and the network by showing no knowledge of it. Silly me, I tried to blow that off and talk around it, semi-successfully. But you know what I should have done instead? I should have explained that I had spent the morning co-oping (teaching) at my two-year-old daughter's class, and simply hadn't heard "the latest news" about Iomega. (We don't really invest in such a way that it matters much, anyway -- another good point to have made.) That would've been more "uncompromisingly honest," more Foolish, and frankly, quite refreshing. It probably would've jumped off the screen for the average CNBC viewer, used to seeing all those suits who always have to look like they're pros, totally on the ball.

I use the CNBC story as a perfect illustration of this fifth principle, which says little more (sorry if I've dragged it out too much) than that your faithful Rule Breaker portfolio managers are not the impressive, impeccably dressed, top-gun, networked geniuses that you might expect of people trying to ply their trade publicly in the investment and media world. We console ourselves about this by remembering that we are really not very different at all from anyone else who taps into our site every day, from work or from home, trying to see how their investments are doing and find out some new ideas. In case you didn't already know this, we picked Iomega based on our readers' input. And we have people on the message boards who know far more about Lucent Technologies than we do. But one thing that unites all of us is that we have limited time for this stuff, limited attention, and we're trying to do the best we can based on the attention and knowledge and spirit that we can bring to the endeavor.

This is uncompromising honesty, to which I want to return in closing because it's the foundation from which all of our business efforts must proceed. And you can help us and each other in these efforts. If you ever feel anyone in Fooldom -- and I include every one of our readers, contributors, employees, founders, you name it -- seems to be less than honest, depending on the circumstance, I hope you will either confront them about that quietly, or bring it to the community's attention.

And finally, a short plug, if you're interested in our other core values and the way we work. George Gendron, the editor-in-chief of Inc. Magazine, recently called our company handbook -- I kid you not (this was flattering) -- "the best ever." For fans of the Fool, here's a link to that short and Foolish article, if you'd like to read it. And you can order our company handbook if you'd like to take a look at it (it's rather simple, though -- I don't want to overbill the thing!) -- instructions are in that article.

To close, remember this: Common people investing in common stocks. That's the Foolish way, and it starts with this portfolio's managers.

#####

Reflecting on this principle, it's more a "demystifier" than particularly investment-related. That's OK with us, because part of Breaking Rules and being a Fool is to demystify things. What better than to begin with ourselves?!

And now a note to close. It was pointed out to me by fellow Fool Philip Marston that last night's Foolish epigraph from the French naturalist Buffon was in fact doubly Foolish. Why? The name "Buffon" MEANS Fool in French.

Serendipity, eh? But why didn't I remember that? Darn high school French...

-- David Gardner, December 2, 1998

Order your copy of David and Tom Gardner's new book, Rule Breakers, Rule Makers, in advance. This Simon & Schuster beauty doesn't arrive until January, but you can reserve your copy today! The first half of the epic book, on Rule Breakers, elucidates the Fool Port's investment style; the second half, on Rule Makers, further explains Cash-King investing.

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Bookmark Live Fool Port Quotes

12/02/98 Close

Stock Change Bid ---------------- AMZN -10 199.50 AOL -1 7/8 87.88 T + 1/8 62.31 DJT - 3/16 4.69 DD - 15/16 56.94 XON - 1/2 71.25 IP - 3/8 43.81 IOM - 1/4 7.31 LU -1 3/4 86.75 SBUX -1 1/8 48.94 TDFX + 9/16 12.94
Day Month Year History Annualized FOOL -2.02% 1.74% 110.63% 606.88% 57.16% S&P: -0.29% 0.65% 20.69% 155.51% 24.22% NASDAQ: -0.43% 2.34% 27.05% 177.04% 26.56% Rec'd # Security In At Now Change 8/5/94 1100 AmOnline 1.82 87.88 4734.41% 9/9/97 440 Amazon.com 19.74 199.50 910.75% 5/17/95 1960 Iomega Cor 1.28 7.31 471.11% 10/1/96 84 LucentTech 23.81 86.75 264.37% 8/12/96 130 AT&T 39.58 62.31 57.44% 4/30/97 -1170*Trump* 8.47 4.69 44.65% 2/20/98 200 Exxon 64.09 71.25 11.17% 2/20/98 215 DuPont 59.83 56.94 -4.84% 2/20/98 270 Int'l Pape 47.69 43.81 -8.13% 7/2/98 235 Starbucks 55.91 48.94 -12.47% 1/8/98 425 3Dfx 25.67 12.94 -49.60% Rec'd # Security In At Value Change 8/5/94 1100 AmOnline 1999.47 96662.50 $94663.03 9/9/97 440 Amazon.com 8684.60 87780.00 $79095.40 5/17/95 1960 Iomega Cor 2509.60 14332.50 $11822.90 10/1/96 84 LucentTech 1999.88 7287.00 $5287.12 4/30/97 -1170*Trump* -9908.50 -5484.38 $4424.13 8/12/96 130 AT&T 5145.11 8100.63 $2955.52 2/20/98 200 Exxon 12818.00 14250.00 $1432.00 2/20/98 215 DuPont 12864.25 12241.56 -$622.69 2/20/98 270 Int'l Pape 12876.75 11829.38 -$1047.38 7/2/98 235 Starbucks 13138.63 11500.31 -$1638.31 1/8/98 425 3Dfx 10908.63 5498.44 -$5410.19 CASH $89444.18 TOTAL $353442.12

</THE FOOL PORTFOLIO>

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