<THE RULE BREAKER PORTFOLIO>
On Your Mark, Get Set... Invest!
by Barbara Eisner Bayer (TMFVenus)
WOODSTOCK, NY (May 26,1999) -- What role does investing play in your life? Is it your profession? Probably not. I like to think of it as a sport, because Foolish investing is fun. Sport and investing are both sources of diversion; one plays to win (i.e., to beat the market); they both require carefully thought-out strategies to succeed; and, during the course of both, there are often extended periods of ups and downs. (Just check out any NBA playoff game to see this phenomenon at work. There's no guarantee that a big lead in the first half spells victory.)
The major difference between investing and sport is the extended time frame. In tennis, for example, one usually has three sets to determine a win. During those sets, there will be moments of struggle, adversity, and hopelessness, of lucky breaks, good timing, bad timing, and of sheer momentum. Investing is the same, except that those three sets are played out over a minimum period of five to 10 years. Betting on whether or not momentum will be in your favor in the next point, game or set is risky business.
Are YOU ready to play the investing game? Okay, thenï¿½ ON YOUR MARK, GET SETï¿½
WAIT -- are you fully prepared to GO?
As with any sport, the first thing you must have is a game plan. What are you investing for? Retirement? A new home? Generically (I just want MORE money)? Whatever your goal, you'll need a strategy to keep you on the right track ï¿½ especially during times of adversity. As a competitive tennis player, I employ certain techniques to stay focused on the game when everything seems to be going wrong -- which happens pretty much every time anyone steps on the court, whether she be Venus Williams or TMF Venus.
First, I need to reaffirm that I know what I'm doing out there. I need to focus on the fundamentals. After all, I'm prepared. I've learned everything I can about stroke execution, shot selection, and game analysis. In investing, this equates to doing your homework. Are you using a mechanical approach like the Foolish Four that has been back-tested for 25 years? Have you used a form of Portfolio analysis to choose your stocks? If so, relax... some years are gonna be up, some down.
Have you studied the fundamentals of the company and feel secure that everything is going along the path you envisioned? If so, relax... the stock market has its ups and downs, and there is nothing you can do to change it. To quote a sports aphorism, that's just the way the ball bounces! And in tennis, you've got to make the best of the bouncing ball and hit it back over the net to stay alive.
If, as an investor, you have your fundamentals down pat, a negative trend in the market will, at some future point, turn into a positive trend. On the court, when I focus on the fundamentals of stroke execution while refusing to let a preoccupation with hitting a winner undermine by abilities, bingo -- off comes the winner from my racket.
What would be the sense of changing my technique every time I hit a ball out of play? Frequently, I set up to hit a topspin backhand, only to become indecisive at the last second and switch to a slice. Y'know what I get from that moment of inconsistency? A ball that will land in the net -- and I don't mean the Internet. Too often in Fooldom, investors commit to, say, the Foolish Four approach which requires a rebalancing of your portfolio after a year and a day. But sometimes, after a month and a day, we are asked: "My Foolish Four are up 26% in two weeks, should I cash out now?" or "My Foolish Four are down 26% in two weeks, should I cash out now?"
The answers are the same: once you commit to a long-term model, you are committed! That means no turning back, no selling early, no regrets. The Foolish Four is a strategy that has worked for over a quarter of a century; so if that's where you decide to put your money, stick to your guns. Memo to myself: remember this each time you hit a backhand!
Another sporting concept is to play the Game you know. This week we have the pleasure of watching the French Open at Paris' Roland Garros, whose red clay surface slows down the ball's pace. Americans, who are accustomed to playing on a hard court's faster surface, have difficulty winning there. Pete Sampras, one of our greatest players of all-time, has yet to win a Grand Slam on red clay because the surface does not favor his power game. To win on red clay, Sampras has to change his aggressive serve-and-volley style game -- and he has been unable to do that effectively.
Investors, too, must stick to a Game that suits their style. Finding companies that provide products or services that you use and love is a basic tenet for successful investing. If you know nothing about oil rigs, don't invest in them because some analyst who does predicts oil is the next hot sector. Putting your hard-earned money there might be as successful as mixing oil and water.
So remember, choose an investing strategy and stick to it. Enjoy the sport of investing and play to win using whatever individual talents you've been blessed with. Don't rely on others to make your decisions for you. Sometimes you'll win, sometimes you won't -- the key is having more winners than losers. And remember the words of the immortal football coach, Vince Lombardi, which are as aptly applied to investing as to sport:
"If we fall short of our goals, at least we have the satisfaction of knowing we tried. As President Theodore Roosevelt said: 'It is not the critic that counts... The credit belongs to the man who is actually in the arena... again and again... who, at the best, knows in the end the triumph of high achievement, and who at worst, if he fails, at least fails while daring greatly, so that his place shall never be among those cold and timid souls who know neither victory nor defeat.' And each day, each week, each year, there is a new encounter, a new challenge. But all of the cheers and all of the color and all of the display linger only in the memory. The spirit, the will to win, the will to excel -- these are the things that endure and these are the qualities that are so much more important than any of the events that occasion them."
Today, the Rule Breaker Portfolio was up a whopping 5.16%. Just another day in the market.
For those of you looking for some Foolish education, enrichment, and amusement, this week we begin a quarterly feature of some of the best material we've published. Every day this week we'll add a new Best Of article. Please read and enjoy. And for anybody who hasn't gotten enough sports metaphor for one day, check out today's Fribble, which compares baseball to the market.
As for the French Open, I have only two words:
Barbara Eisner Bayer TMF Venus
Day Month Year History Annualized R-BREAKER +5.16% -17.15% 34.52% 1250.23% 71.89% S&P: +1.59% -2.28% 6.46% 198.19% 25.53% NASDAQ: +1.94% -4.55% 10.69% 237.02% 28.77% Rec'd # Security In At Now Change 8/5/94 2200 AmOnline 0.91 120.31 13137.88% 9/9/97 1320 Amazon.com 6.58 120.94 1738.17% 5/17/95 1960 Iomega Cor 1.28 4.50 251.45% 12/4/98 450 @Home Corp 56.08 124.63 122.23% 2/26/99 300 eBay 100.53 174.31 73.40% 12/16/98 580 Amgen 42.88 61.38 43.15% 4/30/97 -1170*Trump* 8.47 5.44 35.79% 7/2/98 470 Starbucks 27.95 36.44 30.35% 2/23/99 300 Caterpilla 46.96 57.81 23.10% 2/23/99 290 Goodyear T 48.72 58.63 20.34% 2/23/99 180 Chevron 79.17 94.06 18.81% 2/20/98 260 DuPont 58.84 67.13 14.07% 1/8/98 425 3Dfx 25.67 20.19 -21.35% Rec'd # Security In At Value Change 8/5/94 2200 AmOnline 1999.47 264687.50 $262688.03 9/9/97 1320 Amazon.com 8684.60 159637.50 $150952.90 12/4/98 450 @Home Corp 25236.13 56081.25 $30845.12 2/26/99 300 eBay 30158.00 52293.75 $22135.75 12/16/98 580 Amgen 24867.50 35597.50 $10730.00 5/17/95 1960 Iomega Cor 2509.60 8820.00 $6310.40 7/2/98 470 Starbucks 13138.63 17125.63 $3987.00 4/30/97 -1170*Trump* -9908.50 -6361.88 $3546.63 2/23/99 300 Caterpilla 14089.25 17343.75 $3254.50 2/23/99 290 Goodyear T 14127.38 17001.25 $2873.88 2/23/99 180 Chevron 14250.50 16931.25 $2680.75 2/20/98 260 DuPont 15299.43 17452.50 $2153.07 1/8/98 425 3Dfx 10908.63 8579.69 -$2328.94 CASH $9924.87 TOTAL $675114.56Note: The Rule Breaker Portfolio was launched on August 5, 1994, with $50,000. Additional cash is never added, all transactions are shared and explained publicly before being made, and returns are compared daily to the S&P 500 (including dividends in the yearly, historic and annualized returns). For a history of all transactions, please click here.
</THE RULE BREAKER PORTFOLIO>