ALEXANDRIA, VA (August 4, 1999) -- Well, it's our fifth anniversary today. That's the first thing of note. Tom and I opened up keyword: FOOL on AOL -- before there was a World Wide Web (okay, almost) -- on August 4, 1994. We announced our first few buys for our portfolio that night, executed the next day. (One was AOL -- which is the only original investment still in the Rule Breaker Portfolio.) We had 60 visitors, with a few message board posts. We probably hung out for a couple hours in the chat room -- I think we had a chat room, back then. The Motley Fool was launched with no business plan, no market research, no fanfare. Just a lot of enjoyment, affection, and hope.
Needless to say, five years later we have received more enjoyment, affection, and have more reason to hope than we ever could possibly have expected. But enough about us. More important, I hope that YOU have derived a tremendous amount of enjoyment from the community work of The Motley Fool. I say "community work" because it's quite evident to any regular visitor of these here Foolish parts that much of the best work done in Fooldom every day comes from our community, published to our message boards.
The Motley Fool is an improbable enterprise with an improbable name, a daring mission, a total emphasis on practical fun, and an insistence on serving always as a revolutionary force for good in our society. We will never allow ourselves to be anything less. If we are not out there relentlessly searching for better solutions, we will say good-bye to our 192 employees, shut down our European offices, and unplug our radio show. Seriously. If we're not out there finding you a better deal, forcing through a better way, challenging the Establishment wherever it fails to serve you, I quit.
I'm very comfortable, after five years, saying that we have been fulfilling these functions exactly. We derive our gratification from lots of things that make us no money: from index funds, say -- taking assets away from underperforming managed funds. We expect that great big sucking sound to continue. In fact, we'll usher it on to the full extent of our belief that investors are better served by index trackers than overpaid human managers.
We also derive gratification from forcing companies to open up their conference calls, which we have done several times in highly publicized fashion (Starbucks is one former example, and we're working on Coca-Cola now). This is striking a blow for freedom, and we do it with your help. We also derive gratification from Fools who have ended their relationship with a financial professional whom they have discovered was abusing his position; many of these postings or e-mails come a year after that's occurred, written by someone who has done far better than they were doing before. We love that.
Speaking briefly about our company, for a long time the most frequently asked question at our public appearances was: "When are you guys going public?" As early as the summer of 1996, Inter@ctive Week (a trade magazine) predicted that The Motley Fool would be a hot IPO that year. They didn't check with us, though, to learn that we would never rush to the public markets. Why? We are not interested in "cashing in" on what we're building, an "exit strategy" that many have suggested for us. We don't think in those terms; it wouldn't be enjoyable, and it wouldn't be responsible. We will only offer The Motley Fool when we feel we have a completely rock-solid position for long-term prosperity. In some key ways we have already achieved this, but in some other ways we're not yet satisfied with our efforts.
We're asking a lot of this business -- our business -- and still have to fill out management at the company, complete our business models, launch product lines. We may look lonely out here as one of the few big Internet brand names that is still private -- perhaps the biggest -- but that loneliness doesn't gnaw at us. We're actually proud of it. That's what I mean about being responsible, feeling totally comfortable with the company we would be offering up to you, our fellow Fools and the general public. This may be an old-fashioned way of viewing business; if so, we don't mind being thought old-fashioned.
As for our numbers, we must sometimes remind ourselves where we've been. As I mentioned earlier, when we opened up our online service five years ago, we had 60 original customers and no marketing budget. We have never done any form of major advertising campaign since, and neither have we done any significant financing as a company. Precisely five years later, we now have 1.5 million Fools regularly online with us, 4 million Fools listening to our radio show, countless others reading our newspaper columns and books. These are our numbers, but they're not relevant or even particularly satisfying today. They're the past. All that's relevant to me is the future.
You'll notice we don't have any big feature package celebrating our five-year birthday. We have a single article, penned by our own TMF Cheeze, a guy we met and hired through our message boards. (Like about half of our employees.) His brief look at the past makes the same point: We only really care about the future. Fortunately, we have never been more excited about our business and its possibilities than we are today. Deeper than business, though, I have never been more convinced that Foolishness will improve the world on a mass scale. Yes, Foolishness... our core values, our mission, the philosophy that underlies it -- shared by so many of you who call yourselves Fools along with us.
A final note about anniversaries. One of the few constants in our five years of online Foolishness is this portfolio. We will briefly celebrate it, as well. Today, we can do our five-year accounting. We have seen many things in five years. We have watched America Online skyrocket like few stocks ever do. We have watched some Fool picks bomb: ATC Communications (some of you will remember this avatar of American capitalism) lost us most of our investment, 3Com wasted away a substantial portion of our funds over a few years, KLA-Tencor as well. We watched some one-year stars move in and out of the portfolio: Ride Snowboard and Medicis Pharmaceuticals both doubled our money and demonstrated a willingness on our part to cash out of a good thing when we think its biggest growth prospects are behind it. And we have watched a crop of upstart Rule Breakers generate a lot of heat and some pretty good returns: Amazon.com, Excite@Home, and eBay.
Although we're now down with eBay.
Which reminds me to mention the volatility we've seen. 1994 was humdrum. 1995 was raging. 1996 gave us a great spring, and a horrendous summer -- I remember watching AOL drop from $75 to $25, as we held all the way through (thank God). 1997 was steady and good. 1998 was our greatest year ever, and yet we watched the portfolio get whacked day in and day out throughout the fall. Where did we end up, though, despite that poor period? Up 199%. Not a bad segue into 1999, which has been an up year. However, what was once an 80% return has dwindled to a 2% return. Following all of these ups and downs, the portfolio is up 919.27% since its 1994 inception. Our initial $50,000 has grown to become $509,634. All told, here are our five years of returns (this is August 4 to August 4, not calendar):
1995: +58.31% 1996: +54.52% 1997: +28.37% 1998: +52.17% 1999: +113.23%
I now write during a particularly bad period for our best-performing stocks. The past four months have nearly cut in half our overall returns. And yet I hope the short review above of this portfolio and its volatility makes it clear how frequently these bad periods happen! These things are not just true of the Rule Breaker Portfolio -- volatility is eternally true of the stock market. The stock market is volatile, sometimes swinging wildly in short-term periods.
But step away and look at the LONG term -- the century, or a human lifetime, several decades -- and you'll see a remarkably smooth upward hyperbola. So as a long-term investor, I'm extremely unconcerned by this summer, as I was by the summer of 1996, the year of 1990, the fall collapse of 1987. For short-term thinkers this is bizarre; I am speaking a foreign language. True, for me to say with Alfred E. Neuman, "What, Me Worry?", is unusual in a society with such a myopic short-term focus. And yet it is completely consonant with The Motley Fool, its message, its core beliefs.
So stick with us for the next five years. We hope you'll be a part of Foolishness for long past that! We -- all of us -- ain't seen nothing yet.
-- David Gardner, August 4, 1999