Just back from sunny-sky Vermont spending a few days with my parents, and I must admit that I wasn't that tuned in yesterday when the Nasdaq set its percentage rise record. I was glad to note, as long-time Fools will have anticipated, that this event focused the mainstream media on PERCENTAGES, not points!
So what happened today? Let me see. The market gave back some of yesterday's gains... and our portfolio along with it (giving back more than the market, in fact). We like to follow the market on a regular basis like we follow our baseball teams, but as you know, we don't put much stock (figuratively or literally) in daily market movements and note the changes in our recaps merely in passing, not with any focus. We haven't made a trade in this portfolio for almost 6 months, which truth be told is the way we like it.
When on occasion I get away to the green wilds and have a moment to reflect on Foolishness and Rule Breaking (away from the nitty-gritty day-to-day), a few enduring themes come back to me and I purpose to write on them. Today is one such. We'll use as a touchstone this relevant (eternally relevant!) inquiry from our Rule Breaker Beginners discussion board a few days ago to kick off our thoughts tonight.
JSTRADLING asks, "Should an inexperienced investor look at Rule Maker or Rule Breaker strategies first; or should they look at overall investing first? I've viewed the 13 Steps and have been reading and watching and I think I'm fairly ready, but there's this nagging 'doubt'...."
This provides me a good opportunity to provide a brief (regular) reminder: Rule Breaker investing comes well after "overall investing" (general, get-started investing) and at least a step or two past Rule Maker investing as well -- and I speak here metaphorically but also chronologically.
That is to say that you absolutely should familiarize yourself with investing terms and index funds first, as well as learn the basics of reading financial statements. We've covered those online, and we've covered those offline (perhaps most effectively for beginners in our Motley Fool Investment Workbook).
For most people, we continue to believe that a good index fund like the Vanguard Total Market Index Fund should be not only the first investment they ever make, but in many cases the last -- it provides growth and diversification for the long-term Foolish investor, AND (importantly) low annual fees AND (even more importantly, methinks) low annual turnover. If you're not familiar with what turnover is, then you need to reread the previous paragraph and follow the stated precepts again ("familiarize yourself with investing terms").
You have acquired some real sophistication and a nice start as an investor, at this point, and notice that you haven't even bought a stock yet. Again, for many people who don't want to make the stock market a hobby, a true love, they can hop off the Fool Train right here. They are at their investment destination.
If you DO wish to make investing a directed lifetime pursuit, you can now contemplate buying your first stock. And the steps in your thinking and progress mirror the 13 Steps to Investing Foolishly online, or if you are more inclined to pick up summertime reading, you would at this point pick up You Have More Than You Think, which is a book designed to get you to make your first investment -- your first true thought-out investment -- as you turn the final page.
Should your first stock be eBay, which is one of this portfolio's staples? Nay, dear Fool. How about Ballard Power, identified as a top potential Rule Breaker prospect in our recently concluded online Rule Breaker seminar? Absolutely not.
(For regular BreakerPort readers who weren't aware of the complete list of prospects, here's the fascinating compilation for your future research.)
Your first stock should be large, stable, "safer" -- it should be one of the "Obviously Great Companies." These are companies that EVERYONE knows (neither eBay nor Ballard qualify). They are dependable entities, and allow the new investor to become for the first time ever a part owner of a corporation that -- in this case -- will almost certainly be around in 20 years. (One cannot say that for any Rule Breaker prospect.)
It is after studying and pursuing "Obvious Greats" and building up a portfolio of these Rule Makers and near Rule Makers that one can continue on toward considering investments in Rule Breakers. Please note, again, that Rule Breakers don't pop up in the 13 Steps until Step #11. At this point, your investment portfolio is robust and your investment interest is high. You are ready to take on more risk, and the money you might put toward your Rule Breakers is money you won't need for at least five years and in fact can afford to lose.
You are now, finally, ready for Rule Breaker investing.
So there's your answer, JSTRADLING, and it's a critical one that I don't mind taking some space out on a regular basis as a brief reminder for the BreakerPort reader and Foolish investor. Throughout Fooldom, we have signs pointing to the 13 Steps for very good reasons. The Steps guide newcomers toward, and remind old-timers of, the systematic, step-by-step, incremental approach to investing that we teach here at The Motley Fool.
Perhaps you already knew all this. If so, I simply ask you to pass this on and remind others of these truths. Because I continue to find that most of the world knows investing as an amorphous and often contradictory process of trying to "make big money" with very little thoughtfulness, sense, or rigor.
Back to your regularly scheduled Rule Breaking tomorrow!
David Gardner