If you think that the concept of Rule Breakers is a new one, you're wrong. People and organizations have been breaking rules for a long time, in both the investing arena and the world at large. Last year I saw a wonderful documentary on PBS, profiling Susan B. Anthony and Elizabeth Cady Stanton called Not for Ourselves Alone. I recommend it to you unequivocally, and want to share some investing lessons I found in it.

First off, let's set the stage. In the early to mid-1800s, women in America couldn't vote. In fact, they weren't even welcome at some "public" gatherings, and weren't permitted to speak, at others. These were the rules of the day -- the rules that people such as Susan B. Anthony and Elizabeth Cady Stanton set out to break.

(I'll beg your indulgence now, as I'll be drawing parallels between the women's suffrage movement and investing. Please don't think that I mean to make light of something serious.)

The first convention organized to address women's rights was held in Seneca Falls, N.Y., in July 1848. According to a website on worldwide women's suffrage, it was "a shot heard round the world." The funny thing about it was that it was organized mostly on faith and inspiration. Elizabeth Cady Stanton, Lucretia Mott, and other organizers had no idea if many people would attend. When the time came, they were happily surprised to greet scores of attendees.

There are parallels to Rule Breaker investing here. To wit:

If you build it, they will come. A convention of this sort arguably needed to happen, so when it was organized, people came. Similarly, with some great ideas, if the groundwork is laid effectively, success will follow. Take the idea of eBay (Nasdaq: EBAY). Yes, it can be fun to drop by garage sales, looking for something you've always wanted or something you hadn't realized you must have. This is inefficient, though. eBay came along and was quickly able to match buyers and sellers and to profit from their exchanges.

Of course, I suppose there's a corollary -- that if you build it, sometimes that's not enough, they may not come. Simply having a great product or service doesn't guarantee success. Betamax was thought by many to offer technology superior to VHS. Yet, due to a series of business decisions by both sides, VHS emerged as the standard. Similarly, many people have long felt that Apple Computer's operating system kicks Microsoft Windows' hiney, but the Justice Department has yet to threaten to break up Apple.

Another lesson we might draw from Seneca Falls is that of patience. One hundred men and women signed a declaration there that affirmed many rights of women. But, only one of the female signers lived to be able to cast a vote, after the 19th Amendment was passed -- a whopping 72 years later. Some battles are waged and won quickly... others take time. Some take a lot of time.

In the context of Rule Breakers, consider Excite@Home (Nasdaq: ATHM) and Amazon.com (Nasdaq: AMZN). In April of 1999, @Home's share price peaked at $99. Today, it sits around $13. In December of 1999, Amazon peaked at $113 per share, and now sits at roughly $35. If you're invested in either of these companies (or any like them), presumably you did your homework before buying shares. (Remember, don't mimic us.) You may be asking yourself whether you should sell. Here are some conditions when selling might be the smart thing to do:

  • The reasons you bought are no longer valid.

  • You can't remember why you bought in the first place.

  • You've found a better (ideally much better) place to put that money.

  • The holding has grown to dominate your portfolio, throwing it out of balance. (This is a judgment call. Sometimes hanging on is still best.)

  • You'll need that money within a few years. (Any money needed within a few years shouldn't be in stocks.)

  • You no longer have faith in the company.
If your faith in the company is intact, if you think that it will eventually get its act together or will be recognized by the market as more valuable than initially thought, you should probably hang on. Be patient. This holds true for entire portfolios, Rule Breaker or otherwise. The Rule Breaker portfolio isn't having its best year this year. As I write this, it's down more than 25% since the beginning of the year, as is my own personal portfolio. For those investing for the short term, this could be a big problem. Fortunately, I'm planning to remain invested in stocks (most of the same ones I currently own, I hope) for at least a decade or two. I know to expect periodic downturns, and possibly even (gasp!) some years of decline or stagnation. The women's suffrage movement had to endure occasional setbacks, too.

Susan B. Anthony and Elizabeth Cady Stanton were a formidable pair working for a common cause. They might not have been able to achieve what they achieved had they operated separately. They had different, but complementary, temperaments and styles. Anthony was the more practical one, while Stanton was more of an idealist and dreamer. This mixture can apply to investing, too. If an investor is purely practical and doesn't dare to dream a little, she'll likely have little use for Rule Breaker companies. If an investor never leaves the world of imagination, he may err in investing, never running companies through any investment criteria checklist, not scrutinizing them closely enough.

These are just some thoughts that came to me after viewing the documentary. If you have some thoughts to share or additional observations to make on these or other topics, please pop over to the Rule Breaker Strategies discussion board and post them -- let's hear from you!

Related Links:
  • The PBS page for Not For Ourselves Alone
  • Buy the video of the 3 1/2-hour documentary
  • More on the Seneca Falls Convention
  • When to Sell?
  • When to Sell a Rule Maker
  • The Buy and Hold Apocalypse