It's almost over.
The year when our Rule Breaker portfolio dropped over 50%. The year when so many market days have felt as if we'd reached rock bottom, only to discover that the oceans' depths virtually have no bottom, and any day could lead us closer to a frolic in Poseidon's home. Is it any wonder that Poseidon is also the God of Earthquakes? If this keeps up, we'll start seeing daily index reports on the Dow, the Nasdaq, and the Richter. Hardly a day goes by when someone doesn't pray for the fat lady to sing the bear market's finale.
Was there anything we could have done to protect ourselves from the markets' mini-crashes? Sure, but that's not our style. As Rule Breaking investors, we embrace the opportunity to become part owners of growing businesses, not volatile markets. Looking back, I see that we were prepared for this year's volatility.
Back at the beginning of 2000, we fully anticipated the possibility of this year's portfolio plague.
On January 3, Jeff Fischer wrote:
"For a Foolish investor, the focus is never on a single day's gain or loss, which is winning or losing a mere battle. Instead, the focus is on a lifelong victory -- winning the entire war."
Surely the war isn't over yet, even though so many investors are being treated for Post-Traumatic Bear Market Syndrome.
On January 4, David Gardner wrote:
"What if during the crescendo that the year 2000 represents in so many peoples' minds (new millennium, the FUTURE, high technology, revolution) -- what if the market actually bombed this year?"
As long-term investors, we're prepared, realistically if not willingly, for the possibility of losing 50% or more of our investments during any given time period. The focus is on the long-term; and time is on our side.
Jeff was prescient on February 10 when he wrote:
"Almost certainly, though, Nasdaq stocks won't continue this rampage. Not at this rate.... The past 18 months, the party is on Nasdaq. But it can't last. At least not like this. Nasdaq stocks may even fall significantly before this year rings out. Nobody knows. As long-term investors, we're simply banking on the value of good companies to be appreciably higher in 10 years. We don't pretend to know what will happen in the meantime. We're merely watching this wild roller coaster, not 'betting' on it near term."
On March 28, Abby Joseph Cohen announced the beginning of the market spiral when she no longer recommended an overweighted position in technology. At that time I wrote:
"We've stated time and again that the market won't always be a raging bull. It's so important for investors to build a portfolio based on companies with strong growth prospects and winning fundamentals. Rule Breakers tend to be riskier than your average company, which is why it's essential to stay diversified and keep your portfolio balanced in line with our 13 Steps to Investing Foolishly....If you haven't built a portfolio based on your own research and convictions, your portfolio doesn't have the strength of character to survive the test of shaky days, months, or even years."
My character was tested many times since I wrote those words. I may be a Fool, but I'm also human. I abide by Foolish principles, but I'm not immune to the trauma of watching my portfolio's wealth effect transform into a wealth defect.
I've survived by actively participating in the culture of Foolishness. A culture, by definition, includes language, ideas, beliefs, customs, tools, and techniques. The Fool's culture and greatest asset is our community of people sharing ideas, information, and various investing strategies. These tools are available to all investors in order to make them better at building portfolios that work for them.
And what about that singing fat lady? The reference is to Brunhilde's "Immolation Scene" at the end of Gotterdammerung, the last opera in Wagner's Ring Cycle, which is interminably long, even to many opera lovers. It's a 15-minute scene in which she mourns the death of her hero, Siegfried, and rides her horse onto his funeral pyre. (As for being fat, well, that might have been true in the old days, but with today's leaner opera stars, it's more likely not over until the svelte lady sings.)
The expression was coined in 1978, when the San Antonio Spurs were down three games to one in the playoffs against the Washington Bullets. Dan Cook, a sports analyst for the San Antonio Express-News, wanted to illustrate that the series wasn't over yet. (Although the fat lady did sing before the Spurs could win their third game.)
2000 may have been a bad year, but the investing game ain't over yet. We'll continue our strategy of finding great, Rule Breaking companies, and monitoring the progress of the companies we currently hold. Who knows -- the fat lady may sing on New Year's Eve, and 2001 may be the best year yet. Then again....
Here's to a joyous and Foolish New Year!
--Barbara Eisner Bayer
Also, start out the New Year right by enrolling in the Quest for Rule Breakers 2001 online seminar. We'll go over the strategy with a fine-toothed comb and search out the Breakers in the market -- many of which now trade at a greatly reduced price. Join us!