<THE RULE MAKER PORTFOLIO>
On the Maker Boards
By Al Levit (TMF Early)
GLENDALE, CA (June 8, 1999) -- Today, we resume our discussion of favorite message board threads. If you haven't yet given the message boards a shot, I urge you to check out today's Post of the Day regarding @Home and this runner-up that details America Online's growth prospects. Both of these posts are prime examples of the insightful research that graces our boards daily. Another way to find the best of our boards each day is Hot Topics. All of these features are available at a glance on our Foolwatch page -- a great one to bookmark.
However, as often happens, I've found that the most interesting message threads are close to home, and so today I'll be commenting on several ideas that have been brought up on the Rule Makers boards.
Yesterday, Phil discussed his thoughts on some potential improvements for our Rule Maker Ranker spreadsheet. Already, an interesting discussion has begun on the topic of the importance of a company's current financial status versus its ongoing financial direction. We've often said that a company's direction is more important than its existing location. But how important? Click here to join the conversation.
Most likely, if you haven't read Rule Breakers, Rule Makers or tried the free Ranker spreadsheet, then last night's discussion may have been a bit confusing. But don't run off just yet! If you have Microsoft Excel, it only takes a minute to download the Ranker, where you'll find a friendly user interface and a step-by-step approach. Again, the spreadsheet is totally free -- no strings attached! (Links for download at bottom.) Finally, if you're new to the MakerPort, please take a detour over to our Eleven Steps to Rule Maker Investing, which starts here. And remember, answers to your questions are only a click away at our Beginners message board.
I'd like to make some general comments about the advantages of our interactive method of evaluating companies. In the past, when an author came up with an investment theory, he wrote a book to describe it, and that was that. If the theory needed tweaking because of market conditions or other reasons, it was difficult, costly, and time-consuming to make changes and get them out to the public. Fortunately, we've evolved a much better system with our Rule Maker Companies board and Ranker spreadsheet, which provides a standardized format for evaluating companies.
Tom Gardner wrote the rules for how to rank Rule Makers about six months ago and published them in the aforementioned Rule Breakers, Rule Makers (lovingly dubbed the "Rule Book"). Even then, Tom knew that the published method for evaluating companies was just a first cut at the basic framework. As he points out on p. 310:
"In the months ahead, you can bet that we'll add new criteria and tinker with the total scoring system."
We've already seen fit to make a couple of changes (e.g., we now consider short-term debt to be as bad as long-term debt, and we measure Monopoly Status by comparing Net Cash, as opposed to the ratio of cash-to-debt). In many threads about Rule-Maker theory, the question debated is not what is said in the Rule Book. Instead, Fools are discussing both what the Ranker currently does and also what it should do.
I find this very encouraging. Through conversation and civil debate, we have substituted a dynamic spreadsheet for a static book as our basis for determining what makes a company a Rule Maker. For Rule Makers, the Rule Book was just the beginning, not the end.
Moving on to some other interesting threads, the next one I'd like to cover, called "The Port of Princes," is about our recent decision to add Yahoo! (Nasdaq: YHOO) to the Rule Maker portfolio, even though the company falls short of our $1 billion minimum in annual sales. Here's a clip from the thread's first post, written by "markoose:"
"Something dawned on me last night (OK, it actually hit me like a ton of bricks): Yahoo! is in the Rule Maker port!
"For some time, I, too, have been considering adding a bit of YHOO to my portfolio, which should take place sometime in the near future.
"However, from the multitude of posts a while back, the decision to add Yahoo! to the Rule Maker port apparently caused quite a stir. I tend to agree with some of the extremely valid points that YHOO should NOT be there.
"Then again, I think it's a strong company with an even stronger future in the next 5-10 years.
"That said, it's still not technically a Rule Maker, but a Tweener that has the best potential to be sitting on that much sought-after throne in its industry. Now I understand the port managers' reasoning behind adding YHOO to the RM; I mean, if you can catch a Rule Maker just prior to its baby king status, then more power to you!"
"markoose" then suggested that we take our idea one step further and open up an entire portfolio of promising Tweeners (companies that have moved beyond the Rule Breaker stage but have not yet achieved the dominance and momentum of a Rule Maker). As you read through the thread, you will note that there was considerable interest in this idea. Fortunately, at least from this manager's viewpoint, the feeling also emerged that this Tweener portfolio could be quite risky. Therefore, it was suggested that the Tweener portfolio be a paper portfolio.
Tom Gardner had another idea. He opened up an entire message board devoted to Tweener companies. An interesting discussion of the history of Tweeners has already started.
Guess what? Head Fool Tom Gardner isn't the only one who can open a new message board. If you're itching for a soapbox, you can open your own folder in our Speaker's Corner.
I'm going to leave it at that for today so that you can check out some of the many links I've thrown at you. I'll see you next week. Until then, Fool on.
- Rule Maker Strategy Board
- Rule Maker Companies Board
- Rule Maker Beginners Board
- Rule Maker Spreadsheet (Excel 97, 68k)
- Rule Maker Spreadsheet (Excel 95, 41k)
Day Month Year History R-MAKER -1.95% 0.25% 4.97% 32.82% S&P: -1.29% 1.19% 7.49% 32.98% NASDAQ: -1.97% 0.16% 12.85% 49.71% Rule Maker Stocks Rec'd # Security In At Now Change 2/3/98 48 Microsoft 39.13 79.38 102.83% 6/23/98 34 Cisco Syst 58.41 111.69 91.21% 5/1/98 55 Gap Inc. 34.37 65.38 90.21% 2/3/98 22 Pfizer 82.30 111.00 34.87% 5/26/98 18 AmExpress 104.07 129.00 23.96% 2/13/98 44 Intel 42.34 51.69 22.09% 2/17/99 16 Yahoo Inc. 126.31 143.31 13.46% 2/6/98 56 T. Rowe Pr 33.67 34.00 0.97% 8/21/98 44 Schering-P 47.99 47.50 -1.03% 2/27/98 27 Coca-Cola 69.11 67.75 -1.96% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 64.34 79.81 24.06% 3/12/98 15 Chevron 83.34 92.75 11.29% 3/12/98 20 Eastman Ko 63.15 69.50 10.06% 3/12/98 17 General Mo 72.41 67.75 -6.43% Rule Maker Stocks Rec'd # Security In At Value Change 2/3/98 48 Microsoft 1878.45 3810.00 $1931.55 6/23/98 34 Cisco Syst 1985.95 3797.38 $1811.43 5/1/98 55 Gap Inc. 1890.33 3595.63 $1705.30 2/3/98 22 Pfizer 1810.58 2442.00 $631.42 5/26/98 18 AmExpress 1873.20 2322.00 $448.80 2/13/98 44 Intel 1862.83 2274.25 $411.42 2/17/99 16 Yahoo Inc. 2020.95 2293.00 $272.05 2/6/98 56 T. Rowe Pr 1885.70 1904.00 $18.30 8/21/98 44 Schering-P 2111.7 2090.00 -$21.70 2/27/98 27 Coca-Cola 1865.89 1829.25 -$36.64 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 1286.70 1596.25 $309.55 3/12/98 15 Chevron 1250.14 1391.25 $141.11 3/12/98 20 Eastman Ko 1262.95 1390.00 $127.05 3/12/98 17 General Mo 1230.89 1151.75 -$79.14 CASH $70.09 TOTAL $31956.84
Note: The Rule Maker Portfolio began with $20,000 on February 2, 1998, and
it adds $2,000 in cash (which is soon invested in stocks) every six months.