<THE RULE MAKER PORTFOLIO>
Talking to MomAtHome
with Matt Richey (TMF Verve)
ALEXANDRIA, VA (June 14, 1999) -- Oftentimes, Internet message boards are portrayed as a place of anonymity. That may have some truth, but here at the Fool, the bulk of the messages are posted by frequent contributors, each with his or her own distinct "personality." You don't have to hang out on the boards long before you begin to almost know these people. Through their messages, regulars such as 692738, AmandaHugginkiss, and lou2 have each established a unique style all their own -- identities not too different from the ones we have in the face-to-face world. This week, we'll be sharing some interviews with a few of the regulars from the Rule Maker message boards. If you haven't yet "met" these folks online, here's an opportunity to acquaint yourself.
Tonight's interview is with MomAtHome.
TMF: When and how did you discover The Motley Fool?
MomAtHome: My 1998 New Year's resolution was to find out more about the stock market. I had some experience with mutual fund investing, but didn't really know anything about the mechanics of investing in stocks directly. So I went to the bookstore with my birthday money and picked up The Motley Fool Investment Guide. I chose it because I had seen the Gardners on one of the morning news shows and it looked like the least stuffy of the available books. (I hate stuffy.) After reading a bit, I signed on to fool.com, and I've been hooked ever since.
TMF: What attracted you to Rule Maker (or Simpleton/Cash-King) investing?
MomAtHome: I have two young sons, and have started college fund accounts for them. My original plan was to use the UV2 screen (from the workshop) until they had built up enough to switch over to the Foolish Four or one of its variants. The returns were so dismal that I just couldn't stand continuing it. (I know, I'm weak.) But in the meantime, I had started reading about Cash-Kings, and decided it was a much better fit for my goals for these investments. I like the idea of a heavy-duty analysis once, and only maintenance from there on out. The other nice benefit is that much of the money in those accounts has come from gifts from grandparents, and I find it much easier to explain that I've purchased well-known, well-loved companies that I'll hold for years than to explain what I'm sure they think is a hare-brained scheme of buying "dogs of the Dow" once a year.
TMF: To what extent does Rule Maker investing make up your overall investment style? What other styles of investing do you use?
MomAtHome: So far, I only use it in the boys' college funds. My husband works for General Motors, and they force our hand a bit in the 401(k), requiring us to hold a fair chunk of GM stock. But for the rest of our assets, we have some in an index fund, and some in each of a Spark 5 and a PEG 5 group, which are both mechanical screens developed by some brilliant Fools over on the Workshop Board. My husband "cherry-picked" Cabletron a month or two back, and scored us our very first double. Woo Hoo!
TMF: How do you feel about the principle of QuaVa -- that business quality is 100x more important than valuation?
MomAtHome: To me, the quality of the business is the only issue. The trouble I have is determining what kind of quality will win in the end. My heart really wants to believe that a good product will come out on top, but evidence keeps mounting against that idea. For example, Microsoft's products are only so-so, but they have a fantastic business model so the company succeeds. But it's much easier for me to evaluate a product by using it than it is for me to evaluate a business model. That's why I like the Rule Maker Ranker (links at bottom) so much. It gives me a starting point for a numbers-oriented evaluation.
TMF: Do you think that QuaVa is more important the first time you buy shares of a company than when you are making additional purchases?
MomAtHome: No, I think it's always important. If you bought a stock because you thought it was a high quality company with potential for growth, and you still think that, then price and valuation shouldn't matter. If you have money to add to one of your existing stocks, add to the one you think has the best chance for future growth. But I will admit that I love a sale, and if I saw one of my favorites beaten down in price for some weird, non-relevant, Wise reason, I sure would try to scoop up some more shares on a bargain. I wouldn't keep my money out of the market waiting for such a "sale," though.
TMF: Which of your Rule Makers are you most excited about for outperformance in the next decade?
MomAtHome: It's looking pretty dismal right now, but I have really high hopes for Amgen. They seem to have so much potential, and I love the fact that they straddle the Rule Maker/Rule Breaker divide.
TMF: If you could change any one thing about the Rule Maker approach, what would it be?
MomAtHome: Not much, really. Maybe, I would add a better or more defined mechanism for looking at international companies. For example, how does currency conversion and strength affect a foreign company? I'm sure there are a ton of foreign Rule Makers out there -- we just have to find them.
TMF: What's your favorite non-investment related activity? Does time spent studying investments ever interfere?
MomAtHome: Painting. I've recently returned to the University of Michigan as a part-time student to finish my Bachelor of Fine Arts degree. I'm learning how to paint in oils, and I'm enjoying it tremendously. It's very satisfying, both intellectually and emotionally. Do I let investing get in the way? Never -- it's not that important. Besides, investing really only takes an hour here or there. It's keeping up with the Fool Message Boards that takes all the time!
TMF: Make a projection -- which Rule Maker will have performed best when the Port celebrates its 10th anniversary in February 2008.
MomAtHome: I'll pick Pfizer. I think it has the most positive potential in the area of luck. Microsoft is too big to innovate anymore. The Gap may want to run with a consumer fad, but will have to risk alienating an older consumer base to do so. Pfizer is in the business of capitalizing on luck, and will be ready to jump on anything they can come up with.
TMF: Given the changes the Internet is introducing on a weekly basis, what do you think the professional financial firm will look like in ten years? What will be the role of the full-service financial professional in the year 2009?
MomAtHome: I'm going to go out on a limb here. Right now, investing online and doing it yourself through a discount broker is cool. But in the same way that having lawn service is a status symbol, I think full-service brokers will become status symbols, too. "Oh? You're still doing that yourself? (yawn) How do you find the time? I have my broker do it for me." I do think their fees will come down from where they are now, though.
TMF: Share with us your worst investment decision.
MomAtHome: Panicking and selling out of my younger son's UV2 positions 4 months before their due date. I sold at an approximately 20% loss. Had I waited until the turnover date, I would have gained about 15%.
TMF: If you could have dinner with Peter Lynch, Warren Buffett, or Paul Newman which would you choose and why?
MomAtHome: None of them really inspire me. (Not inspired by Buffett? I know, that's practically heresy around here.) I imagine Lynch to be full of himself, and Newman narcissistic, so I'd probably go with old Warren if I had to make a choice. I imagine him to be a charming and intelligent man, and would likely make a good dinner companion. And he's not likely to be around too much longer anyway. Now, had you added the Gardner brothers to that list it would have been much easier. ;-)
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Day Month Year History R-MAKER -1.93% -4.18% 0.32% 26.94% S&P: +0.03% -0.59% 5.60% 30.66% NASDAQ: -2.03% -2.92% 9.38% 45.10% Rule Maker Stocks Rec'd # Security In At Now Change 2/3/98 48 Microsoft 39.13 77.56 98.20% 6/23/98 34 Cisco Syst 58.41 107.81 84.58% 5/1/98 55 Gap Inc. 34.37 63.31 84.21% 2/13/98 44 Intel 42.34 54.38 28.43% 2/3/98 22 Pfizer 82.30 95.38 15.89% 5/26/98 18 AmExpress 104.07 118.25 13.63% 2/6/98 56 T. Rowe Pr 33.67 33.13 -1.63% 2/17/99 16 Yahoo Inc. 126.31 119.25 -5.59% 2/27/98 27 Coca-Cola 69.11 64.81 -6.21% 8/21/98 44 Schering-P 47.99 44.13 -8.06% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 64.34 81.13 26.10% 3/12/98 15 Chevron 83.34 94.75 13.69% 3/12/98 20 Eastman Ko 63.15 70.50 11.64% 3/12/98 17 General Mo 72.41 63.19 -12.73% Rule Maker Stocks Rec'd # Security In At Value Change 2/3/98 48 Microsoft 1878.45 3723.00 $1844.55 6/23/98 34 Cisco Syst 1985.95 3665.63 $1679.68 5/1/98 55 Gap Inc. 1890.33 3482.19 $1591.86 2/13/98 44 Intel 1862.83 2392.50 $529.67 2/3/98 22 Pfizer 1810.58 2098.25 $287.67 5/26/98 18 AmExpress 1873.20 2128.50 $255.30 2/6/98 56 T. Rowe Pr 1885.70 1855.00 -$30.70 2/17/99 16 Yahoo Inc. 2020.95 1908.00 -$112.95 2/27/98 27 Coca-Cola 1865.89 1749.94 -$115.95 8/21/98 44 Schering-P 2111.7 1941.50 -$170.20 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 1286.70 1622.50 $335.80 3/12/98 15 Chevron 1250.14 1421.25 $171.11 3/12/98 20 Eastman Ko 1262.95 1410.00 $147.05 3/12/98 17 General Mo 1230.89 1074.19 -$156.70 CASH $70.09 TOTAL $30542.53
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.