<THE RULE MAKER PORTFOLIO>
With Phil Weiss (TMF Grape)
TMF: I'd like to start things off by having you tell us a little bit about what you do to earn your investment dollars?
angussb: I came to Manila, Philippines as a tele-salesperson for a company that helps Filipino companies deal with companies in the U.S. and Europe. For the last eight months, I have been managing a team of 15 on average. It is great fun on the phones, but being a manager leaves lots of free time to surf the 'Net, so quite often I find myself reading the Fool's message boards.
TMF: When and how did you discover The Motley Fool?
angussb: My first visit to the Fool was by accident -- typing up random Web addresses and seeing what resulted! I'll be honest, I've never been very good with money, so that first visit was fleeting. Some time later, I was advised to read The Neatest Little Guide to Stock Market Investing by Jason Kelly. He mentions this site, and I remembered my previous visit. Upon my return to fool.com, I started off reading the Evening News, and I also dipped my toe in the water on the message boards. Then, about four months ago, I really started taking more advantage of what the Fool has to offer. I started reading entire message boards as a means of building my knowledge base.
TMF: What attracted you to Rule Maker investing?
angussb: The reason that I like the Rule Maker philosophy is its long-term focus. My grandfather was an investor that leaned towards the RM style. He looked at large companies intending to hold them indefinitely. It was only after reading the Fool for a while that I realized this. He held one stock, Smith and Nephew, from as early as I can remember until he died and passed it on to my mum. Is that long-term investing or what? I just wish that I'd learned from him rather than making my own mistakes. He believed in buying what he knew and keeping up to date on a few key stocks.
TMF: To what extent does Rule Maker investing make up your overall investment style? What other styles of investing do you use?
angussb: To be honest, I'm still developing my investment style. I think the RM Ranker (linked at bottom) criteria are a good standard, but I think that for my purposes some of its weightings need to be altered. As you learn more, your own experience and understanding should factor into your analysis. RM stocks will be the core of my portfolio, preferably over 60%, the remainder will be Rule Breakers, as well as a few companies based on the ideas that are being discussed on the Advanced Michaelis Analysis board. At the moment, I am mainly adding money to a few RM stocks via their dividend reinvestment plans (DRIPs).
TMF: How do you feel about the principle of QuaVa -- that business quality is 100x more important than valuation?
angussb: I agree 100% with QuaVa. The fact is that over the years the Wise have lost a lot of money trying to buy at the right price instead of just focusing on business quality.
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?
angussb: I have a DRIP investor's mentality. Typically, my first purchase isn't a big one. I like entering the water slowly instead of diving in. Once I'm more comfortable, I buy regularly and monitor things on a regular basis. So, the initial purchase price isn't too important. When I add more to an existing holding, the amount allocated to such purchases will increase if the company's RM Ranker score increases and decrease if it falls. That said, I believe there's more to investing than just looking at numbers in a spreadsheet. Before plugging in the numbers, it's important to make sure you know as many details about the company as you can.
TMF: If you could change any one thing about the Rule Maker port, what would it be?
angussb: I think it might be interesting to make a record of both the RM score and the stock price at the start of each quarter and then calculate the percentage gain or loss over the next three months. We can then see if the change in the score from quarter to quarter is reflected in the stock's price.
TMF: What's your favorite non-investment related activity? Does time spent studying investments ever interfere?
angussb: My favorite hobbies are reading (especially science fiction), television, and travel. I also collect key-rings, or as you Americans call them, "keychains." (Any chance of a Fool keychain in the future?) Hopefully, time spent studying investments will give me the flexibility to spend more time on hobbies in the future.
TMF: Make a projection -- which Rule Maker will have performed best when the port celebrates its 10th anniversary in February 2008.
angussb: I'm afraid someone has stolen my crystal ball, but if I had to guess, I'd say Pfizer. It has a major position in a well-established industry that tends to produce predictable earnings. Like food, medicines stay on the shopping list even when the economy is doing poorly.
TMF: I notice from your profile that you're in the Philippines. What made you decide to invest in the U.S. markets from abroad?
angussb: At the moment, I invest in both the U.K. and U.S. -- you can also find me lurking on the Fool U.K. site. The reason I invest in those two countries is the availability of information. Because of my British background, I have extra insight into some U.K. companies, but then again, most U.S. blue chips are international and well known to me as well. Another advantage to U.S. stocks is that I'm paid in U.S. dollars, so I don't have to worry about the impact of currency exchange. DRIP plans are also better in the U.S. (Can you imagine only being given complete shares and then having to pay a 0.5% duty to DRIP? That's why I prefer to DRIP in American Depository Receipts (ADRs) via the U.S. market instead of via London.)
TMF: How do you go about finding Rule Makers or any other new investment ideas?
angussb: I follow the Peter Lynch method of studying companies that I know from my own experience or those that friends have familiarity with. Then I visit the company's website, read the annual report, and learn about its customers, suppliers, and competition (sometimes I'll even decide to research the competitors, too). Finally, I read the relevant message boards and run the RM numbers using the RM Ranker spreadsheet.
It's amazing how investing opportunities can jump out at you. For example, here are some of the companies that I've come across during the course of a recent day:
Sony (television), Matsushita (Panasonic VCR), GE and Dow Jones (parent companies of CNBC), Disney (TV show), Nestle (coffee), Royal Dutch (Shell gas), Wrigley's (chewing gum), Microsoft (PC operating system), Hewlett Packard (printer), Tricon (Pizza Hut), Pepsi (soda). Those are only the multinational companies whose products I bought or used in the first half of the day! I know I can buy shares of each of these companies in the U.S., and I'm half way around the world. The problem is not finding companies, but rather finding the best ones. At least I know that if they do business here in the Philippines, they have international standing.
TMF: I like the motto at the end of all your posts: "Think long, Buy long, Hold long." Care to elaborate on that?
angussb: I tend to think in threes.
Think long -- Investing is not a sprint; it's a marathon. Before investing, answer the following three questions: 1) Why am I investing?; 2) How long am I investing for?; and 3) How much risk can I take?
Buy long -- I'm in the "Do not short" camp. Shorting has too high a risk of loss, and many shorts are held too long. I know the Gardners like to show how to short using Trump Hotels in the BreakerPort, but as the price falls, the rate of profit falls and the risk of losing profits increases. I prefer to buy long where the potential loss is fixed and the potential profits unlimited.
Hold long -- If you've found the right stock and it keeps performing, then doing anything other than just holding the stock brings inferior returns. First, there is the problem of timing your transactions. Then, there is the tax cost of selling. Of course stocks can fall as well as rise, but if the company is strong, over the long haul its price will increase, and it makes sense to minimize costs once you have made your decision.
To my mind, "Think long, Buy long, Hold long" sums up the "Foolish Filosophy."
TMF: Thanks for taking the time to share your thoughts with us. Although you say you've just started, it sounds to me like you've got a well thought out strategy in place. I sense that your Foolishness will bring you much success in your investing career.
- Rule Maker Strategy Board
- Rule Maker Companies Board
- Rule Maker Beginners Board
- Rule Maker Ranker Spreadsheet (Excel 97, 68k)
- Rule Maker Ranker Spreadsheet (Excel 95, 41k)
Day Month Year History R-MAKER +0.94% -3.28% 1.26% 28.13% S&P: +0.55% -0.04% 6.18% 31.38% NASDAQ: +0.68% -2.26% 10.12% 46.09% Rule Maker Stocks Rec'd # Security In At Now Change 2/3/98 48 Microsoft 39.13 77.69 98.51% 6/23/98 34 Cisco Syst 58.41 111.19 90.36% 5/1/98 55 Gap Inc. 34.37 63.00 83.30% 2/13/98 44 Intel 42.34 55.69 31.53% 2/3/98 22 Pfizer 82.30 97.56 18.55% 5/26/98 18 AmExpress 104.07 119.06 14.41% 2/6/98 56 T. Rowe Pr 33.67 33.44 -0.70% 2/17/99 16 Yahoo Inc. 126.31 125.25 -0.84% 2/27/98 27 Coca-Cola 69.11 63.75 -7.75% 8/21/98 44 Schering-P 47.99 43.31 -9.75% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 64.34 82.13 27.65% 3/12/98 15 Chevron 83.34 96.00 15.19% 3/12/98 20 Eastman Ko 63.15 70.63 11.84% 3/12/98 17 General Mo 72.41 61.56 -14.98% Rule Maker Stocks Rec'd # Security In At Value Change 2/3/98 48 Microsoft 1878.45 3729.00 $1850.55 6/23/98 34 Cisco Syst 1985.95 3780.38 $1794.43 5/1/98 55 Gap Inc. 1890.33 3465.00 $1574.67 2/13/98 44 Intel 1862.83 2450.25 $587.42 2/3/98 22 Pfizer 1810.58 2146.38 $335.80 5/26/98 18 AmExpress 1873.20 2143.13 $269.93 2/6/98 56 T. Rowe Pr 1885.70 1872.50 -$13.20 2/17/99 16 Yahoo Inc. 2020.95 2004.00 -$16.95 2/27/98 27 Coca-Cola 1865.89 1721.25 -$144.64 8/21/98 44 Schering-P 2111.7 1905.75 -$205.95 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 1286.70 1642.50 $355.80 3/12/98 15 Chevron 1250.14 1440.00 $189.86 3/12/98 20 Eastman Ko 1262.95 1412.50 $149.55 3/12/98 17 General Mo 1230.89 1046.56 -$184.33 CASH $70.09 TOTAL $30829.28
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.