<THE RULE MAKER PORTFOLIO>
Interview With markansusanv
With Al Levit (TMF Early)
GLENDALE, CA (June 16, 1999) -- Today, it's my pleasure to introduce Mark Vossler, known to us on the Rule Maker boards as markandsusanv. Mark is a M.D. who lives in Portland, Oregon, with his wife, Susan, and their infant daughter, Lydia. He spends his time at work doing about 25% clinic cardiology and 75% research. His work keeps him very busy, so he needs a simple investment strategy that maximizes the amount of time he can spend with his family. Therefore, investing in Rule Makers serves him well.
TMF: When and how did you discover The Motley Fool?
Mark: Last September, I was wasting time reading Dilbert comics on the Web when I should have been working on a paper that I was writing. While on the Dilbert page, I found a link to fool.com. I recalled hearing about the Fool a couple of months earlier in a relatively negative article in Time or Newsweek that was quite skeptical about the ability of amateur investors to beat the market with (oh my God!!) a portfolio of (can't be) just 10-12 stocks (shudder). This fall, however, I was primed to take some responsibility for my own investment decisions and haven't turned back.
TMF: What attracted you to Rule Maker (or Cash-King) investing?
Mark: It seemed like a logical framework for a novice with no prior investment experience to evaluate companies. I liked the idea of buying quality and evaluating the company as a long-term investment rather than a speculative play. I also really liked the name "Cash-King." It sounded impressive. In my opinion, it's more regal and stately than "Rule Maker." Plus, the concept of large amounts of cash as a good thing just plain made sense to me.
TMF: To what extent does Rule Maker investing make up your overall investment style? What other styles of investing do you use?
Mark: About two-thirds of my individual stock portfolio are in what I consider to be Rule Makers and other great large-cap companies that have long records of outperforming the market, such as Berkshire Hathaway and General Electric. The other third is in the Foolish Four. Over half of my total portfolio remains in mutual funds. The tax squeeze from capital gains has me slowly converting primarily to individual stocks. I'm trying to learn "value" from Dale Wettlaufer in the Bore Port. I'm also trying to learn how to better evaluate smaller rapidly growing companies, but I remain a bit uncomfortable with the subjective nature of the Rule Breaker strategy.
TMF: How do you feel about the principle of QuaVa -- that business quality is 100x more important than valuation?
Mark: When debating this subject on the Pfizer board, I was asked if I would buy a Ford Explorer if it cost $75,000. Although I concede that I probably would not be happy with that price, I wouldn't by a Yugo for $5 or even $1. However, stocks aren't cars. Even an overpriced Pfizer is likely to grow in value, unlike the SUV that drops like a rock the minute you park it in your garage. Far better to have paid 60x earnings for a company with a solid balance sheet than 10x earnings for one that is burying itself in debt.
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?
Mark: No, it is just as important when you make an additional purchase. If my company's latest 10-Q looks significantly worse than the quarter in which I originally purchased shares, I'm not going to throw more money at it! If the company maintains its quality, you can quibble about waiting for a good price that may never come, but quality comes first in my book.
TMF: Which of your Rule Makers are you most excited about for outperformance in the next decade?
Mark: I'm far from an expert on computers and the 'Net, but I think Intel and Cisco will take advantage as the digital age moves into the post-PC era. Although I really like pharmaceuticals as a sector for many reasons, no individual company is a real gorilla there, just lots of orangutans.
TMF: If you could change any one thing about the Rule Maker port, what would it be?
Mark: T. Rowe Price
TMF: What's your favorite non-investment related activity? Does time spent studying investments ever interfere?
Mark: I enjoy golf, fishing, and kayaking, but most of all I like spending time with my 18 month old daughter. With the style and pace I've taken for investing I'm not cutting into my family time in any meaningful way. I've spent maybe four or five hours researching each stock I've purchased, but it has been spread out over weeks before I made a decision. The MakerPort has been an excellent example and has helped me be more efficient in my evaluation of prospective investments. Furthermore, as you pointed out a couple months ago in one of your columns, I can take a week vacation and not worry about what my portfolio is doing. If I've had a long day at work, it's a pretty darned easy decision to spend time with my daughter rather than with a bunch of Fools (no offense guys).
TMF: Make a projection -- which Rule Maker will have performed best when the port celebrates its 10th anniversary in February 2008.
Mark: Okay, if you are forcing me to chose between Cisco and Intel, I'll pick Cisco. If this were an easy question to answer, I wouldn't own 14 stocks plus index funds would I?
TMF: Mark, I happened to notice that we both own Amgen (Nasdaq: AMGN), which is a holding in the Rule Breaker portfolio. With high profit margins and low debt, Amgen holds its own pretty well as a Rule Maker too, as shown here. Since you're an M.D., we'd all be very interested in any thoughts you might have about Amgen from either a Rule Breaker or Rule Maker perspective.
Mark: Well Al, I agree with you that Amgen is a Rule Maker. It was one of the first stocks I bought and even though the BreakerPort purchased it at about the same time I did, I felt confident it really was a Cash-King (or Rule Maker, whatever). Gee whiz, with six times more cash than debt, a Flow ratio under one, and net margins of (can this be real??!) 33%, what more could one ask for?
New and exciting products, for one. The pharmaceutical business is a tough one; you're only as good as your last FDA approval. Right now, Amgen only has three marketable drugs, and while the pipeline looks exciting, it is concentrated. Amgen is spending a whopping 26% of revenues on research and development (R&D), and focusing narrowly on cell growth factors and hormonal antagonists. The type of drugs they are trying to develop aren't "me too" copycats. The world does not need another antibiotic for bronchitis or another blood pressure medicine. Amgen is swinging for the fences with recombinant technology and developing very unique, one-of-a-kind drugs.
Of course, they have some competition. Johnson & Johnson markets erythropoietin (EPO) as Procrit, while Amgen sells it as Epogen. In addition, Amgen faces a recently reopened patent infringement case against Transkaryotic Therapies Inc. and Hoechst AG, who want to be allowed to market their own version of erythropoietin. Elsewhere, Immunex has completed phase III studies on the soluble TNF receptor while Amgen is still studying its version.
Because of its narrow focus, Amgen is a higher risk than most of the other big pharmas but less than biotechs with no marketable product. With that risk comes great potential reward. Their pipeline is full of products that if successful in clinical trials could easily be the next Epogen home run. I guess that's why Amgen is both a true Rule Maker and a true Rule Breaker.
Thanks for asking, Al
And thanks for answering, Mark.
Editor's Note: Today's column is Al's last as part of the regular rotation of Rule Maker writers. The Motley Fool and the Rule Maker managers would like to thank Al for his outstanding contributions to the Rule Maker portfolio since its inception, and prior to that, in the Cash-King strategy message folder. But this isn't farewell. We hope to see plenty more of Al on the Rule Maker message boards. Fool on!
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Day Month Year History R-MAKER +3.86% 0.45% 5.17% 33.08% S&P: +2.25% 2.20% 8.56% 34.30% NASDAQ: +4.27% 1.91% 14.83% 52.33% Rule Maker Stocks Rec'd # Security In At Now Change 2/3/98 48 Microsoft 39.13 81.00 106.98% 6/23/98 34 Cisco Syst 58.41 116.25 99.02% 5/1/98 55 Gap Inc. 34.37 65.69 91.12% 2/13/98 44 Intel 42.34 59.69 40.98% 2/3/98 22 Pfizer 82.30 99.13 20.44% 5/26/98 18 AmExpress 104.07 124.00 19.15% 2/17/99 16 Yahoo Inc. 126.31 141.63 12.13% 2/6/98 56 T. Rowe Pr 33.67 34.81 3.38% 2/27/98 27 Coca-Cola 69.11 63.88 -7.57% 8/21/98 44 Schering-P 47.99 44.25 -7.80% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 64.34 80.56 25.22% 3/12/98 15 Chevron 83.34 95.81 14.96% 3/12/98 20 Eastman Ko 63.15 71.25 12.83% 3/12/98 17 General Mo 72.41 64.44 -11.00% Rule Maker Stocks Rec'd # Security In At Value Change 2/3/98 48 Microsoft 1878.45 3888.00 $2009.55 6/23/98 34 Cisco Syst 1985.95 3952.50 $1966.55 5/1/98 55 Gap Inc. 1890.33 3612.81 $1722.48 2/13/98 44 Intel 1862.83 2626.25 $763.42 2/3/98 22 Pfizer 1810.58 2180.75 $370.17 5/26/98 18 AmExpress 1873.20 2232.00 $358.80 2/17/99 16 Yahoo Inc. 2020.95 2266.00 $245.05 2/6/98 56 T. Rowe Pr 1885.70 1949.50 $63.80 2/27/98 27 Coca-Cola 1865.89 1724.63 -$141.27 8/21/98 44 Schering-P 2111.7 1947.00 -$164.70 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 1286.70 1611.25 $324.55 3/12/98 15 Chevron 1250.14 1437.19 $187.05 3/12/98 20 Eastman Ko 1262.95 1425.00 $162.05 3/12/98 17 General Mo 1230.89 1095.44 -$135.45 CASH $70.09 TOTAL $32018.40
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.