<THE RULE MAKER PORTFOLIO>
Meet the LanceMan
with Matt Richey (TMF Verve)
ALEXANDRIA, VA (June 17, 1999) -- On our three Rule Maker message boards -- Beginners, Strategy, and Companies -- he's the man -- the LanceMan, that is. You may know him as TMF Tribe. His posts are chock full of savvy financial insight, wit, and humor -- in a word, Foolishness. Meet Lance Robinson, a software developer in Atlanta, Georgia and one of my favorite Fools.
TMF: When and how did you discover The Motley Fool?
Lance: Back in May 1998, I was at a bed and breakfast in the North Georgia mountains, and they had a wide array of financial magazines in our room. The June edition of Worth caught my eye because it had these two strange-looking fellows wearing court jester hats. The article was pretty positive towards The Motley Fool, so I made it a point to check out the website once I returned home. When I saw that the whole concept seemed pretty straightforward and meaningful, I ordered a couple of their books (The Motley Fool Investment Guide, and later, Rule Breakers, Rule Makers) to become further indoctrinated into their stock-picking approach. The rest, as they say, is history.
TMF: What attracted you to Rule-Maker investing?
Lance: I became interested in the Rule-Maker approach as a result of reading Rule Breakers, Rule Makers. I wasn't overly sold on the Rule Breaker approach, simply because the approach was so subjective and lacked a quantitative component. The Rule Maker approach seemed to better fit my style because I am a numbers guy. Using a tool like the Ranker spreadsheet (linked at bottom), it is quite easy to run a company through the Rule-Maker criteria and determine what its pluses and minuses are. I think it makes a heckuva lot of sense to invest in companies that have brand-name presence, have pricing power, dominate their competition, make oodles of money, and compete in an expanding market. What's not to like?
TMF: To what extent does Rule-Maker investing make up your overall investment style? What other styles of investing do you use?
Lance: Not including my 401(k) savings, which are tied up in mutual funds, Rule -Maker investing currently occupies about 70% of my investment portfolio. I have the remainder in high-growth stocks that would probably be referred to as Rule Breakers. I think this mix gives me plenty of exposure to both sides (blue chips and high-flyers) without keeping me awake at night.
TMF: How do you feel about the principle of QuaVa -- that business quality is 100x more important than valuation?
Lance: I couldn't agree more. Companies that are as dominant as Rule Makers tend to be labeled as "overvalued" by everyone and their brother. If the Fool tried to run the Rule Maker portfolio in reverse, focusing on value more than business quality, I think that they would have a hard time selecting any stocks to buy for that very reason. If a company behaves like a Rule Maker, then its expanding profits will justify the high valuation metrics.
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? If so, why?
Lance: I think QuaVa is more important when you are purchasing your initial shares. Once I have an established group of Rule Makers that I plan on adding money to, I then use more of a valuation style approach. Why? Human nature, I guess. It seems logical to buy when the price is low rather than when it is high. I know this reeks of market timing, and let me go on record as saying I am no expert at timing the market. I generally consider each of my Rule Maker stocks to be somewhat equivalent in quality, so using a valuation style approach when adding money just makes sense in my opinion.
TMF: Which of your Rule Makers are you most excited about for outperformance in the next decade?
Lance: Cisco and Microsoft, simply because technology seems to be driving more and more of our economy these days. I also wouldn't count out my pharmaceutical stocks, Pfizer and Schering-Plough, because I think that market will really explode as the Baby Boomers start heading into retirement.
TMF: If you could change any one thing about the Rule Maker port, what would it be?
Lance: I'd like to see separate criteria for Merchant King stocks. I really think that the portfolio loses something when we dismiss a Dell or Wal-Mart simply because their margins are so low. As someone on the message boards stated, "Would you feel better making $1 on one million items, or $1 million on one item?"
TMF: What's your favorite non-investment related activity? Does time spent studying investments ever interfere?
Lance: I run a rotisserie baseball league, which takes up a good deal of time from March until October. The time I spend tracking my investments or surfing the message boards doesn't interfere much with that. However, sometimes these two activities do take away from "family time," and I do get a considerable amount of grief from my wife on that score.
TMF: Make a projection -- which Rule Maker will have performed best when the port celebrates its 10th anniversary in February 2008.
Lance: Good question! My gut feeling tells me it will be a technology stock just because that is where our economy is going.
I don't think it will be Yahoo!, because there really isn't any type of "moat" around what they do. For example, The Motley Fool provides many of the same services that Yahoo! does. Another large company, such as Microsoft, could come in and basically spend them out of existence. As for the port's other three tech companies (Intel, Microsoft, and Cisco), you could make a good argument for each of them. If I absolutely had to pick one, I would probably go with Cisco. The internet will probably be a much bigger part of our lives in a decade, and Cisco provides "the backbone of the Internet" to quote their television ads. Still, it is hard to bet against Microsoft in any battle.
TMF: As a software developer, what are your feelings about Microsoft (Nasdaq: MSFT) -- both its products and as an investment?
Lance: Most software developers fall into two camps: ones that are solidly pro-Microsoft, and ones that are vehemently anti-Microsoft. There isn't much middle ground between the two groups. Personally, I tend to find myself in the pro-Microsoft camp. As a Visual Basic developer, my job is based around the use of Microsoft integrated development environments and technologies. That said, I do recognize that Microsoft's products are often less than user friendly and let's not even discuss their product documentation. Many of their products routinely crash once or twice a day during regular use. If it were any other product, we would immediately take it back to the retailer and demand a full refund after the second or third system crash.
However, I would be a fool (notice the small "f" here) if I did not acknowledge the power that Microsoft has provided to the average consumer. Their products have become the standard in so many parts of our lives, from operating systems to business application software to Web browsers. With their past record of innovation, I would expect Microsoft to continue providing new products that unleash even more power and functionality to the end user. With ultra-high margins, $24 billion in cash, almost no debt, and 25+ percent sales growth, Microsoft is the quintessential Rule Maker, and it most definitely has a solid moat around its brand name. As an investment, I don't think you could do too badly investing with Gates and Co. As a writer in Money stated, "The market is open from 9:00 a.m. until 4:00 p.m., and that represents a good time to buy Microsoft."
I am a Microsoft shareholder, and I expect this to be one of my permanent holdings, along with Cisco and Coca-Cola.
TMF: Your home of Atlanta is Coca-Cola (NYSE: KO) country. Is the beverage giant just taking a breather or has it bumped up against peak operating performance and market saturation?
Lance: I'm still a big believer in the "First Federal Bank of Coca-Cola" (as mentioned in You Have More than You Think). I think the cola market here in the U.S. may be saturated, but I believe the foreign markets are still wide open for Coca-Cola's products. However, those same foreign markets are also more susceptible to economic hiccups, as we have seen in both Asia and South America in the past 12 months. Right now, Coke is doing exactly what they should be doing: buying up foreign bottlers and assets on the cheap. These purchases won't make much of a dent in the balance sheet in the near term, but in the long-run, it should pay huge dividends for Big Red.
It should also be interesting to see how their bottled water product, Dasani, does when it becomes widely distributed. It may not be a huge money maker for the company, but it gives the company a presence in a market that is all the rage among the health-conscious. I would not be surprised to see Coke move into other areas of the beverage market, perhaps challenging Starbucks in the specialty coffee market. Now that would be a battle worth paying admission to see!
TMF: Thanks so much, Lance.
Just for fun, I asked Lance one last question. His TMF name (Tribe) hints and his profile confirms that Lance is a big fan of the Cleveland Indians. Interestingly enough, the Cleveland Indians Baseball Company (Nasdaq: CLEV) is one of the few ball clubs that also happens to be a publicly traded company. To see Lance's thoughts on how the Tribe stacks up as a Rule Maker, check out this post on the RM Companies board.
- 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 +0.78% 1.24% 6.00% 34.12% S&P: +0.71% 2.93% 9.59% 35.56% NASDAQ: +1.05% 2.98% 16.03% 53.92% Rule Maker Stocks Rec'd # Security In At Now Change 2/3/98 48 Microsoft 39.13 82.88 111.77% 6/23/98 34 Cisco Syst 58.41 117.38 100.95% 5/1/98 55 Gap Inc. 34.37 66.69 94.03% 2/13/98 44 Intel 42.34 58.00 37.00% 2/3/98 22 Pfizer 82.30 100.44 22.04% 5/26/98 18 AmExpress 104.07 125.75 20.84% 2/17/99 16 Yahoo Inc. 126.31 142.25 12.62% 2/6/98 56 T. Rowe Pr 33.67 34.81 3.38% 8/21/98 44 Schering-P 47.99 46.25 -3.63% 2/27/98 27 Coca-Cola 69.11 64.56 -6.58% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 64.34 81.25 26.29% 3/12/98 15 Chevron 83.34 93.69 12.41% 3/12/98 20 Eastman Ko 63.15 70.69 11.94% 3/12/98 17 General Mo 72.41 64.13 -11.44% Rule Maker Stocks Rec'd # Security In At Value Change 2/3/98 48 Microsoft 1878.45 3978.00 $2099.55 6/23/98 34 Cisco Syst 1985.95 3990.75 $2004.80 5/1/98 55 Gap Inc. 1890.33 3667.81 $1777.48 2/13/98 44 Intel 1862.83 2552.00 $689.17 2/3/98 22 Pfizer 1810.58 2209.63 $399.05 5/26/98 18 AmExpress 1873.20 2263.50 $390.30 2/17/99 16 Yahoo Inc. 2020.95 2276.00 $255.05 2/6/98 56 T. Rowe Pr 1885.70 1949.50 $63.80 8/21/98 44 Schering-P 2111.7 2035.00 -$76.70 2/27/98 27 Coca-Cola 1865.89 1743.19 -$122.70 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 1286.70 1625.00 $338.30 3/12/98 15 Chevron 1250.14 1405.31 $155.17 3/12/98 20 Eastman Ko 1262.95 1413.75 $150.80 3/12/98 17 General Mo 1230.89 1090.13 -$140.77 CASH $70.09 TOTAL $32269.65
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.