OK, the cat's out of the bag. In what may go down as one of the worst-kept secrets in our portfolio's history, the Rule Maker Portfolio consummated its love affair with Nokia (NYSE: NOK) and JDS Uniphase (Nasdaq: JDSU) by announcing our intent to purchase them in Monday's report. The day after these purchases were announced, both stocks were down sharply.
Thankfully, I might add.
No, not because we're looking to get into the companies at some slightly cheaper price. Rather, because we intend to hold these companies for years, and would be disappointed if this lesson is lost among the chaff surrounding the actual purchase event. By announcing the trades before we execute them we try to eliminate any appearance that we time the market.
We have, in this process, witnessed some propensity amongst community Fools to root for this purchase as a way to cause their stock values to "pop." This observation was more than a little disturbing, as this reaction is utterly counter to the positive attributes of Foolish investing. Not that people are completely at fault for this. After all, it only takes one skyrocketing Celera (NYSE: CRA), which increased more than twofold within weeks of having been purchased by the Rule Breaker Portfolio, to convince some that this is somehow a causal relationship. It may be, but that does not make it a good thing. Or more poignantly, a sustainable one.
The markets are an inefficient beast, cajoled this way and that by Wall Street analysts, unscrupulous touts, and other vested interests that conspire to pull share prices upward or downward to suit their own best interests. The last thing The Motley Fool needs to be is another influence for short-term inefficiency. By doing so we are not assisting investors, people whose goal is to allow their investment dollars to appreciate along with the fundamental appreciation of a company's underlying business.
A market that is built upon hype and hysteria is not one that is built to last. It can't. And if The Motley Fool is doing our part to fuel a mania, then our central message is being undermined. And that's too bad, because our message is predicated upon that of the only giants who have ever achieved lasting success in the stock and financial markets. And I'll give you a hint: You won't find them in the Wade Cooks, the market timers, or the technical analysts. Don't believe me? Then where is the market-timing version of Peter Lynch? Who is the technical analyst with long-term returns to match Warren Buffett's?
(And off in the distance, a dog barked.)
So what is the lesson? That the Rule Maker is somehow less "powerful" than the Rule Breaker? That the companies that the RB invests in are somehow more susceptible to "pops" than the RM companies? These had better not be the lessons. I'll tell you this much: If Celera, a company I have researched and respect a great deal, does not deliver profits, it is doomed, whether David Gardner likes it or not. Same with Nokia and JDS Uniphase. If you're looking for the "pop" you've missed the entire message.
The message? The message of The Motley Fool, the point of investing, is all about superior stock market gains, right? No, not quite. What gets lost in the ebb and flow of the market is that the most important thing is sustainable superior gains. If you are looking for the next Qualcomm (Nasdaq: QCOM), you might miss the fact that there are people right now who are underwater by nearly 40% on that company. For those who jumped onto the company last month for any other reason than a deep belief that Qualcomm's technology will provide market-beating returns, they've ended up on the wrong side of the hysteria curve.
This has nothing to do with Qualcomm, just as the surge at Celera, were it attributable to The Motley Fool's endorsement, would have nothing to do with Celera. It's all about market timing, dependence on news, hype, and other forms of non-fundamental influence. These things are great for boosting up or knocking down a stock price, but they won't keep it there. Eventually, there's got to be some meat on the bone.
And this is the point that is so easily lost, particularly when times get exciting. Nokia hasn't gone up over the last month because we're talking about it, nor has it because of a split announcement. The things that matter are the events that help a stock price go up and stay up.
But there's got to be a way to game the system, right? So much money, so much inefficiency, so many stupid people. It's the last point, as harsh as it sounds, that those who are trying to beat the system are counting on. Stupid people, people who actually believe that a bloody-fingered phone jockey pitching a penny stock actually has a good deal for them. Or the people who panic when their stocks suddenly drop 20% on no news. Or the ones who think that due diligence begins and ends with asking people on a stock message board what they think about a company.
Touts and analysts alike are looking for the greater fool.
You want to beat the system? It's easy to do: Don't be the greater fool.
Look out for yourself. You don't need The Motley Fool or the Wise analysts or the media to tousle your hair and tell you that your investment decisions are good. That proof will be in the long-term appreciation, or if you have made bad decisions, the long-term underperformance of your portfolio. Our agreement with you, or the agreement of a Wise analyst, will not help you to your goal, nor protect you from failure, for this simple reason: We don't work at Nokia. We don't manage Celera's research & development. We don't have any way of telling you whether Excite@Home (Nasdaq: ATHM) is going to reign supreme in the broadband access battle. Our opinions are just as valid as yours, but they are based only on our own due diligence, which we choose to share freely. But as far as you are concerned, your opinion is the only one that should matter.
Finally, David Gardner will be hosting a Yahoo! chat on Rule Breaker investing tonight at 9 p.m.(ET)/6 p.m.(PT). See ya there!
Fool on!
Bill Mann, TMFOtter on the boards
