Were it not for the downtime and the beer, you wouldn't be reading this story right now. But Austin and I (Tim here) had plenty of both after preparing for a subscriber event in San Francisco a year ago. So we did what we Fools always do when there's beer and time: We talked about stocks.

You'd think we would've been talking about Exelixis (NASDAQ:EXEL), Google, or any of the other companies we had just met with as part of our Motley Fool Rule Breakers Innovation Tour.

Instead, we were talking about what had been perhaps our most interesting meeting. No CEO or venture capitalist -- our subject was just a guy who's probably familiar to you and just about everyone else in the business world: Dilbert creator Scott Adams.

Adams stunned us when he said that he believes that most people, himself included, simply cannot beat the market buying individual stocks.

The basis for his belief ...
Incompetence is the source of Adams' cynicism. Too often, he told us, he's seen the companies behind worthy stocks destroyed by managers who were operationally no better than drunken chimpanzees.

Let's not forget, we were meeting with Adams at a time when once-proud institutions like Bear Stearns, Lehman Brothers, Freddie Mac, and Fannie Mae were here one day and gone the next, thanks to years of reckless risk-taking and managerial missteps.

Confusing the confusopolies
So if he waxed cynical during our meeting, he had a right to be.  We joked as Adams wondered aloud whether Dogbert, CEO of Confusopoly Corp. (Ticker: HUH), could convince the world's bankers that an active market for commercial paper would melt Greenland. Or that ritual cat sacrifices were the key to saving America's auto industry.

Ridiculous? Sure. But the bankers at Merrill Lynch, Morgan Stanley, and elsewhere bought into the crazy notion that credit derivatives weren't all that risky. Who's to say they wouldn't believe a cartoon character? Or that they wouldn't find synergies between CDOs and cat sacrifices? They're eerily similar, after all -- both begin with the letter "c."

Adams distrusts the system that grants these Harvard-stupid weasels -- er, managers -- access to so much capital. It's the main reason why he's sworn off individual stocks. After seeing these numbers, we can't blame him:


Percent Owned by Insiders?

CAPS Stars
(out of 5)

1-Year Return

Satyam Computer (NYSE:SAY)




Celera (NYSE:CRA)




Allied Irish Banks (NYSE:AIB)




Eastman Kodak (NYSE:EK)




Psychiatric Solutions (NASDAQ:PSYS)








Sources: Motley Fool CAPS, Yahoo! Finance.

See the pattern? Executives at these firms weren't really owners. They didn't share in the risk. They suffered only the inconvenience of cashing big salary checks. We're not saying every company with low insider ownership has uncaring management, but we prefer to stack the odds on our side.

Nine ways to keep the weasels out of your investing backyard
Scared yet? Don't be. Adams gave us nine steps that he says can help you to generate (and protect) wealth, when performed in order. We think his suggestions are pretty Foolish, and with his permission (thanks, Scott), we publish them here:

  1. Make a will.
  2. Pay off your credit cards.
  3. Get term life insurance if you have a family to support.
  4. Fund your 401(k) to the maximum.
  5. Fund your IRA to the maximum.
  6. Buy a house if you want to live in a house and can afford it.
  7. Put six months' worth of expenses in a money-market account.
  8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement.
  9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner.

You're not in Elbonia any more, Dilbert
Adams' nine steps look pretty familiar to us Fools; we've always advocated paying off debt, saving for retirement, and having a substantial emergency fund. But avoid stocks altogether? We respectfully disagree.

That said, we do agree that if you're going to try to beat the market with stocks, you need to know what you're buying. You need to be able to trust the management teams of the companies you own.

That's why our Rule Breakers team does whatever it takes to stay on top of the companies we recommend -- like traveling across the country to meet with executives.

And because these research trips don't pay for themselves, we invite you to accept a free, 30-day guest pass to Motley Fool Rule Breakers. You'll get full access to our members-only website, including full research and write-ups on every stock on our scorecard. Stay with us if you think it will make you money, pay nothing if you don't.

To get started, all you have to do is click here. There is no obligation to subscribe, and nothing to lose.

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This article was originally published Oct. 23, 2008. It has been updated.

Austin Edwards owns shares of Google. Tim Beyers also owns shares of Google and is a member of the market-beating Rule Breakers team. Exelixis, Google, and MercadoLibre are Rule Breakers recommendations. The Motley Fool owns shares of Exelixis. Its disclosure policy is thinking up new torture devices for Catbert, evil HR director, who jut took a gig consulting to some of Wall Street's biggest firms.