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Happy Fool Year!
Happy New Year from the Gardners
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Having trouble with your investments?
We're also here to share OUR resolutions with YOU...Enjoy! |
Happy New Year from the
Gardners Embarking upon a new year is as much about looking backward as it is about looking forward. But most of us probably spend more time at the latter. Entirely appropriate! Who wants to get hung up on the past? What matters most is our present and our future. To that end, many like to make market predictions right around now. We don't, but conventional wisdom tells us that as a business we need to "meet the needs of our customers." And if every financial magazine in circulation is presently chockfull of 1997 predictions, this must indicate something about what the customer wants. Thus (unfurl the banners please, Herbert), enter our market prediction: The market will probably go up -- again. And that's as specific as we'll get, and we make no pretense to believe that we're right. You just have to like the bearish prognosticating we're hearing these days, generally a good contrary indicator. But mainly, we're talking straight odds. You see, the performance of the stock market in a given year is like a the flip of a special coin, special for two reasons: (1) its two sides read UP and DOWN, and (2) the coin is weighted toward its UP... which lands facing up about 75% of the time. (Twenty-one of the past 26 years have landed UP, over 80%, ahead of century averages.) Where this coin is unspecial, where it's like most coins, is that it has no memory. So much for our market prediction. We'll enjoy 1997 no matter how the coin lands. Speaking of enjoying 1997, this Foolish enterprise only gets more exciting. At the very least, you'll have box seats for the near-total restructuring of the financial industry over the next twenty-four months. Ideally, in the months ahead, we'll pull you out of the box seats, motivate you to throw on some cleats and take a few at-bats against the industry as well. Take, for example, Judi Soderberg, who inked a New Year's Resolution about her experiences in the full-service brokerage industry: MF Shrimp's Fool Year's Resolution. Here are insights from a woman who worked at -- and quit -- a brokerage firm because its standard practices disgusted her. She provides us a perspective that few ever get, but one that every American should read. Working together, The Motley Fool and the intelligent life-forms on Wall Street are going to radically and rapidly transform the industry's traditional corporation-first business models into customer-first business models. The "Wall Street" that will survive will be the one that takes on the appearance of Coca-Cola, Nike, and The Gap -- where:
1) prices are clearly-marked and the same for everyone regardless We hope you'll gain much from all this Foolishness, that you'll bring all of your friends into our motley band, that you'll drive all of your enemies into the hands of Wisemen, and that your time spent here in the years ahead will bring you intellectual profit, a market-beating growth in savings, and inestimable rewards to the spirit. Cheers for a bang-up '97, David and Tom Gardner
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Blasting Off Into
1997 On December 4th, 1996, NASA launched a rocket from Florida. On July 4th, 1997, that rocket is scheduled to land on Mars. A Mars Pathfinder probe will roll out and begin to scour the planet in order to send information back to Earth. NASA has many on-going missions in action. Several rockets filled with technology and blasted into space over the past few years are just now sending back information from the moons of Jupiter, for example; while other space missions are far from their destinations. Some missions launched over the past few years are still propelling forward on their journey to leave the solar system. In extreme cases, some missions will not be resolved until long after those who launched them are gone from this earth. Investing has much in common with space missions. Though investing is not nearly as complicated as space missions, it does require the ability to plan ahead, and then the patience to wait for those plans to come to fruition. Imagine if NASA became bored with half the rockets they had floating in space, never followed up on the missions, and instead wrote them off, even if nothing had fundamentally changed. We'd have rockets circling the moons of Jupiter, sending back information, but NASA wouldn't receive the rewards of that information because they would have already "sold out" of the missions. How stupid and expensive would that be? With stocks, you begin by learning the basic principles to Foolish Investing (laid out simply, for starters, in the Fool's School's 13 Steps to Investing Foolishly), then you research (with the Foolish Four that research is 30 minutes per year, and the strategy has returned over 22% per year on average), and then you buy your positions. What you most need after that is the patience to wait while those positions play out. A Foolish resolution which needs to be reiterated -- and therefore is my resolution -- is patience. Patience is always needed in order to let things, including investments, chart their natural course over time. With stocks, as long as the fundamentals of your companies have not changed, your investments probably shouldn't change, either. Patience is key to successful investing, and in 1997 patience may be a more needed resolution than it has been in the recent past. During the past two years, the market returns have come at a strong and fast pace. In 1995 the S&P 500 rose 34%, and by mid-December of 1996 it had risen 21% more. The Nasdaq has risen an even more impressive 39% and 24% in each respective time period. Patience, of late, hasn't been a much-needed attribute for many investors. On average, though, the markets have returned only about 11% per year, over history. So stocks aren't always going to rocket forward to such great returns as were accomplished over the past two years. Hopefully investors in 1997 will remember that, especially if the market takes a rest or drops. So, Happy New Year! But remember, Foolish investors realize that patience is a major part of successful investing. Don't let the last two years make you think otherwise. Patience is this Fool's New Year resolution... buy the best companies you can find, and then be patient.
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Foolish Resolve As the New Year approaches and naggingly forces me to reflect on life's significance over the past 12 months, I acknowledge the most outstanding event as sailing on the ship of Fools. While I was happily sharing information in a brilliant and caring investment community, others have accused me of participating in a "cult," being an "Iomegan" and an "Amatifanati." Wow! Could I actually have joined a cult? Gee, Tom and Dave have never asked me to turn over my assets (other than my willingness to use my knowledge to educate others); they haven't asked me to marry some equally Foolish investor (as if!); and the only mantra they've forced upon me is "Do your own research." Will some mysterious deprogrammer kidnap me and force me to give up my newly-discovered tenets (buy strong, undervalued, undiscovered companies with growing earnings and good management and hold them long-term until they reach their full worth?) Is it wrong to be devoted to sharing investing information with others for no visible rewards other than the personal satisfaction derived from teaching, and the winning percentages that the information I've garnered have added to my market-beating portfolio? I think not. A cult is defined (Keyword: Dictionary, definition #5) as "a great devotion to a person, idea, object, movement or work (as a film or book); especially: such devotion regarded as a literary or intellectual fad." Fad? Hmmm. The Dow Dividend approach, one of the "cultish" ideas I now subscribe to, has average returns of 22% per year over the past 25 years. Is 25 years a fad? I employed the Beating the Dow strategy for the first time in 1996, purchasing the Foolish Four last June. I bit my lip as the market slumped, and I watched my BTD stocks tumble, struggle, spin off and then... turn around! And now, after the first 6 months, it has returned 9% (halfway to an annualized return of 18%), which is right on target with my investment goals. This "fad" looks like it will be serving me well for the rest of my life. Is having a great devotion to a "person, idea, object, movement or work" such a bad thing? Each day I share information with one or two hundred thousand people about trends in the economy, newsworthy stocks and life in general. I hold virtual hands as Gazarelli predicts a crash, or Greenspan warns of changes, or long-term stocks I hold have earnings setbacks. I celebrate when my companies beat earnings estimates or announce technological innovations. I constantly analyze my companies to make sure they are living up to my investment goals. Foolish? You betcha. Cultish? I think not. Fooldom is a community, a family of investors, bringing together people from all walks of life to generously share, educate and inform with humor and ease. I've made diverse friends from all over the country who I may never have met through other media, who will hopefully last a lifetime. The Family of Fools is a community committed to wit, charm, service, education and investing integrity. As I go forward into 1997, I resolve to keep contributing to the Family of Fools and do all that I can to educate individuals to take control of their finances and beat the market; to do my utmost to contribute the lessons I've learned to those who are just learning; and to keep on exhibiting the goodwill, kindness, humor and spirit of sharing that brought me to the Foolish community to begin with. Bring on the confetti, raise those champagne glasses, ring those noisemakers -- 1997, here we come! |
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No More "Hot Tips" As 1996 draws to a close, we reflect upon those things we did well in the past twelve months so we might repeat them again in the new year. In doing so, we also examine those debacles that we want to never, ever repeat. This past year was one in which I took chances, and broke many of the precepts that I try to follow. As some of my investments flourished, I began to take chances that I had no right to take. Specifically, one very nasty experience comes to mind. While browsing through various message boards in The Motley Fool, I distinctly remember some posts that touted a stock called Comparator Systems. The stock was cheap, around a buck-a-share, and the posts screamed that this company had something new; it was going to take off. There was some kind of deal in the works, and the boat was leaving port. What was the deal in the works? I had no idea. What did the company make? I had some vague notions, but I never bothered to delve deeper. Visions of dollar signs danced in my head as I started fantasizing about how much I would make as this highly hyped stock began to soar into the outer stratosphere. Yes, I needed to get in, and quickly. I remember being at work and watching the clock waiting for a free moment to make my trade. My fingers itched as I picked up the phone to instruct my broker to buy 500... no wait, make that 1000... no, let's get 1500 shares! The broker commented that he has been taking orders for this non-stop. Volume on the Nasdaq had hit an all-time high. No other stock in history had so many shares traded. Sheesh, maybe I should sell some of my other holdings and buy a ton! After all, I can snatch them up at only $1.25 each. Ah, I showed such restraint as I picked up a mere 1500 shares of what would certainly provide me early retirement. How could it fail? I had gotten the tip through a message board. Next time, I would do a bit of homework, but this one just couldn't wait! It didn't take very long for me to start realizing the results of my investment. Later in the day, I checked with my broker to find that the shares were touching $2 a share. Life was good... but not for long. The stock closed that day at a fraction of what I had bought it. The news then got even worse. Within days, the company was found to have no new product at all. The story became a scandal as law suits were filed against the company, and investigations lead to the halting of its trading. As of this moment, the value of the stock is approximately $0.01 per share, making my investment worth about $15. My lesson learned here was one of "jumping on the bandwagon." It makes me wonder how many investors don't know the company into which they invest their money. How many, like I, put their savings into investments based only upon tips from friends, or even strangers. Had I waited only taken one day, to do my own research, the outcome would have been very different. My resolution for 1997 and beyond is to always remember my experience and be sure to never repeat it. Since then, I will always do my own homework and research. There are many tools available, and yes, message boards are one of them. I read 10K reports, I find transcripts of company conference calls, I look for companies with potential; companies with products that show promise and have shown growth. I check out the competition. I look everywhere and anywhere for information. My experience has shown me there is no such thing as "missing the boat." As one who looks for investments to hold for the long term, I believe that if it's good today, it will still be good tomorrow. It took a bad approach in a bad company to discover this, but the resulting lesson was a good one. As Scarlett O'Hara so aptly put it, "I'll think of it all tomorrow... After all, tomorrow is another day." |
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No More Full Service
Brokers New Year's resolutions are something I've always tried to avoid. Promises made at the peak of party-time euphoria are rarely kept. So what I do is take a look at the year past and analyze what went wrong, what went right, why, and what I learned from it all. This past year has been a turbulent one for me. A great many changes have taken place in my life, causing varied reactions. However, there is one change that stands out clearly above the rest. I am referring to a change in employment. For several years I worked for a full service brokerage firm. The job was exciting; the market a wild and woolly place to be. I thrived on the excitement of watching the Dow climb to unheard of heights. My main source of enjoyment was the customer contact I had. Their euphoria was a sight to behold. As were their fears. Their need for constant reassurance from me and their broker was a service I gladly provided. They became a more sophisticated crowd as time went on. Requests for research grew, questions on how to best utilize this research abounded. The naivety of the individual investor seemed doomed to extinction., which I felt was all the better. Then their questions turned more pointed; more specifically geared towards cost and services provided. This is when my eyes started to open. The foremost question on all of their minds was how much were they going to be paying in commissions -- good question. Having a program on my computer to calculate that seemed the most logical source for an answer. Therefore, being the ever-helpful person that I am, I began to use this program. I also began noticing just how high commissions were. Well, I thought, most brokers give a discount. The program allowed me to enter a discount, so I used it. Assuming at least a 10% discount, I began calculations again. Still not much improvement. Since we're not privy to exact commission rates, other than the general 2% rate, calculations were difficult at best. And, wonder of wonders, customers were beginning to show dissatisfaction with our rates and lack of specific information. Can't say as I blamed them. And this is where the problem came in. When asked, brokers would tell customers that commission varied. Then they'd change the subject. If a customer needed a copy of his/her statement, the broker would cover the commissions paid to date. Commissions were a taboo subject. More and more customers were leaving for discount brokers. Any need to wonder why? Through all this, I realized it was time to take a closer look at the unspoken rules at a full service brokerage firm. Let's run down a list of some of the more noticeable ones. Full service brokerage firms pride themselves on the research they provide. They all have analysts who work very hard to give them timely and informative reports. I think this is a valuable thing. When you want comprehensive research, whether it be fundamental or technical, this is a good place to go. Now, what happens when, after examining the analysts reports, you want your broker's informed, educated opinion? Well, they don't have one. They are flatly told not to do their own research, and are discouraged from forming an opinion. In other words, they're parrots. So you're paying big bucks for a broker who does bird speak very well. Harsh, I know, but true, none-the-less. They won't even discuss a stock if the company doesn't cover it. And how do brokers feel about informed and educated investors? They'd rather you didn't read. They'd rather you didn't learn. They want you to depend on them entirely. I've heard brokers tell clients that reading will only confuse them and to leave the reading to them. I've always felt there was a place for full service brokers and I still do. They provide services discount brokers don't. What I question now is the integrity of brokers who parrot opinions without ever checking for accuracy. I question the morality in telling clients that reading will only confuse them. I question the ethics of brokers who try to hide the commissions a customer has accumulated, and who use subtle tactics to keep customers under educated and dependent on them. Because I've always taken the hand holding aspects of my job seriously, I became more and more uncomfortable with the evasive answers I was required to give. Then, one night, I discovered this truly remarkable forum on AOL. It's called the Motley Fool, and it's an investment forum where education, humor, and interactive discussion abounds. It's filled with knowledgeable, personable, capable people ready and willing to help in any way they can. It provides answers to any questions you can come up with. It offers not only the methods, but the support to learn the methods of safe investing. Here was a place I could give answers and no one would be telling me to hide it or sugarcoat it. Here I found a sharing of knowledge that went beyond anything I'd seen to date. Here I found The Motley Fool. So, out with the old, and in with the new. No more brokerage firms for me. Being a part of a system that helps rather than hinders has made my decision for me. I said goodbye to the full service broker and hello to The Motley Fool. And I'm very glad to be here. |
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Resolutions Made To Be
Broken Well, the time has come once more to draft some New Year's resolutions for myself. (Yawn.) Why am I not more excited about this? Perhaps it's because I never keep my resolutions. For this reason, I've decided to make some Fool-proof resolutions. How are they Fool-proof? Well, they'll be resolutions that are best broken, and ones I'm very likely to break. Accountability. There'll be none of that this year! The Motley Fool calls for more accountability on Wall Street and demands no less from itself. We periodically, for example, offer lists of stocks for Mom (on Mother's Day), stocks to fall in love with (Valentine's Day), stocks to be thankful for (Thanksgiving), and scary stocks (Flag Day). (Just kidding -- that last one was for Halloween.) And we revisit these now and then, so that our readers can see how the stocks did. No sweeping our former favorites under the rug, hoping no one will notice that they tanked. The Fool also alerts everyone before it buys or sells any stocks in its two real-money portfolios, so that people can trade along with us if they choose. No front-running here! But that's the Fool. For me, I hereby vow to not be accountable. I shall say whatever pops into my head and never look back. Tracking Results. The Motley Fool advises all investors to regularly track the performance of their investments, to see how they're doing. Why? Well, consider this: If you received a year-end statement from your broker (Merrill Lynch or Wemayku Broker, for example) which showed that you earned 15% this year, you'd probably be satisfied, right? Well, perhaps the market as a whole did better than that -- you'd never know. Just this year, for example, the S&P 500 is up 18.29% (as of 12/13/96). You would have underperformed, just like most mutual funds. It's for this reason that Fools recommend putting mutual fund money in an S&P 500 Index fund, which will beat over 75% of all mutual funds in the long run. Better yet is the incredibly-easy-to-understand-and-use Dow Dividend Approach, which offers average returns around 20% per year, double those of the stock market as a whole. (If this is all new to you, go straight to the Fool's main screen, click on the Fool's School button, and start reading our "13 Steps to Investing Foolishly." Do not pass Go. Do not collect $200. (Collect much more than $200, years down the road.)) Heck -- even if your statement showed a 30% return, if the year was 1995, you still would have underperformed. The point here is that you should compare your results with meaningful benchmarks. In 1995, for example, the S&P 500 gained 34%. And Nasdaq popped up a full 46%. The whole point here? Context. If they're not examined in context, your returns are not too meaningful. But back to this Fool and her next resolution. I hereby resolve to not track the performance of my investments. I will not jot down where my holdings stand as of January 1, 1997. I will not periodically compare their performance with that of the S&P 500 or any other measure of the market. I will remain completely in the dark, and as long as my statements show that I have not lost any money, I will be blissfully happy. Homework. Those silly Fools. They keep harping on how we should do our homework before plunking down our hard-earned money into any investment. Nag, nag, nag. Sure, they offer a lot of help -- a lot of clearly-written and amusing primers, and many eager-to-assist MF staffers loitering in cyberspace. It's kind of annoying to learn that to earn the really impressive returns -- to trounce even the Dow Dividend Approach's 20% -- I have to do homework. The Motley Fool doesn't seem to get it. Why can't these MFs be like all those financial prognosticators we see on TV? Why can't they just appear out of nowhere, tell us what to buy, sell, or hold, and then scurry back whence they came? It would all be so much easier, don't you think? Instead, they want to help us learn about industries. To explain how to read an annual report. How to figure out if a company is overvalued, undervalued, or, in the words of Goldilocks, valued just right. Well, I hereby resolve to not do any homework. When I receive direct mail from financial gooroo Elaine Garzarelli telling me that the market is about to crash, I shall sell all my holdings immediately. (So her record isn't perfect -- what if she's right??) When someone on TV -- or even in a Fool message folder -- touts a stock that sounds exciting, I shall quickly call my broker and buy it. I shall follow my hunches. Not the one that dismissed Fool Portfolio pick Medicis Pharmaceutical because it seemed like a dull dermatological concern (it returned 113% in eight months). I'll follow the good hunches -- and buy impulsively. Enjoy Life. Don't Let Investing Consume All Your Thoughts. Yatta, yatta, yatta. Sure, this Foolish party line has returned 54% in the past 52 weeks (as of 12/13/96). But I bet I could do even better if I spent every waking hour studying charts of stocks, seeing if they form any meaningful shapes, like roosters or fire hydrants. I could probably do better if I read every word in Barron's and The Wall Street Journal and Business Week. If I kept my eyes peeled to CNBC all day long, abandoning it only to go to the bathroom or make a sandwich during commercials. I hereby vow to think of nothing but investing and the stock market. In Sum. So there you have it. These are enough resolutions to keep me busy for all of 1997. I'm pretty excited about them. For now. Come tomorrow, I probably will have forgotten all about them, like I do every year. And since these are resolutions begging to be broken, I expect to break them all. Every day. Resolutely. |
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Save More Money Some money saving ideas you can't repeat enough.... Being a Fool, I am interested in finding companies that make good long-term investments. However, the collective goal of The Motley Fool is to educate people about personal finance. All too often our focus is on how to increase the value of the money we already have saved and not enough on how to start saving for the future. The old saying, "You need money to make money," certainly rings true in the stock market. The question remains how do you get the money you need to save? I am going to share a few tips and thoughts on how to start saving for the future. I don't always follow these tips (hey, no one is perfect), but sticking to my ideas is certainly one of my goals for the following year. 1) Nothing is a bargain if you don't really need it. How often have you bought something simply because it was on sale and just seemed like such a "deal?" Whether it was the $3 CD that had one song on it that I sort-of liked or the $10 sweater that didn't really fit but was oh-so-cheap, I've been guilty of this on more than a few occasions. More often than not, the trash man ends up carting away items bought on price alone. It is especially easy to fall into this trap at the warehouse stores, such as Sam's Club, where everything is relatively inexpensive. I can hear myself thinking, "Boy, these telephones sure are cheap, might as well buy three of 'em." I'm sure you can figure out what happened to the other two. No more. These days I buy what I need and that's all. It helps if you have in mind what you need before you go shopping. That way you don't get sucked into the "I didn't know I needed that until I saw it" trap. Every dollar spent on something useless is a dollar that did not get saved. 2) Pay yourself second. Common Wisdom says to pay yourself first, meaning you should be putting away money into savings before paying any bills. While the idea of saving is right on, the execution can get a little tricky. Saving first works fine until you pay yourself ahead of the electric bill and you end up with no power. Paying yourself ahead of your credit cards can also be a nasty habit since that is an easy way to let the balance and interest payments get out of hand. Pay off all your bills first, THEN pay yourself. Don't be shy about paying yourself either. I've printed up fake "bills" and stuck them in the "to-be-paid" pile so that I don't forget to send money to my bank or discount broker. 3) Don't overpay Uncle Sam. No, I'm not talking about cheating on your taxes, I'm talking about having too much money deducted from your paycheck. Every dollar you get back in a refund check is a dollar you overpaid the government. Every dollar you overpay the government is a dollar that did not collect interest in a savings account, make money in the stock market, or pay off a credit card. The saying "time is money" is true, and the time Uncle Sam has your "refund" is wasted money. Some people like the feeling of too many tax deductions because it's "saving money they don't miss." Others just like the feeling of getting a "bonus" at the end of the year. Hogwash! A person who got a $500 refund could've had an extra $100 or so at the end of the year by putting it into a stock that went up 20% or by paying off that 20% interest credit card. Your goal should be to not get a refund check at all, and even better, to have to pay a little come April. 4) Don't buy things to make yourself feel better. All too often people use shopping as a way to cure the blues. Going shopping is a great short-term way to cope with stress, but over the long haul it ends up hurting. I've noticed that most cases of buyer's remorse seem to come in these situations. Buying that new outfit or piece of stereo equipment may make yourself feel better for a short amount of time; however, all the purchase will do is make you feel guilty over time if you can't afford it. Deal with your problems directly, not by spending money you may not have. Following these bits of advice should make finding the money to put into a savings account or the stock market a little bit easier. I'm certainly going to try my best to use these tips in 1997. |
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