Wednesday, August 28, 1996
Foolishly Handling Cold Calls.
by JJDCMA2

Dear Fools,

I want to share an experience I had on August 22, 1996, whose successful outcome was a direct result of your teachings and your creation of The Motley Fool. First, a brief background about me. I am a division controller for a large feed manufacturer in central California. I discovered The Motley Fool last March when it was highlighted on AOL's main screen. I have read your book and also listen to the audio tape frequently. I have followed your advice and have been what I consider pretty successful in the market for a beginner.

Since becoming a Fool, I received my first stock broker cold call the other day. Just like you said it happens, a nice lady called me from PaineWebber with a HOT STOCK. This thing was so hot that my hand was burning holding onto the phone. I knew I was in trouble, so I reached for my Fool cap and realized I had left it at home. So I had to improvise; I used my Foolish imagination.

She continued to explain to me why she thought this stock was going to explore new galaxies and "to boldly go where no stock has gone before." But so far all I heard was hype and, being a student of Foolishness, I wanted some cold hard facts, numbers, verifiable information. You know, something to base a financial decision on. So, I began asking some questions in my usual nice, amiable manner. "So Ms. Broker, can you tell me about the quarterly earnings of this HOT company for the past six to eight quarters?"

She said, "No sir, I don't know about their earnings." Somebody pinch me, please!

"Is this company's operating cash flow positive or negative?" Care to take a guess at the response? Right, Ms. Broker didn't have a clue about the cash flow of this stock that was soon to show a stellar performance.

She may not have realized, of course, that she was dealing with a Fool. I continued very nicely and politely through the whole exchange. (I want everyone to know that Fools are nice, but very informed individuals.) So, I let her talk for awhile so she could try to win back some of her credibility.

I informed her that I performed my own research and analysis, was pretty successful at it, and consequently preferred a deep-discount broker. She naturally asked me about my research, and I informed her of my involvement with The Motley Fool. Then came the standard response --you know, about all the bad information you can get online.

I countered with the negative experience I had with my full-service broker at Dean Witter who would try to convince me to go long in stocks that were perfect shorts! Then she attacked Dean Witter's credibility and the credibility of "young, inexperienced brokers" whose experience is mainly cold calling. Yes, all this from a cold caller. Even after informing her that I didn't take any of my broker's advice, and therefore didn't get burned, she launched into the I-feel-sorry-for-you-small-investors-Let-our-BIG-FIRM-help-you-I-will-protect-your-investments routine.

Now it was time for her to go for the close and get my money. After all this, she actually asked for my business. So, I asked her the following questions, just to make sure I was clear about everything: "Let me get this straight. You want me to invest in this company even though you have no idea whether it's making money or has a positive operating cash flow? Additionally, you want me to give my money to a complete stranger who is recommending a stock that her friends are recommending to her and consequently has developed this 'Gut Feeling' that it's going to be an out-performer?" There was a long period of silence. Then she launched into her justification when I kindly interrupted her and let her know that I wasn't interested.

I felt really good after that phone call for a number of reasons. It gave me evidence that my education was paying off. If I had received a call like that last year, just about any broker, however inexperienced, could have had me for lunch. I would have had to deal with that feeling of "I'd be an idiot not to invest with them." Not now! Thanks to you, I am armed with Foolish information and accumulating more every day. You are correct about how radically different your investment philosophy is from the institutions. This broker tried to convince me that dollar-cost-averaging down, or as we refer to it, "throwing good money after bad," was a good thing to do. She obviously tried to get me to invest in a stock without even having researched it herself beforehand. And there are several other examples I could tell you about from that half-hour conversation.

To close, let me share with you some info I culled on this HOT STOCK. According to Investor's Business Daily on Friday, its earnings strength was 26, relative strength 7, accumulation-distribution D, quarterly sales percentage change +301%, down from previous year for the same quarter, annual earnings estimate $0.08, price-to-earnings (PE) ratio on estimate was 99, group rank B. There is no PE listed in the Wall Street Journal, which tells me that this company is losing money. If this stock goes to the moon, it will be without my money. This stock doesn't even qualify for my "to investigate list."

I can hardly wait for my next broker cold call. I will have my Foolish ball-cap with me and will dazzle the Wise broker with The Leibniz Pre-Harmonic Oscillator.

Thank you very much for your time and commitment to educate the individual investor. You are doing a tremendous amount of good and should be proud of yourselves, and I hope you will prosper greatly from your accomplishments.

Sincerely,

John