The Motley Fool: The Fribble, Getting a Foolish Education, by Frank Womble

Monday, April 20, 1998

Getting a Foolish Education
By Frank Womble ([email protected])

When I first discovered Fooldom some two years ago and read through the 13 Steps to Investing Foolishly The 13 Steps to Investing Foolishly I decided to take some of that Foolish advice and get a better investing education through self-study. This had the added benefit of combining three of my hobbies -- reading, book collecting, and investing -- all of which have brought me considerable pleasure.

There are numerous books on investing and financial management readily available in any large bookstore. (Fools will want to check out Amazon.com for book purchases). I love to read and started grabbing up investing books at every opportunity, taking advice from other on-line Fools about recommended titles.

There are some Greats out there, to be sure. Besides the highly recommended books by the Gardner brothers and Robert Sheard, the Foolish investor should certainly consider those by Jane Bryant Quinn, Peter Lynch, [about] Warren Buffet, Michael O’Higgins, Charles Carlson and Andrew Tobias. [Browse through these titles and more in the Foolmart bookstore.] There are also some Not-So-Greats, falling into the two broad categories of "Get Rich Quick" and "Gloom and Doom." Both should be avoided as both a waste of time and money. My favorite of that latter genre is the now-laughable Great Depression of 1990 by Ravi Batra. (Hey -- it seemed plausible in 1988, and as I recall was a best seller that year. Since it probably made the author a significant pile of dough perhaps he is a Fool and all us who bought it were just fools. But that’s a different story).

My latest investing book purchase was The Wealthy Barber, by David Chilton. I had always wanted to read it and noted that a revised 3rd edition had recently been published. I found it to be an excellent book, full of easy-to-understand advice for the beginner who is trying to get his financial house in order.

The book’s setting is Miller’s Barber Shop. Three friends, all lacking even basic financial know-how, visit the local barber, Roy Miller, who is renowned for his investing acumen. During each monthly visit, Roy gives them a different lesson in financial planning. The majority of his simple but effective advice is very Foolish and would provide practically anyone with an excellent basis for setting out on the road to long-term financial success. But on Page 41, I found this stunning dialogue between Roy and one of the three friends as they discussed how and where to invest:

"So, should we buy common stocks?" I asked.

"No... common stocks are not the way to go," Roy warned solemnly.

Needless to say, this caught me by surprise. "You’ve never owned a common stock?" I questioned.

"Never. I don’t know anything about stock analysis, and I don’t have any friends who do either. To perform well, you have to buy when everyone else is selling and sell when everyone else is buying, a rare combination of guts and brains. You have to have a good background in investment analysis, and you have to use that background to look into the future. Most of all, you have to have a sixth sense, an intuition, a knack for recognizing value. Very few people fill the bill. I certainly don’t. I mean think about it. Do you know anybody who’s become rich buying and selling stocks? There aren’t many. It's just too difficult." (My emphasis added.)

As every Fool knows, it just ain’t so! You need only read TMF Sheard’s daily Foolish Four column to quickly grasp a full understanding of the power and simplicity of market-beating Dow strategies that any average high school student could easily and effectively employ.

The wealthy barber goes on to espouse the many wonderful advantages that are offered by mutual funds. He emphasizes the importance of getting professional money managers to make those tough investing decisions for you, saying that it’s well worth the fees you pay them to do so. Curiously, he contradicts this advice a few pages later by also recommending index funds, even noting that "few money managers beat the (S&P 500) index consistently over a long period of time."

I very nearly closed the book in disappointment after reading the passage above. But since it is pretty short (only 211 pages in paperback) I decided to see it through. Towards the end of the book, I found this gem that, to me, defines exactly why the Dow strategies are so successful. After claiming that "successful investing... takes a lot of time and specialized knowledge" (wrong again, of course) the barber says that

"...without discipline and an eye for value, an investor is doomed to dismal failure.... When a stock’s price is low, it’s down for only one reason: There are too few buyers and too many potential sellers. In other words, the stock is relatively unwanted. To buy in that kind of environment takes a courage that few of us have."

Discipline. Value. Remember those words, Fools, and make them your investing mantra. They are the unbeatable combination that forms the heart and soul of all the Dow methods and which guarantees that you will, over the long run, beat both the market indexes and nearly all the "professionally managed" mutual funds. And you won’t give up a significant percentage of your returns in high fees, either.

By all means, go to a good barber if you need a haircut. But evaluate all that you hear or read about investing with an open and Foolish mind, especially when it smacks of the platitudes of the Wise. Educate yourself, then consistently follow sound strategies while making your own decisions regarding your hard-earned money.

Caveat emptor -- let the buyer beware of Wise advice -- and may the Foolish prosper!

[Editor's note: I often give The Wealthy Barber as a gift to friends who become first-time investors, with a personally revised section on investing in stocks. It's so close to being a perfect first book on personal finance, it's a shame that one piece of advice is so weak.]