A new Web page sets forth the principles of investing independence. Don't Mimic Us explains the purpose of our model portfolios and tries to impress our readers with just how fallible we are. It's a must-read for everyone who visits this site.
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I wouldn't go so far as to compare it with the Declaration of Independence, but the Motley Fool published a very significant document today. It's called Don't Mimic Us, and it is a Declaration of Independence of sorts -- a declaration of your independence. Our Jefferson is Selena Maranjian, who you may know from reading her occasional Rule Breaker Portfolio Reports or her many Fribbles. Selena also writes our weekly newspaper feature and the occasional book.
In Don't Mimic Us (see the new link in bold on the right navigation bar) we set forth the principles of investing independence. Read it. Yes, now.
It seems that no matter how many times I and the other portfolio writers explain that our portfolios are examples -- not lists of recommended stocks -- new readers as well as old seem to think that we are winking and nodding when we say that. We're not.
We really mean it when we say that we are not professional advisers, we are fellow investors, and just as prone to mistakes as anyone else. We don't want anyone following us blindly. In fact, the idea scares me to death. Another thing that scares me is hearing that we are "professionals," and therefore we should be (or therefore we think we are) more knowledgeable than our readers.
The funny thing is, the staff here knows very well just how much like our readers we are. Most of the writers started out as members of the community, posting on the discussion boards or writing an occasional Fribble, and we still feel we are just sharing what we know or think, for whatever it's worth.
We may have strong opinions and we may express them enthusiastically, but there is absolutely no feeling among the editorial staff that any of us has any special insight into investing. If there were, a quick read of our discussion boards and a look through Soapbox would quickly disabuse us of any such notion. Our community is smart! We learn from our readers every day. And we want to be sure you understand that.
It's not difficult to understand where the idea that the portfolio holdings are "stock picks" came from, though. From the very beginning, we have structured all the portfolios so that anyone wishing to follow them can do so. We announce all trades in advance, and we even send out an e-mail announcing those trades so that anyone who doesn't visit our site every day will still be notified.
Can anyone guess why we do that?
It's simple, really. What is the alternative? If we didn't announce trades in advance, we would be "front running" our readers. It happens all the time. People make lucrative livings doing it. You buy a stock, then announce that you bought it (or that you are rating it a "screaming buy").
If you have any following at all, what happens to the stock's price when all those followers try to buy it? That's right, up it goes. You can either take your profits immediately (selling before your next announcement drives the price down), or, if you've a few more scruples, you can hold the stock for a while, but at a significantly lower purchase price than your followers could ever have obtained.
We don't think that's a nice thing to do. That's why our portfolio trades are announced in advance. The Rule Breaker Portfolio's great returns are not the product of getting in at a better price than someone else could have gotten. Every stock was purchased and/or sold well after our announcement was made. In the last few years, we've seen Rule Breaker announcements move a stock several dollars, and we've had to live with that -- just like any other investor.
It's not hard to see how our desire to create a level playing field led some people to the conclusion that we see our portfolio purchases as stock picks, in spite of our best efforts to explain that the portfolios are merely teaching tools. And, we would be naive indeed if we didn't realize that people would be following those trade announcements. If we respect other investors' decisions, we have to respect a well-considered decision to do that, even if it makes us uncomfortable.
But, we are much happier when our readers disagree with our stock selections and tell us why on the discussion boards. That way everyone can read both sides and evaluate the stocks on the merits of the arguments. Investors who do that will make better investing decisions and will probably outperform our portfolios. That's the whole idea.
Don't mimic us. Learn with us!
Fool on and prosper!