A reader asked if I really believe in the Foolish Four since, as I've written, most of my portfolio is in growth stocks. My reply: absolutely. I believe that the market can't ignore these companies forever, and that they are excellent insurance against a tech stock crash.
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I received a note from a Fool in Wichita that really made me think. Here's what he wrote:
First of all, I should have mentioned in the column that the real-money Foolish Four Portfolio you see reported on every day -- those stocks down there at the bottom of the page -- is my portfolio. We discussed that quite a bit back when the portfolio was set up, but I haven't really mentioned it much since then. Not that anyone would have taken it for bragging, especially lately, but I do tend to feel that talking about one's portfolio is a bit obnoxious.
But, the reader makes a good point. Am I like Cybill Sheppard, who was a paid spokesperson for the meat industry while telling reporters she was a vegetarian, or who made those famous, "I'm worth it" ads for L'Oreal while saying her hair color was completely natural? (Frankly, I find the first easier to believe, but some people have really, really good genes.)
So, today we'll talk about me and my portfolio. Please forgive me if you find it unseemly, or boring, or both.
This part isn't so boring: My very first stock was, believe it or not, a biotech in 1982 (plus or minus a year). It was a small, new company in Rockville, Maryland. I was calling on one of the corporate officers trying to sell the company a telephone service and, since I was a biology fan, I asked what the company did. He hauled out a little blue packet that looked like Sweet 'n Low and told me to taste it.
It was Aspartame (better known today as Equal). They had a contract to manufacture the stuff. I may not have been an astute Foolish investor back then, but it didn't take a rocket scientist to figure this one out. A few months later, after the company went public, I bought 100 shares. In fact, I wasn't Foolish at all because when it doubled in six months, I sold. Don't ask, I can't remember the name, Gene... something. I probably don't want to know.
Another thing that maybe some of you don't know, but that you probably should, is that I was one of the people who developed the first Foolish Four way back in 1994. That may mean I am prejudiced in its favor, since I am rather fond of the strategy. It got me this job that I like very much. You probably should consider that when considering how much weight to give to my opinions. (Everyone likes to think that they are completely impartial. But, I doubt any of us really are.) At one time, I owned only Foolish Four stocks, but I have diversified since then.
Today, with three exceptions, all of my stocks are from mechanical investing strategies. (There's not much question that I believe in mechanical strategies.) The three exceptions are Human Genome Sciences <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HGSI)") else Response.Write("(Nasdaq: HGSI)") end if %>, a local company I've been watching for years but only bought recently; Celera Genomics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRA)") else Response.Write("(NYSE: CRA)") end if %>, a Rule Breaker stock (my only one); and Lernout & Hauspie Speech <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LHSP)") else Response.Write("(Nasdaq: LHSP)") end if %>, a speech recognition software company that I bought on a lark and kept because I like the idea of a speech recognition company with the ticker symbol LHSP (you gotta say it).
All of my other stocks are either in Workshop portfolios or are former Workshop stocks that I've moved to my "buy-and-hold" portfolio. They are heavily tech-weighted, and part of that is because I like tech stocks, but mainly it is because the Workshop strategies tend to pick tech stocks these days simply because they have shown the most rapid growth. Almost all Workshop strategies use recent price growth as a criterion.
But, those Foolish Four stocks are a very important part of my overall strategy. It's tempting to put all of your money into the hot stocks of the day. I would feel very, very uncomfortable with that kind of portfolio, though. I balance my tech holdings with the old economy stocks of the Foolish Four as insurance against a tech stock backlash. The Foolish Four companies are great companies.
Do I think that a tech backlash is inevitable? No, but I think it is more likely than not. To me, it makes complete sense to balance my growth stocks with some money in the value area.
One thing I am not doing is adjusting that balance. I've let the tech stocks grow to the point where they now dominate my portfolio. If I were less risk tolerant, I would be switching more money into the Foolish Four, and maybe Beating the S&P as well, and cutting back on those growth stocks right now. This is another reason why I don't talk about my portfolio. It is not one that I would recommend to others. It works for me and I'm comfortable with the risk level, but it is hardly a model for anyone else.
Back in March and April, when my tech stock portfolio was down as far as 36% from its recent high, I was OK. My Foolish Four portfolio was up during that period... and that experience, more than any portfolio management theory, taught me the value of value stocks.
That's enough about me, how are things with you?
Fool on and prosper!
In your August 4 column you stated that most of your portfolio is in high-tech growth stocks. It has been my experience that one can most accurately determine what someone believes by looking at what that person does rather than by what they say. My children are naturals at this -- they appear to have built-in baloney detectors! If I say one thing and then do something else -- I hear about it from them. My baloney detector started going off when I read this statement of yours about the composition of your portfolio. For someone who pounds the pulpit almost daily on the viability of the Fool Four as a long-term investment strategy, I would not have expected your own portfolio to be what you say it is. I think it is going to be somewhat hard to hear what you have to say in your column in the future because your portfolio, composed mostly of high-tech growth stocks, is shouting so loudly! With all due respect (I have been reading and enjoying your column for a long time ), put your money where your mouth is.