The Motley Fool Investment Guide – Tom Gardner
The Motley Fool Investment Guide – How the Fools Beat Wall Street’s Wise Men and How You Can Too.
Today, anyone can be an informed investor, and once you learn to tune out the hype and focus on meaningful factors, you can beat the Street. The Motley Fool Investment Guide, completely revised and updated with clear and witty explanations, deciphers all the current information—from evaluating individual stocks to creating a diverse investment portfolio.
David and Tom Gardner have investing ideas for you, no matter how much time or money you have. This new edition of The Motley Fool Investment Guide is designed for today’s investor, sophisticate and novice alike, with the latest information on:
—Finding high-growth stocks that will beat the market over the long term
—Identifying volatile young companies that traditional valuation measures may miss
—Using online sources to locate untapped wellsprings of vital information
The Motley Fool rose to fame in the 1990s, based on its early recommendations of stocks such as Amazon.com, PayPal, eBay, and Starbucks. Now this revised edition is tailored to help investors tackle today’s market. “If you’ve been looking for a basic book on investing in the stock market, this is it…The Gardners help empower the amateur investor with tools and strategies to beat the pros” (Chicago Tribune).
Take heed . . . The wise may be instructed by a fool . . . You know how by the advice and counsel and prediction of fools, many kings, princes, states, and commonwealths have been preserved, several battles gained, and divers doubts of a most perplexed intricacy resolved.
The world has changed dramatically since The Motley Fool began its quest to help the world invest better in 1993. Today’s individual investor is armed with more information and greater—and cheaper!—access to the markets than ever before. Today, we can find a stock idea, research it online, and buy shares, all in a matter of mere moments . . . not that we think you should.
But much remains the same. Investing in individual equities remains the truest path to lasting wealth. Many Wall Street brokers will argue to their last breath that you can’t do it on your own. But we have clear evidence—now with a track record that spans more than twenty years—that individual investors can beat the market . . . so long as they can overcome a few key behavioral barriers.
And yes, we’re still answering questions about the name we chose for our company. So let’s start there.
That’s certainly not a very wise choice for a name when you’re trying to ply your trade in the investment world. For decades, financial professionals have done their best to sell customers on their Wisdom. Whether it’s the pinstripe suit, the knowing smile, or the self-satisfied advertising slogan (one company referred to itself as “Rock Solid, Market Wise”), your typical broker, money manager, or financial planner has striven for an image of success, intelligence, experience, respectability—in a word, Wisdom.
And for decades, they’ve been making a fair amount of money off of fools. You know about fools. You might even have been one yourself at some point. Ever bought a stock on your dentist’s recommendation with only a vague understanding of the company’s business model? Or have you plunked down your money for shares of an under-the-radar business because an email in your inbox breathlessly proclaimed it a “can’t miss opportunity . . . bound to double from $0.04 to $0.08 because of CAN’T-MISS catalysts?” How very foolish of you. Or what about the time you snapped up shares of the International Dashed Hopes Load Fund just because your broker said it was the top performer in its category last year? Terribly, terribly foolish.
And the financial establishment thanks you.
Fortunately, you don’t need to be the one who provides the funds for other people’s dreams. It’s possible—now more than ever—to make informed, intelligent decisions that will help you make the most of your financial future.
The Wall Street Wise would have you believe that “A Fool and his money are soon parted”—we get that a lot. But in a world where more than eight out of every ten mutual fund managers lose to the market averages, year in and year out, how Wise should you aspire to be? In what other realms could such a paradox exist: that the paid professional can do no better than—in fact, cannot even do as well as—dumb luck?
And yet, in few other arenas are the trappings of the profession so enmeshed with the job itself—massive desks, expensive suits, gold cufflinks, precision watches. You be the judge of whether those accoutrements are designed to impress, intimidate, or overcompensate for their underperformance.
And that got us to thinking, working out of a far-from-glamorous 12-by-8-foot backyard shed all those years ago, that we should just go ahead and call ourselves Fools, since our attitude and approach to life were so radically different from what was being passed off as Wisdom all around us.
So we launched the very earliest iteration of The Motley Fool, taking the name from (an admittedly nondescript quotation from) Shakespeare’s As You Like It: “A fool, a fool! I met a fool i’ the forest, a motley fool.”
We’d always loved Shakespeare’s Fools: they amused as they instructed and were the only members of society who could tell the truth to the king or queen without having their heads lopped off. The Motley Fool began as a monthly newsletter distributed to a very . . . let’s call it “exclusive” membership base. The printed newsletter soon transformed into a daily feature in the early days of America Online, when users paid by the minute they spent in our community. From those humble beginnings, the Fool has become one of the premier financial destinations online, with millions of investors reading our free analysis and advice, conversing in our community, participating in our stock-picking game, and performing their research in pursuit of winning stocks. The Fool now offers a suite of premium services catered to different investing styles, mutual funds that follow our Foolish tenets, and even a wealth-management business for those who love our style and advice but want to leave the heavy lifting to someone else. And The Motley Fool continues to seek new avenues to achieve its mission: to help the world invest . . . better.
Our goal was and is very simple: beat the market and show others how to do it—whether that’s a teenager deciding how to invest the proceeds from her summer lawn-mowing business or a savvy, seasoned investor who wants to profit from advanced options trades. In our decades pursuing this goal, we’ve enabled millions of people to invest their own money—without the help of Armani suits—and set a course to the financial future they seek.
Our approach is best characterized by our general disinterest in, and mild disdain for, conventional wisdom. For example, the Wise will encourage you to invest your money in loaded mutual funds. (This “double dip” enables them to charge you for that advice and then charge you on an annual basis for the funds’ management fees.) We, on the other hand, are telling you to buy stocks. They might tell you, “All right, take on that risk of stocks, but only buy the very safest ones.” Or, alternatively, some brokers will try to sell you a collection of rinky-dink shares of penny stocks, dubious entities with an even more dubious likelihood of ever paying off. And many brokers, once you’ve entrusted them with your savings, will quietly rotate you into and out of investment vehicles, maximizing their transaction fees . . . but not your profits.
We want you to buy shares of great companies, sprinkle some more volatile growth stocks in with an array of blue chips, and skip the penny stocks altogether. Then hold those stocks for the long haul—think decades, not days. We espouse this approach for one simple reason: it works. Going back through history, you’ll see that the stock market is pretty close to a sure thing, if you have the proper timeline (no day trading!) and temperament (no panicking!). From 1871 through 2012, holding periods of a single day were essentially a coin flip—52 percent of those days earned positive returns. But investors with longer horizons fared much, much better. Eighty-eight percent of ten-year holding periods were positive, and (this is not a typo) 100 percent of twenty-year and thirty-year holding periods made money. In pretty much any comparison between stocks and other asset classes, stocks win. According to a Credit Suisse study of the twenty-eight markets it tracks, stocks outperformed bonds, which outperformed cash in twenty-seven of them . . . by a wide margin. (China’s the only exception, and that’s because the country literally burned capitalistic symbols to the ground under Mao Zedong.) In short, stocks beat all other asset classes around the globe.
In addition to our contrary—though commonsense—approach of buying and holding stocks for the long haul, we’re also encouraging you to consider a range of options trades, including shorting stocks, an attempt to profit off the decline of a stock rather than its rise. It is possible to use options “Foolishly,” allowing you to generate extra income or giving you the option to own a stock you like at an even better price. (Fear not, we’ll discuss these concepts later in the book, in terms that are neither exceedingly complicated nor scary.) To us, if you’re an advanced investor for whom the stock market is more than a passing fancy, we believe you should at least consider the potential advantages of maximizing your returns in a way that matches your timeline and your temperament.
And the list of our outrageous beliefs goes on. It is capped by the very idea that you should manage your own money yourself—that you are the individual most personally invested in your financial success and, therefore, are the one best suited to make your money decisions. To many segments of the financial-services industry today, this idea remains about as logical as a financial-services company calling itself the Fool.
In what follows, then, we hope to help you, and the world, invest better, giving you the confidence and the knowledge you need to succeed as an individual investor. But first, we should introduce ourselves.
WHO WE ARE AND HOW WE GOT HERE
We’re David and Tom Gardner, brothers and the founders of The Motley Fool. When we were young, we learned the core concept of investing . . . thanks to chocolate pudding. On trips to the supermarket, our dad would tell us, “See that pudding? We own the company that makes it! Every time someone buys that pudding, it’s good for our company.” Our childhood family vacations often included visits with the chief financial officers of companies based in the cities we visited. We didn’t always understand our dad’s conversations, and they cost us a few afternoons that would otherwise have been spent in a hotel swimming pool, but those visits set us on a path to understanding that businesses are only as good as the people who work there.
Years later, we began investing on our own, taking charge of the stock portfolios that our parents had started for us when we were born. For many casual investors, it takes a lifetime to overcome all the most common obstacles to investing in stocks—not knowing how to get started; believing they don’t have the time, money, and ability to do it themselves; a willingness to settle for the seemingly safe—yet often underperforming—comfort of mutual funds. Thanks to the foresight of our parents, we were fortunate enough to skip past that preamble of doubt.
Our very first purchase was shares in a trucker called Leaseway Transportation (long since acquired by a larger company). Using a few elementary measures, we had culled the stock from the pages of Value Line, then a seven-inch-thick investment research monstrosity, a format that with the advent of online tools is about as common and timely today as ticker tape. We can’t recall the exact rationale for the purchase, but one hot summer, we watched with awe as shares climbed from $26 to $42, where we took our profit. In retrospect, the process of discovering and researching that potential investment left something to be desired—hardly our most inspired work—but it left us with a lesson that endures: If you’re willing to take a risk, and you’re open to continuous investigation and exploration into the world around you, you can enjoy tremendous financial success in the stock market without paying the Wall Street Wise for the privilege.
Tom Gardner learned from his father how to invest, and with his brother, David, started The Motley Fool in 1993 with a mission to educate, amuse, and enrich. Today, the Fool works to empower individual investors, reaching millions every month through its website, premium services, podcasts, radio show, newspaper column, and more. With David they have coauthored several books, including You Have More Than You Think, Rule Breakers, Rule Makers, and The Motley Fool Investment Guide for Teens.
David Gardner learned from his father how to invest, and with his brother, Tom, started The Motley Fool in 1993 with a mission to educate, amuse, and enrich. Today, the Fool works to empower individual investors, reaching millions every month through its website, premium services, podcasts, radio show, newspaper column, and more. With Tom they have coauthored several books, including You Have More Than You Think, Rule Breakers, Rule Makers, and The Motley Fool Investment Guide for Teens.
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