The 13 Steps to Investing Foolishly
Step 1: What is Foolishness?"The Wise would have you believe that 'A Fool and his money are soon parted.' But in a world where three quarters of all PROFESSIONAL money managers lose to the market averages, year in and year out, how Wise should one aspire to be?" -- The Motley Fool Investment Guide
Let's start out with what you may be most confused about right now. As a newcomer, you might be wondering just what the heck all this "Fool" stuff is, and why you should spend any time here. You were looking for investment or personal finance information (right?), and now you're suddenly staring a court jester directly in the eye.
Who are these guys?
What is this?
To make a long story short, The Motley Fool name comes directly from the beginning of Act II, scene vii of Shakespeare's As You Like It. In the days when Shakespeare was writing about kings, Fools were the happy fellows who were paid to entertain the king and queen with self-effacing humor that instructed as it amused. Fools were, in fact, the only members of their societies who could tell the truth to the king or queen without having their heads rather unpleasantly removed from their shoulders. This would not seem to everyone like an ideal source to name a website. Indeed, Shakespearean scholars hotly dispute what Internet financial websites would have been called in Shakespeare's time -- had they existed. Be that as it may, it's what this place is called. In Fooldom, you the reader are the King, and it's our job to tell you the truth about investing and show you how you can manage your own money better than the pros on Wall Street.
The Motley Fool was conceived of in mid-1993, came onto America Online a year later, and its full site was launched on the World Wide Web in 1997. Its mission was, has been, is, and will always be to educate, to amuse, and to enrich. We're here to help you help yourself with all aspects of personal finance and investing. We don't manage anyone's money but our own, we're not investment advisers, and we're not selling anything. (Except a couple of books -- and please feel free to ignore the many
enticements to buy them and just ruthlessly use the site without ever purchasing a blessed thing from us.) Again, our interest is solely in educating, amusing, and enriching. (Oh, we do have an interest in winning awards for producing the best financial website in the whole dang world -- but that's pretty much a pride thing -- there sure isn't any prize money that comes with any of these awards.)
The person who most has your financial best interests at heart is you.
Now, when you're plying your trade in the investment world, you normally wouldn't want to be caught dead being called a "Fool," right? We think quite the opposite, of course. We look around at the supposed Wisdom in the world today, the Conventional Wisdom, and wish to put an end to it, to reform it. In fact we're on a mission here -- a mission from Shakespeare.
So what is some of the conventional wisdom so contrary to the Foolish point of view? We'll preview just a few slivers of it now -- suffice it to say that the 12 steps that follow contain a touch more, and the rest of this website goes into Foolishness in much greater detail. Following are a couple of the most salient bits of conventional wisdom we'd like to address quickly before you click off to some other website.
Conventional wisdom #1
You should just let 'experts' invest your money for you by putting your money in managed mutual funds.Foolish response
Yikes! Did you know that well over three-quarters of all managed mutual funds underperform the stock market's average? In other words, most of the Wise 'professionals' out there are losing to the market's average return in most years -- and they are paying themselves very, very well in the process. Mutual fund managers will try to persuade you they have some special Wisdom or crystal ball. Unfortunately, their impressive-sounding jargon is hogwash when compared to the actual performance of the market averages. If you're ever going to be invested in mutual funds, look only as far as an index fund, which tracks the market's returns at a very low cost. (For more information, check out The Truth About Mutual Funds.)Conventional wisdom #2
Financial gurus do a good job of predicting the direction of the stock market.Foolish response
Nope. No one has ever proven the ability to predict the stock market's future consistently and accurately. We are amazed and amused by all the people who still try to do it, and all the journalists who daily (or hourly!) quote them on the matter. The Foolish investment approach is in no way predicated on trying to 'time' the market; if it were, we'd be well below market averages with our own portfolio performance, like all the rest of the market timers. Buy and hold good stocks, and don't sweat where anyone's telling you the market's going.Conventional wisdom #3
Wall Street brokerage firms and professionals are a great asset to our society, and they're worthy of our trust.Foolish response
Well, they spend hundreds of millions a year on TV commercials insisting so, but... ummmm... not even close. Here's our take on the well-dressed Wise men and women of Wall Street. First off, Wall Street simply doesn't have it in its best interests to teach you. So long as you're in the dark about investing, you'll have to give your money over to Wall Street to manage for you. That way, Wall Street professionals can charge you (hidden) fees to manage your money. The entire Wall Street industry is built on you not figuring out how to manage your money. And that, on the other hand, is exactly what your fellow Fools are here to help you do -- for FREE.Further, most brokers are well trained in the subtle art of salesmanship and are paid based on how often you trade, not how well you do. (Click here for some of the bloodcurdling details in "A Life in the Day of a Stockbroker.") For many people, full-price brokers are their source for new investment ideas as well as their crutch for help with portfolio management and financial planning. And yet for some reason, the way that history played out has brokers getting paid not for how well you do, but for how often you trade.
That has created a massive conflict of interest, because the best way to invest is to buy and hold, not buy and sell and sell and buy and sell again. Those who trade frequently with a full-price, errrr... "full-service"... broker end up losing an unconscionable amount of their money to commissions and capital gains taxes. This can really eat into your long-term returns, and unfortunately your broker is on the other end of the phone counting his earnings when that happens. Given that Wall Street brokers do not end up providing advice that leads to even market-average performance for their clients, the advice of Wall Street brokers would actually be expensive if it were given out for free. And it sure ain't given for free.
OK. Don't get us started. We could go on and on about this stuff, but with limited space and time, we won't. The main points are that the Wise have prevailed in the money world for far too long. Now it's finally time that some Fools showed up and leveled the playing field. (Or obliterated the playing field, as the Rule Breaker Portfolio has been doing over the past five years. But more on that later...)
By "Fools," of course, we don't just mean ourselves -- we also mean the millions of Foolish readers who come in here every month looking to answer each other's Foolish questions on our message boards. The information you'll get here at the Fool comes without strings attached -- it's FREE, no one is looking to invest your money for you. Rather, we're teaching you how to do it on your own. All that we humbly ask is that you use whatever you may learn here for the benefit of good rather than evil, and that if you chance across some other Fool's question on one of our message boards that you can help out with, that you give a thought to doing so.
The Wise have prevailed in the money world for far too long.
Always remember, Foolishness calls upon us all to make our own investment decisions and take responsibility for them. Our aim at Fool HQ is to get you started investing on your own and taking responsibility for your decisions. Anyway, the only way you'll ever derive any true satisfaction from life is if you make your own decisions and enjoy -- and occasionally suffer -- the consequences of having done so. We believe that when you take control of your financial life, you're taking control of your destiny, and that you'll be rewarded by making the decision to do so.
By the time you're done with our 13 Steps, you'll be well on your way toward a lifetime of successful do-it-yourself investing and extreme Foolishness.
But before we get into all that investing stuff, first a word about your credit card sponsor...
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The 13 Steps
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The 13 Steps |
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