A Tribute to Foolish Investing

Cover Story, by Mark Robertson, Managing Partner April 1st, 2005

In the spirit of their national holiday (April Fool's Day) we revisit a time-honored speech made by David Gardner to the National Press Club a few years ago.

The mission of Manifest Investing is to dramatically simplify the world of investing and to transform the experience of individual investors into something less mysterious, less stressful and more successful. The message and experience of The Motley Fool (www.fool.com) rings wholly consistent with this objective. I first met Tom and David Gardner at an investment conference a few years ago and have worked with them and their staff ever since. In the spirit of their national holiday (April Fool’s Day) we revisit a time-honored speech made by David Gardner to the National Press Club a few years ago. It still ranks as one of my favorite speeches and resonates with what we believe.

Adapted from a speech by David Gardner – Cofounder, The Motley Fool

Once upon a time, there was a prosperous country called America. America had fertile land, sunstruck coasts, purple mountains and a happy people. She sported free public education, expensive but effective health care and high speed data networks that anybody could tap into. In America, more than any other place ever, you could do and say whatever you wanted, and your destiny was largely — to an almost disturbing degree — in your own hands. America was the envy of the world.

But there was one thing that Americans lacked. Despite their comparatively rich status, Americans had very little understanding of what to do with their money. Most Americans would build up savings by their middle years and suddenly find they had no real idea how to handle it. As they were mostly a good people, their instincts were right: save the money and make it grow. But how to save it, how to make it grow, was something most had never learned anything about.

Maybe it had to do with their educational system? Their schools, particularly the best, focus on the liberal arts. Many of them, for instance, were taught calculus before college. Yet few were taught anything about index funds, dividend yields, interest rates or discount brokers… before or after college. There was [rarely] any formal education of any kind about money and investing!

But what would most of them work the better part of their adult lives to attain? What would enable them to buy the house, buy the car… or to retire, or to put their children through school?It was into this fairytale land that we launched The Motley Fool as a newsletter not all that long ago. In July of 1993, I, my brother Tom, and our friend Eric Rydholm attracted a small subversive movement in the financial world, printing our first copy of what began as a newsletter for family and friends: The Motley Fool.

“FOOL”?!

Financial advice with the word “Fool” attached to it? Many of our friends were skeptical of the viability of the enterprise. (Then again, many of our friends worked on Wall Street.) You see, Tom and I had never been money managers, brokers or financial journalists of any conventional stripe. We’re just writers who happened to have a Dad who taught us about the stock market early on. He even gave us some money to manage on our own when we reached 18, so that we could figure the darn thing out. Shakespeare was a favorite of ours going through college, and the themes of folly and wisdom have an extremely rich literary history. Not coincidentally, perhaps, most of my favorite authors have spoken kindly of Fools: Plato, St. Paul, Erasmus and Shakespeare.

We selected our name from the Bard’s great passage about Fools, from “As You Like It.” In Act II, scene VII, Jacques enters having just come across a court jester in the forest. Jacques excitedly proclaims that he is himself ambitious for a motley coat: “Invest me in my Motley,” he says. “Give me leave… to speak my mind… and I will through and through… cleanse the soul body of the infected world. IF they will patiently receive my medicine.” For our own part, we thought that if that medicine were expressed in simple terms, regarding a subject that concerns everyone’s bank balance, with generous doses of a whimsical and self-effacing humor mixed in, maybe… just maybe… the world would receive our message patiently.

Our emphasis from the beginning was on reform; it’s right there in “As You Like It.” We set out to cleanse the foul body of the infected financial world. The notion that we could actually succeed at this seemed outlandish, coming from two young whippersnappers. But we had a few unforeseen advantages, not the least was a fervent belief in — and a solid understanding of — the most powerful medium that history has ever seen: the online phenomenon. That gave us a head start.

Tom talks of the advantages of the online community at length.

Wall Street Wrangling

What continues to be wrong, in some senses, with Wall Street?

Not surprisingly, it concerns the institutions, because it is the institutions of Wall Street that have grown gargantuan. The behemoths have grown “institutional” by taking advantage of the general public’s lack of education about investing. The institutions that I’m going to focus on are three of the biggest: mutual funds, Wall Street brokerage firms and the financial press.

Mutual funds are ubiquitious and a popular recommendation among planners and journalists. It’s not hard to see why. Turn over the care and responsibility for your money to somebody else… a very typical response when most people are faced with something they don’t understand. Mutual funds are certainly a better option than state-sponsored lotteries, Las Vegas or credit-card debt. But 80% of all mutual funds underperform the stock market’s average annual return. That’s right, billions and billions of dollars handed over to some pretty well-paid fellas… our country’s mutual fund managers, who don’t even return performance equal to the stock market AVERAGE performance, year in and year out?

Would a Wall Street broker be a better choice? Admittedly, there are some good brokers. The problem is that most are paid based on how often your account trades, not on how well it performs. Talk about conflict of interest! Frequent trading is not in the best interest of the average investor. But Wall Street has convinced investors to move in and move out, no matter how destructive this is to your bottom line. Many www.fool.com community members have sought refuge after horrible experiences.

What about the fourth estate, the financial press? The aim of today’s journalists seems to be gauging where the market is headed… as if this were possible! There are few genuinely good writers and many turn to someone else to do the forecasting for them. So they regularly solicit financial forecasts from the so-called “gurus” and spew the predictions with virtually no follow-up and no accountability.

Imagine an Investing World…

Imagine a financial press that echewed its fascination with forecasting the market and instead sought to educate. Imagine if the learning included stories of great companies and an explanation of why they’re great, straying beyond the what. Imagine a broker with compensation linked to the long-term success of a client’s portfolio, instead of short-term frenetic gambling. Imagine a mutual fund industry that had billions of dollars withdrawn and restored to the accounts of individuals who understood the mediocrity of mutual funds. Further imagine if that collective understanding of investing was dramatically improved, resulting in better investing, better business and enlightenment with respect to the challenges of investing.

Think of the possibilities. They’re out there and they’re attainable no matter how much institutional inertia gets in the way. We invite everybody, including those Wise souls on Wall Street, to join us.

The Motley Fool continues to strive to dramatically rewrite the rules in favor of individual investors, the same “little guys” that have been disenfranchised by the status quo. We believe that it is truly possible to enrich, educate and amuse along the way.

Fool On! — David Gardner

Mark Robertson

Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.