From the desk of David Gardner:In 1994, we started this portfolio by investing $50,000 of our own money right in front of America. The premise was that we, as average people, could outperform the professionals, and the easiest way to measure the professionals was their mutual funds. So from day one onward, we have reported our numbers for the day, month, year, and history of the portfolio.We have never added any money to the portfolio in order to keep things simple surrounding that original $50,000 round number. However, not adding money has also meant that anytime we wanted to buy a new stock, we had to sell an old one. That created (to our annoyance) a taxable event, a tax that we wouldn't have paid had we set up our portfolio more realistically to have money inflows. Most Americans aren't operating in this artificially static environment, and do have money to add each year... and therefore don't have to, and shouldn't, be paying such taxes.OK, so now the SEC has finally made mutual funds report their returns with tax adjustment. Yay! We have been calling for that for years. So in order to continue to fulfill our original aims of stating our returns as compared to a typical mutual fund, we're also now reporting our returns after taxes. Would we have set things up differently if, back in August of 1994 when we had 60 readers and didn't expect to become a closely watched multimedia company, we'd known how things would play out? Absolutely. We would've set up our portfolio with regular money injections, instead of setting ourselves up to have to sell in order to buy (i.e. pay unnecessary taxes that we wouldn't advocate someone do in the first place).Anyway, despite this we remain proud of our historical after-tax returns, even granting that we were never managing this portfolio to maximize after-tax returns. If we had, one result would have been that we would've made fewer stock picks... but from a teaching perspective, we're glad that we have shared more selections with you, our Foolish reader. Some people complain that we don't make enough!Continuing our conservative accounting and reporting, we've done a funny thing this time: We have assumed that we had over $80,000 in our original account, and that $30,000 of that sat around for years dormant, completely uninvested, in order to later be used to pay taxes. This adjustment has therefore artificially lowered the true historical percentage return that our stocks have shown. You can get a more accurate picture from the internal rate of return, which takes into account that the cash was added over a period of time to pay taxes.Perhaps now we should simulate their cash inflows ourselves. If you would like to see us begin to add cash to the portfolio for this reason or any others, let us know in a responds to this message.Fool on. --David Gardner
Couldn't you add a fixed amount of cash to "theoretically" invest each month, say $500 or perhaps $1000, that would represent an "average" portfolio. You do not need to invest each month but you would have "The fixed amount" available to "theoretically" invest to that point.I beleive this would accomplish your purposes taxwise and all.....
IMHO, the approach of investing a fixed sum is probably a real-world approach for many investors. If that is what you started to do, your accounting methods should remain true to the approach - playing with the books in any manner is just a way to confuse folks and adjust the results to reflect your "new" approach. I would suggest if you want to create a second portfolio to reflect your revised methodology, you start a new portfolio and keep the accounting separate. -----The results will look much better starting "after the bubble" as well. Anyone ever talk about "pro-forma" results? Don't necessarily mean didly, do they?
"Perhaps now we should simulate their cash inflows ourselves. If you would like to see us begin to add cash to the portfolio for this reason or any others, let us know in a responds to this message."I would like the best of both worlds: a portfolio that does not include infusion of new funds and a portfolio where there is an infusion of funds. Ah, well.
I think adding cash on a regular basis, monthly, quarterly, or even annually would be great. Each time cash was added either a new company could be added or more shares of an existing company could be purchased. It would be a good learning tool as it is in the Rule Maker Port.
I think the Fool has a great record of explaining the "mistakes" it has made since its inception. Further, the Fool has remained dynamic in its product and teaching tool offerings. The site has started portfolios and discontinued some. Some have been discontinued to my personal dismay (loved TMF Workshop). Thus, I don't think a change in the approach to managing the Rule Breaker portfolio, or any portfolio for that matter, is out of line with what has been done in the past. TMF has always been forthcoming and honest about everything it has done so I think most of us would understand. So I say go ahead and make the changes. As long as TMF continues to- be honest with the community- strive to provide better products- explain changes in direction or philosophy and- keep it Foolishthen everyone benefits.LF
I would like to see a second Rule Breaker portfolio, investing a fixed amount of cash each month. Such a "real world approach" would be a great learning tool for those of us who are just beginning in the Rule Breaker arena.
The rule breaker portfolio invested about 1800$ in AOL and working for aol let the money invested ride . If it wasn't for the great returns of that stock the performance of the rule breaker portfolio would be the same as the nasdeq during that tine period.
Hey Murphy,The rule breaker portfolio invested about 1800$ in AOL and working for aol let the money invested ride . If it wasn't for the great returns of that stock the performance of the rule breaker portfolio would be the same as the nasdeq during that tine period. Actually, you're wrong on both points. We invested about $5,000 in AOL in 1994 and have sold off portions three different times.http://www.fool.com/portfolios/RuleBreaker/Positions/RuleBreaker_aol.htmIf you deduct that portion from the initial investment and subtract the total gain from AOL -- realized and unrealized -- from the current value of the port, bringing the total to $183,676, you find that we've gotten about 22.25% annualized returns. Since 8/1/94, the Nasdaq has returned 17.15%. In the fund world, that qualifies as significant outperformance.Of course, it's impossible to truly separate AOL from the portfolio, since it funded later purchases. Still, your statement doesn't present a very accurate picture.Fool on!BrianZ
"original aims of stating our returns as compared to a typical mutual fund"Typical mutual funds publish 1, 3 and 5 year returns, which I don't see for the original, Rule Breaker, portfolio. What are the 1, 3 and 5 year returns as of 6/30/2001 based on the values of the portfolio on 6/30 in 1996, 1998 and 2000, so it can be compared to a typical mutual fund?Thanks in advance,LK
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