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Author: Stevecaplan Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 265  
Subject: Question about valuation Date: 1/11/1999 10:20 PM
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Dear Tom and David:

I just finished your book and enjoyed it immensely. One bit of information concerning the Rule Makers section has me puzzled and I would appreciate your (as well as anybody else's) opinion.

According to the philosophy set forth in the book, one should buy a Rule Maker at any price, once you have determined it to be a "good" Rule Maker. But obviously, while it may be good to buy Microsoft at 400 a share (which it will someday probably be worth), it would be better to buy it at 100. Otherwise, all future growth for the next several years (to decades!) may be factored into the currect price, making it to be a poor investment.

I know you are not advocates of timing the market, but there should be a way of evaluating what is an appropriate price/value for the stock.
I know you addressed this matter in the Motley Fool Investment Book. Do you feel the same valuation method is applicable for Rule Makers? If not, what type of valuation do you use?

Steven Caplan
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Author: Bruce67 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 77 of 265
Subject: Re: Question about valuation Date: 2/7/1999 4:14 PM
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David and Tom

I am long overdue in writing to you to express my appreciation for what you have done for all investors and for me in particular.

My investing history is probably typical of many investors. I began investing in GICs in the 80s, when interest rates were high, and then switched to mutual funds in the early 90s, when interest rates dropped. After 1 or 2 years I got discouraged by the poor returns in my mutual funds and started to read everything I could find on investing.

By a pure stroke of luck, one of the first books I read in 1996 was “The Motley Fool Investment Guide” I distinctly recall picking it up in the bookstore, looking at the cover, and saying “What on earth could these guys know about investing, they look so ridiculous in those hats!!”. Fortunately for me, I didn't judge the book by its cover. Since that time I have read 63 books (I just counted) on investing. I tell you this, not to brag, but to give you some indication of how interested I have become in the subject. My 5 top choices in no particular order are:

1) The Motley Fool Investment Guide
2) Buffettology by Mary Buffett
3) The Neatest Little Guide to Stock Market Investing, by Jason Kelly
4) Stop Buying Mutual Funds by Mark Heinzl; and
5) Rule Makers, Rule Breakers

The “Motley Fool Investment Guide” gave me the determination and the confidence to go online and take control of my investment portfolio. So thanks to you two generous guys for taking the time to share your ideas. As a result of your books I have developed a wonderful hobby, learned a lot about the investment business and have achieved some excellent returns on my investments. (I'm not doing as well as the Rule Breakers Portfolia, but I'm working on it!)

I just finished RBRM yesterday and greatly enjoyed it. The book presents some really innovative ideas in a very refreshing and readable style. It now sits prominently on my shelf within easy reach.

However, I was left with the same question Steven Caplan had in his Message 14 on this board, dated 1/11/99, which is:

<>

I believe that this is an important question, but I couldn't find a response. (If you have answered it elsewhere, please let me know.). While I understand that you can't use conventional methods to value Rule Breakers and Rule Makers, I can't accept that such companies can be good value at any price for the shares. Chris Rugaber makes this point very well in his discussion of @Home Bears Den (January 27, 1999) when he makes his best estimate that a share price of $110 per share for @Home, represents 50 times earnings, four years from now. At least his estimate gives us some indication of what a reasonable share price might be.

RBRM provides excellent tools for identifying and monitoring potential Rule Breakers and Rule Makers. However, as our good friend Warren would tell us, once we know what business to buy, we need to determine what price we should pay, so that we will have a reasonable prospect of achieving a satisfactory return.

I understand that with Rule Breakers in particular, it is not possible to extrapolate current financial results into the future, but if we make some reasonable assumptions about what the company might achieve, we would be in a much better position to make a decision to buy. Moreover, we could monitor our assumptions against actual developments to determine if our original assumptions were being met and whether we need to adjust our expectations.

Thanks again for all your past help and advice and good luck with the tour!

Bruce Smith
A Foolish Canadian :>)



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Author: jaggyg One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 251 of 265
Subject: Re: Question about valuation Date: 12/5/2000 12:20 PM
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Hello Brothers Gardner and other Fools,

I'm nearing the home-stretch of RBRM which I proceded with immediately after reading TMFIG. The books are worthy of all praise thus-far given and I intend to read both through again before making any serious steps toward real investing. For two years I've been experimenting; trading here, trading there with $2000 which I designated my "tuition" money. I have not done too well with it, having only about $600 left, but I have learned things which I will never repeat. Your books do much to drive these lessons home by illuminating and providing alternatives to every foolish mistake I've made with my so-called "tuition" money. Fortunately I'm only 30, have little to no debt, and being single - very few commitments, though that may soon change. In any case I think the time is ripe to put my money to better work. My parents nearing retirement took the enormous risk of taking on very little risk throughout their lives and they are getting rather nervous, choosing this late stage of their lives to only now get into the market. With the benefit of their hind-sight, I hope to be a little wiser ;)

The point, the point !! I am now poring through the RBRM boards and hit these two posts:

http://boards.fool.com/Message.asp?mid=10514567 and its followup http://boards.fool.com/Message.asp?mid=10582856

Call me tardy with this but I find myself with the same question and thought it reasonable therefore to bring it back to life, hoping for your thoughts and advice. A snippet from post 77:


I just finished RBRM yesterday and greatly enjoyed it. The book presents some really innovative ideas in a very refreshing and readable style. It now sits prominently on my shelf within easy reach.

However, I was left with the same question Steven Caplan had in his Message 14 on this board, dated 1-11-1999 which is:

...

I believe that this is an important question, but I couldn't find a response. (If you have answered it elsewhere, please let me know.)


Looking forward to any replies.
John

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