No. of Recommendations: 9
Summary, Part 2:

11. Are there other aspects of the business, somewhat peculiar to the industry involved,
which will give the investor important clues as to how outstanding the company may be
in relation to its competitors?

Business thought has progressed/digressed considerably in the last 40 years.

Today we talk about "Barriers to Entry (BTE)" and "Switching Costs (SC)".

The first are barriers that your competitors have to overcome to get to the starting point
to begin to compete with you, e.g., in CSUP, handling real estate leases or minimizing
insurance costs could be barriers.

The second is the costs your customers have to pay to switch from your product or
service to a competitor's product or service or vice versa. Not only dollars but training,
down-time, etc.

Today we talk about Intellectual Property, which is broader than patents, and whether
we have proprietary control of it or not. There are many ways to control Intellectual
Property, including BTE and SC.

Patents, as Fisher says, are both a boon and a bust. Boon for new companies with a
speciality product to offer and a bust for large drug companies when they are retired
early, e.g., ask Eli Lilly.

Proprietary control is the first key to differentiate a Gorilla from a King, in GG
investing. RM uses patents and Intellectual Property, particularly in Bio-Tech.

12. Does the company have a short-range or long-range outlook in regard to profits?

Pending (but I think of it as the anti-flow) <ggg>

Point 13: In the forseeable future will the growth of the company require
sufficient equity financing so that the larger number of shares then out standing
will largely cancel the existing shareholders benefit from this anticipated

IMO (I'm never humble) Fisher is really taking about the Cash King Margin to quantify
this point.

As fisher states: what really matters is whether the company's cash plus further
borrowing ability is sufficient to take care of the capital needed to exploit the
prospects of the next several years. The question is does the company have enough
cash (and credit) to expand and grow? If it doesn't and it has to sell more shares (equity
financing) then the value of existing shares declines (or fails to increase).
Fisher lays the
blame on not having sufficient cash squarely on management and he's probably right. (Cruncher)

My take on FP13 is that Cash is Prince (or perhaps a Knight at the 15-sided table),
and Management is King. (mlc)

FP #14. Does management talk freely to investors about its affairs when things
are going well but "clam up" when troubles and disappointments occur?

I suggest 1) this question is self-explanatory and 2) the last sentence in this point In any
event, the investor will do well to exclude from investment any company that
withholds or tires to hide bad news. clears up any thoughts on this issue.

Even in the best run companies, plans don't always work out and as the saying goes
"Stuff happens". Get over it, tells us what you tried to do, honestly report your mistakes
- only people who never try to do anything are mistake free - and explain how you plan
move on.

The steps I use to help make my determination on this point include 1) scanning selected
trade magazines, 2) participating on selected discussion boards, 3) reading TMF
interviews of CEO/CFOs, and 4) listening to selected Conference Calls (CC).

Using the last item; I can listen for pauses, throat clearing, and potential evasion of tough
questions by analysts. I have chosen to use BestCalls at to do this.
They will notify you by e-mail on each CC and it is recorded, so if you are busy, you
can listen to it later. There may be other sources whereby you can accomplish the same

If they try to hide bad news, what else might they try to hide - bad accounting

I don't think this directly crosses to an RM criteria; but it certainly does cross to "getting
to know Your investment" criteria, whether RM, RB, Boring, etc. (Harold)

Bill Mann discusses FP14:

Any investment may still be considered interesting if it falls down on almost any
one of the fifteen points which have now been covered, but rates an unusually
high score in regard to all the rest. Regardless of how high the rating the rating
may be in all other matters, however, if there is a serious question of the lack of
strong management sense of trusteeship for stockholders, the investor should
never seriously consider participating in such an enterprise.

So, it's time to concentrate on your breathing, focus, and ask:

Point 15. Does the company have a management of unquestionable integrity?

The management of a company is always far closer to its assets than is the
stockholder. Without breaking any laws, the number of ways in which
those in control can benefit themselves and their families at the expense of
the ordinary stockholder is almost infinite.

Let us count the ways:

Fisher brings up three main points of scrutiny:

1. One way is to put themselves - to say nothing of their relatives or in-laws -- on
the payroll at salaries far above the normal worth of the work performed.

2. Another is to own properties they sell or rent to the corporation at above
market rates. Among smaller corporations this is sometimes hard to detect, since
controlling families or key officers at times buy and lease real estate to such
companies, not for purposes of unfair gain but in a sincere desire to free limited
working capital for other corporate purposes.


3 Probably most costly of all to the investor is the abuse by insiders of their
power of issuing common stock options. They can pervert this legitimate method
of compensating able management by issuing to themselves amounts of stock far
beyond what an unbiased outsider might judge to represent a fair reward for
services performed

I would venture that 1 & 2 are less critical today, due to SEC regulations and disclosure
policies -Please correct me if I'm wrong. #3 sounds like it might be worth considerable
discussion, but I can't begin to say what represents a fair reward. Please help.

While the information age has probably diminished some of Fisher's concerns, I think
there are other topics which we should discuss:

Insider Trading. I know it shouldn't happen in this day & age:

Corporate directors, company officers and their relatives must file with the SEC
they buy or sell shares of their company's stock. Misstatements ``constitute
criminal violations,' according to the SEC's Form 144, which officers file to
record trading
in their company's shares.

But check this out:

Latham, New York, May 23 (Bloomberg) -- Four Plug Power Inc.
executives told the Securities and Exchange Commission they plan to sell
140,000 shares of their company's stock. They forgot to mention that they
work for the New York-based fuel-cell developer.

I think we can all agree that this is bad. But what about "creative accounting"?

How do we feel about this?

Cooking the Books
How Clever Accounting Techniques are Used to
Make Internet Millionaires

By Robert X. Cringely

I'd like to second what aikona stated:

I say, if your investigations result in a bad smell, it is not
necessary to prove the source of the smell.

but add that Fisher would insist that you use your own nose. My recent experience as a
LHSP shareholder has made me a believer in internet (particularly TMF Discussion
Board) scuttlebutt, as my sense of smell does not allow an adequate personal
assessment of this Belgium based company.

and, live from Antwerp:


Integrity is defined as: Rigid adherence to a code or standard or values: probity. 2. The
state of being unimpaired: soundness. 3. The quality or condition of being whole or
undivided; completeness.

BTW, probity is defined as complete and confirmed integrity; uprightness.

David Gardner on Management
I seem to remember hearing the Gardner brothers discuss what they like in a CEO. One
of the qualities I particularly remember was that they felt they should have a sense of
humor. And I found this reference in Lesson 4 from the RB seminar with David
Gardner. It is entitled "Buy Yourself"

Your mileage will certainly vary, but I'll share a few things I like about me and
that I look for in my managers. I'm an entrepreneur who loves risk. In addition, I
try to call spades, spades, and diamonds, diamonds. (And I like to open two clubs.)
And our Motley Fool Incorporated core value of uncompromising honesty means
that I try my best to admit when I've screwed up. Another attribute I prize and
would like to max out is another Motley Fool core value: a relentless search for
better solutions. This means I'm going to change my ways if I find something
better. (Not that it's easy - and I don't claim to be particularly good at it.) Also, I
maintain a sense of humor through almost all situations in life. I said, "I
maintain," but this isn't a conscious decision - it's just who I am and how I
generally see things.

David Gardner goes on to say when he interviews CEOs on the Motley Fool radio
show that:

I make a point of trying to get to know them as people. I listen for honesty. I really
care about their senses of humor. (I believe, by the way, that these two things are
directly related. Several CEOs we've interviewed on the show have no sense of
humor - regrettably, I think, for their long-term shareholders.)

This is definitely Point 15 restated as a RB attribute. A Rule Breaker is managed and
backed by outstanding people, those whom we admire and wish ourselves to emulate.

CEOs on Moneyline
For the sake of this discussion, could we focus on the CEO's? I'm sure Fisher is
referring to more than just the CEO of a company in Point 15, but when we use his 15
points to evaluate a company it seems logical to me that you would start with the CEO,
the leader of the company.

I have watched Moneyline on CNN for the last couple of nights. The first night they
interviewed the CEO, Henry Nicholas III, of Broadcom (BRCM), and the 2nd night
they interviewed Jozef Straus, the CEO of JDS Uniphase. Talk about a contrast in
CEO's. The CEO for Broadcom, Henry Nicholas III, talked about how individuals are
assigned to decisions and take responsibility for their decisions. The jest of the
discussion left us thankful we didn't work for him. He left us with the impression that the
individuals who worked for him got credit for their good decisions, but make bad
decisions -Ouch! Maybe they should keep their resume up to date. Henry Nicholas III
also talked about getting an average of four hours of sleep every night, and the people
who worked for him, including his trainer could find themselves on call 24 hours a day.
If he needed them at 4 a.m. they were expected to be at work. The CEO of JDSU was
really quite interesting. Some of his management strategy came from the kids book "
The Little Prince", now I'm not real familiar with this book, so I hope I got that right. But
in the book, the little prince is on a planet and protects a certain little flower from harm.
Part of this involves cleaning out volcanoes, which was the example Jozef Straus used.
He related this to protecting his business (the little flower), by cleaning out volcanoes.
Anyway, he saw his business as the flower and its threats as the volcano (I hope this
makes sense). We found it amusing and interesting that he like to send flowers to his
competitors. One example they cited was a company JDSU eventually acquired. He
sent flowers to the company when they went public. Actually, I wonder if his
competitors welcome his flowers? In conclusion, they are both CEO's with successful
business styles, so which one is best for the investor? Personally, I liked Jozef Straus the
best, but I could understand where others would admire Henry Nicholas' III style.
(They did comment that he was known as Nick at BRCM.)

Just for Fun!
Given one of the latest threads on this board, I decided to have a little fun with this post.
And it is an opportunity to recycle an old post that isn't going to be available after Sept.
8th. (I believe that's today, right?)

At the beginning of the last seminar, when we were trying to decide whether we were
Rookies or Veterans, we initially had some fun and posted to both the QEII board and
the Julius Caesar board. We ended up on the QEII board and our plans to keep track
of two boards proved too ambitious. Our first post to the Julius Caesar board was an
attempt to have some fun with our board name and how Julius Caesar was a RM.
We found and article about Julius Caesar entitled, "Hero or Villain?

Clearly Julius Caesar has all the qualities of a Rule Maker and this site got us thinking
about Julius Caesar the "rule maker" about whom they are asking the question is he
"Hero or Villain"

We would like to propose that there should be a Rule Maker, Step 12: Hero or Villain.
As we read the article on this site we found ourselves doing some word association with
Hero or Villain. What is the first thing that pops into your mind? Hmmm....Hero or
Villain? How about Bill Gates and Microsoft. Is Bill Gates "Hero or Villain? And isn't
this a Rule Maker quality. Doesn't the true Rule Maker Company have both qualities?
Your true Rule Maker has a big following of fans that have followed the companies over
the years as it grown and the true Rule Maker has stepped on many toes to get to
where it is today.

(The next part sort of applies to the integrity of management and their decisions.)

A couple more cases for your consideration:
How about Coca-Cola, don't they "love to get the world to sing in perfect harmony,"
and convince us to drink gallons of that syrupy liquid they manufacture. Is that stuff good
for us? Or how about Disney. We all love Disney, right? Unless they get in a little battle
with Time Warner and take our favorite TV show off and punish us for a disagreement
they are having with Time Warner. We love to hate these guys. And we are sure that
you could come up with many more, like what about Oracle in Microsoft's garbage?

Based on this we propose there should be a RM Step 12: Hero or Villain!


In Conclusion
And now I ask how do these companies measure up to Fisher's Point 15. I really think
we could have more fun with this one. It is very hard to evaluate the management of
most of these companies and could leave us frustrated. How much can you learn about
a company's management from the 15-minute interviews with a CEO on CNN etc?
Those tend to be the longer interviews, I have come across interviews on Public TV that
is far more enlightening but generally they are hard to find. (BTW, it appears Moneyline
is interviewing CEOs on a nightly basis. It is on from 6:30 to 7:30 eastern time on

IMHO, I didn't find good RM support for Point 15, but it is definitely a Rule Breaker
attribute. But should we feel we can't do the necessary research on a company, to make
a well inform decision and learn enough about the CEOs and the management of the
companies we decide to invest in? David Gardner also assures us that with a half hour
of time spent on the Internet or time spent on the TMF boards we can easily research
his RB attribute. That is finding a company, managed and backed by outstanding
people, those whom we admire and wish ourselves to emulate. I do find the
Gardner brothers more reassuring than Fisher; of course they have the Internet to work
with in their analysis. Fisher continues to leave me feeling that researching companies is
an impossible task for the average individual.

I also submit that, any CEO that measures up to Fisher's Point 15 should after they are
tired of making more money than they can ever spend, and are looking for something
else to add to their resume, consider running for President.

And as we ended our post on the Julius Caesar board,

Just for Fun
Ready to start some seriously foolish studying,
(& have some foolish fun)

Mayacourt -Mary, (with some help from my other half)

So, now everybody back in the water!!

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