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Author: TMFOtter Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1359  
Subject: Re: re 3rd QTR report Date: 11/27/2002 9:28 PM
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Susan --

I'm not sure what you think you'd get kicked off for, everything in your post was completely fair.

Unfortunately, I'm not sure what it is that you want us to do about the Fool 50, nor do I think that your characterization shows understanding as to what the Fool 50 is. Yes, it's fallen quite far from the time we launched it. So what?

IT'S AN INDEX.

Is there something that says that an index is supposed to outperform other things? No -- it's supposed to measure something. In this case we sought to measure industries that are among the most dynamic in the world by taking representative companies. The Fool 50 was launched in January 2000, near the absolute height of the insanity.

It is not the purpose of the index to judge, it is the purpose to measure. Therefore, when constituting an index, one does not consider valuation when originally identifying companies. Why would you?

One does not consider beta, or any other measure of volatility, unless of course the goal of the index is to measure said volatility somehow. This one is not.

One does not consider weightings on an individual equity basis. Once the weighting forumla is set, the constituent companies float on their own. If the companies that become the largest in the index all happen to come from the same industry, well that's how it is. You do not make adjustments simply to make the INDEX act in a way to outperform. That's not an index, it's a portfolio. There is a massive difference between the two.

Many of the industries that we are measuring are down badly -- telecom, banking, ecommerce, even energy. Thus, the Fool 50 is down as well. I ask you this: what in the world is wrong with that? OF COURSE it's going to be down.

You're throwing around terms like "disaster" and "intellectual sin". Maybe you should consider in advance what it is the Fool 50 was trying to achieve. "Outperformance of the other indices" ain't it. It never has been, it never will be. Since we took a group of companies in January 2000 and weighted them on their market caps irrespective of whether or not those market caps were realistic, well, that's what we started with. Given what's happened in the interim, if the Fool 50 were any place else I'd be calling it a failure, even if it were dramatically higher.

Does the Fool 50 have flaws? Yep, it does. Do those flaws have ANYTHING to do with the fact that it's down 45% in three years? They do not.

Thanks for your comments and interest-
Bill Mann
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