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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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