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I've been a regular reader of the Motley Fool and the rulemaker port for more than 2 years. Like many others, much of my thinking about investing can be traced back to things I've learned or heard about at www.fool.com.

But I'm puzzled by the recent Rulemaker purchase of JNJ. And I'm disheartened and frustrated by TMFVerve's shoddy, perfunctory defense of it on the message boards.

There are several points and observations worth making about his post.


1) In response to TMFTribe's categorization (based on analysis he shared with the community) of JNJ as a third-tier rulemaker, TMFVerve writes:

"I definitely don't think J&J is a third-tier Maker. That's an aberration created by the fact that almost every company in the pharma space is a first-tier Maker."

But this is sloppy and essentially hollow--it skirts TMFTribe's carefully documented criticism of the purchase instead of answering it. Moreover, to say that "almost every company in the pharma space is a first-tier Maker" goes directly against core values of Rulemaking investing (at least as I understand it): How can "almost every company" in a given industry Make The Rules???

Now, maybe TMFVerve means that many Pharma companies are the dominant players in their particular niches, or that many meet the rulemaking quantitative criteria. I don't know. But as one of the port's managers, he OWES it to the community--whether the Fool is profitable or not, whether there are other demands on his time or not--to Make Himself Clear and let his thinking be known. Otherwise there is no point in having a teaching portfolio at all--the Rulemakers might as well just issue "Buy" recommendations that us readers can take or reject on faith. (Starting to sounds awfully WISE, doesn't it?)


2) Consider the second half of TMFVerve's defense of the JNJ purchase:

"The reason why J&J gets pegged as a third-tier company is because its consumer products division has lower margins than the pharma pure plays like Pfizer and Schering. This doesn't mean, however, that J&J is a lesser company!"

Again, TMFVerve explains away a potential criticism rather than responding to it head-on: he shrugs off the relevance of JNJ's lower ranking in light of the fact that it stems from "lower margins." But that's nonsense from a rulemaker perspective. Because high margins are part of what it MEANS to be a rulemaker.

To better illustrate what I'm saying, consider replacing his words as with some parallel language:

"The reason why Marcus Camby gets pegged as a third-tier center is because he grabs fewer rebounds than pure centers like O'Neal and Mutombo. This doesn't mean, however, that Camby is a lesser center!"

(I don't know if the facts regarding rebounds are true.)

Now, this line of reasoning is obviously deeply flawed, because grabbing rebounds is a critical INGREDIENT in BEING a strong center. And the same is true of margins and rulemakers.

Now, again, it's possible that there is some further fact--some distinguishing feature of JNJ (and Camby, for that matter) that makes it a superior, Rule Making company. But if the rulemaker port is to remain a teaching port, the managers need to give us a better sense of what that distinguishing feature of JNJ is.

3) Finally, and most important, TMFVerve sidesteps Lleweilun Smith's simple question as to why there was no "buy report" before the JNJ purchase. In doing this, he avoids having to take on the string of criticisms that have been made in recent days about what it means to be a teaching portfolio when the teachers don't share their thinking with the students.

The Fool seems to be having a tough time these days with the balance between being useful to its member and finding a way to be a profitable enterprise, and that's only understandable. But I think it's important for the RM managers to remember that what made the Fool great in the first place--and what keeps it fun and informative today--is that it has always been an honest, open, good faith Community of Ideas. Let's hope it stays that way.

(Incidentally, I have a long position in JNJ and plan to add shares in the coming months. It's a great company--no doubt. I just have doubts about its being a rulemaker.)

Thanks for reading,
cashmere
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