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I said in my previous post that I would give investment guidelines separately, so I am following through. This was longer than I intended, so I have split it into two parts for your convenience. The first part explains why knowledge and personal guidelines are necessary to our financial health; in the second part I share my own guidelines.

TMF Changes Direction

On July 2, The Wall Street Journal featured The Motley Fool in a searing examination by staff reporter Ianthe Jeanne Dugan of Foolish practices and TMF's change in direction and philosophy under the headline "Followers of the Motley Fool Are Suffering, and Not Gladly". As pointed out in the WSJ article, the economic downturn has forced two layoffs at Fool Headquarters, reducing TMF staff to less than half of what it was in February and battered model Fool portfolios. Back testing has discredited the Rule Maker Portfolio and convinced TMF to abandon the previously touted "Foolish Four".

According to Dugan, "[U]nder pressure to go public and boost profit, the iconoclastic company last year hired a chief executive -- Coca-Cola Co. veteran Patrick Garner." TMF's new CEO said that The Motley Fool has to become a "safe-harbor brand", " Somewhere north of financial media and south of financial services."

Motley Fool's new direction symbolizes a broader decline of the very culture it spawned. People who made a fortune in the bull market by following each other like lemmings are realizing that it works in reverse in a bear market, and are now racing into index funds and to professionals.

This past year I have been involved in the education of thousands of investors through The Motley Fool's seminars. When I was first invited to become a leader, I made it clear that I was an independent thinker and would not present or endorse anything I didn't believe in. I've tried to convince participants never to follow blindly even well meaning advice and tips of friends, professionals or TMF.

Inadequate Research Affects Investors

The consequences of inadequate research have been the focus of news reports this week, such as the following from the WSJ article today by Staff Reporter Joann S. Lublin:

"Dunlap Disclosure May Prompt Change
In Way Recruiters Do Background Checks"

The executive-search industry is in an uproar over this week's disclosure that Albert J. Dunlap, the fired chairman and chief executive of Sunbeam Corp., also was axed from two prior jobs -- and that the two major search firms checking his employment history never uncovered those dismissals.

On NPR yesterday one of the major headhunters (executive recruiters) said that probably 70% of the major companies rely entirely on recruiters to check candidates' backgrounds. Yet in this article a recruiter from the firm Sunbeam depended on said, "based on information supplied by Mr. Dunlap and his references, there were no indications 'of any irregularities in his conduct as an executive and therefore, no reason to believe that further investigation was necessary.' "

Preparing her article, Lublin found, "Several other recruiters said pressure to complete assignments quickly and protect the identities of the hottest prospects sometimes prevent exhaustive employment-history checks."

Awareness Reduces Risk

As a Seminar Leader for the "Quest for Rule Breakers 2001", I gave my team the following caution, utilizing information from tracking the candidates from the first Rule Breaker Seminar: ": ***Proceed with Caution*** (

Keep in mind that when you choose Rule Breaker candidates, you have to think FUTURE, not present. So lest you were planning to invest your life's savings in Rule Breakers identified during this Seminar and make a killing in the Market, you need to understand that all Rule Breakers are RISKS, not for the faint of heart. Only a fool (little "f") would pour essential income into such a risky venture.

Many people are hesitant to risk even discretionary income when companies offer little or no tangible reward for a few years, especially given the present market conditions. It's difficult to hold on when the market is playing havoc with our portfolios. And watching companies [such as American Superconductor] that haven't attained profitability struggle to keep their heads above water can really shake confidence in Rule Breaker candidates.

Yet for those of you with discretionary income you are willing to gamble (and willing to lose), the potential rewards far outweigh the risks, providing you can hold on through the ups and downs, not succumb to the well meaning warnings and advice of others and average down on the dips to improve your position. You can't just invest in these stocks and forget about them for years, waiting for them to make you rich. Rule Breakers are usually pretty volatile, so you have to be vigilant and continually evaluate them…"

Evaluation Requires Perspective

I've bolded that the part about buying on dips because it is germane to the recent discussion on this board about timing your buying. A year ago last March, while researching American Superconductor during that first RB Seminar, I expressed my gratitude for the level headed advice and expertise of those who contributed to this AMSC Discussion Board:

"I was ecstatic to find this board and links for even more research on the company and on Yurek. I know we bought AMSC thinking it would not move for a few years, but we have already gained over 350%, even if it drops back a little below 50. And we have no intention of selling for a long, long time."

Not only has AMSC dropped way below the "50" mark I set arbitrarily when the techs were flying high, but it has fallen more than anyone who believed in the company thought it ever would. So why am I still holding stock in a company that has done so miserably since then, particularly getting off track and badly missing production targets this year?

Maybe because while economic conditions are so uncertain and the Market is in such turmoil, it's difficult to evaluate and predict what will happen to any company. Or maybe because I don't want to believe that American Superconductor will fail to realize its potential because of too many missteps. Or maybe because when I put what's happening in perspective, the naysayers aren't so convincing. What is clear is that it is important to stay actively involved and not be caught off guard.


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