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Well, Team, are you ready to proceed?

It's obvious that the investment knowledge and experience on this team runs the full gamut--from little or none to seasoned investors and financial advisers. And that is an exciting mix for some great team discussions.

Look for Important, Emerging Industries

In Lesson 1 you were asked to suggest industries or companies you think might be Rule Breakers for the team to consider. In the next few lessons we will be concentrating on identifying emerging industries that will be the wave of the future and the leading companies (Top Dogs) within those industries.

We're counting on team members already familiar with RB criteria, including members of TMF Staff and Leadership Teams, past and present, to help us weed out the ones that obviously won't qualify and explain why. Then as we progress through the lessons, the team will begin to narrow the candidates for Rule Breakers and eventually vote on 5 to submit as our team's choices.

Evaluate and Reevaluate

This is almost déjà vu. And since I was where some of you novices are a year ago, I thought it might be interesting for you to see what has happened to the final choices my RB Team made at the end of that seminar. 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 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 against the RB criteria you will learn in the next few weeks.

Gain Perspective through Tracking

Even after you are convinced you've identified the next Rule Breaker, I suggest you set up a Dummy Portfolio (really easy through the Fool) and track it before you invest. For curiosity's sake (I warned you I'm part feline!) I've been tracking the top 6 choices made by our Rule Breaker team at the end of the first RB Seminar for almost a year now with a hypothetical initial investment in each of close to $1000 for a total of $5742.00. Of the 50 lists submitted from 20,000 participants, 39 teams chose Ballard - BLDP (#1 for Seminar); 15 chose Lernout and Hauspie - LHSP (#2 for Seminar); 7 chose PLUG Power - PLUG; 3 chose Redback - RBAK; 1 (our team) chose Juniper - JNPR and American Superconductor - AMSC.

To illustrate the roller coaster these stocks have been on lately, on January 10 this portfolio was worth $1868.00; today when I checked it had a value of $2212.25 for a return on the investment of –41.14% and an annualized return of –64.08%. Here are the numbers at the closing bell today.
 # of Shares  Price 3/17   Cost Price 12/30   Price 1/10  Price 1/17  Current Value
AMSC 24 40.50 $972 22 3/4 27 3/4 34 7/8 $825.00
BLDP 10 95.50 $955 69 1/8 68 1/2 70 1/4 $702.00
JNPR 4 237.50 $950 124 7/8 136 136 3/16 $544.75
LHSP 8 118.25 $946 Declared Bankruptcy 9/29
PLUG 8 121.00 $968 11 13/16 19 7/8 27 $216.00
RBAK 3 317.00 $951 69 13/16 52 3/4 48 9/16 $145.69

We presently hold positions in 2 of the seminar choices above, AMSC and BLDP, since LHSP bit the dust. My husband first discovered, researched and bought into AMSC at 11+ in 1998 (before I knew what a portfolio was), when it was a little-known company in an emerging industry. I evaluated it against the RB criteria presented in our lessons and convinced my team it was a viable RB candidate . I bought BLDP as a result of our team's research, after tracking it for a few months. We have bought on dips and averaged down whenever possible on AMSC, so our personal portfolio has a longterm gain for American Superconductor of 204.26%, but on BLDP of –17.12%. Our portfolio is heavy on RB's, which flies in the face of both Wise and Foolish advice. While down considerably from its 52-week high, it still shows an annualized return of 152.97%.

I've also been tracking the 6 candidates proposed for study during the Rule Maker Seminar by a process of elimination, voted on by The Motley Fool readers. The numbers aren't quite so brutal, but if you had invested approximately $2000 in each on July 18, 2000, for a total of $11,975.94, your investment would now be worth $7792.94, for a total % return on the investment of –34.93% and an annualized return of –57.56% As of today, the top choice of the seminar, Cisco (CSCO) has lost 43.43% since it was selected; whereas the last choice, Disney (DIS), has lost only 4.75%. The greatest loss was for Yahoo (YHOO), currently -77.25%, with Oracle (ORCL) second at -56.76%, Amgen (AMGN) at -17.95% and EMC Corp (EMC) at –9.38%.

Narrow Risks through DD

Having been involved in the Rule Breaker, Rule Maker and Biotech Seminars, I am convinced that Biotech is the wave of the future. Investors who examine the emerging industries, select the right companies in that sector now and are prepared to hold on for 5-10 years through R&D (Research and Development) will make a killing. But with all the clinical trials, unpredictable long-term side effects of new drugs, legal battles about patent infringement, patent expirations, etc., not to mention the astronomical costs required to bring product to market, few will survive and actually be profitable. The possibilities are exciting, if you're willing to gamble. But then, isn't that what investing usually is all about?

Watching what is happening to companies considered "sure winners" when we took those seminars, I am more convinced than ever of the absolute necessity of thorough and continual DD (Due Diligence). (Even if you are familiar with the term "due diligence", it is interesting and instructive to read this legal definition:

Look Past the Hype

After pretty intense DD on numerous companies for the last 3 seminars and for IPO's (Initial Public Offerings) we could buy into, I have concluded that all the MI screens, formulas, rules, numerical criteria, etc. are no substitute for common sense and solid DD, based on extensive personal research, not someone else's recommendations and/or interpretations of financial information.

No matter how fantastic something sounds, if I don't really believe in it, I won't put my money into it! But I am in no position to know whether I should believe in a company or not until I have researched it to the best of my ability by examining and questioning every aspect of its vision, leadership, financial backing and viability, potential for growth, strategic alliances and sustainable advantage. Not coincidentally, those are all basically Rule Breaker criteria we were taught to use during that first seminar.

Don't underestimate the contributions of seminars in helping you to find and interpret the best and most informative sources and get the most out of your research. The criteria presented in the Rule Breaker Seminar Lessons, combined with the knowledge and research tools TMF provides, are fundamental to both the Rule Breaker and Rule Maker investing strategies.

Expand Learning Opportunities through Participation

You know, I'm beginning to sound like an advertisement for Foolish seminars. That's pretty weird, since I've made no secret of questioning some key points in each Foolish investment strategy. But to give credit where credit is due, I wouldn't have gotten interested in investing to begin with if I hadn't signed up for that first seminar a year ago. Each time I am involved in a seminar I learn as much or more from my team members as from the lessons. I can already see that this will one will be

I encourage each of you to develop your own investment philosophy and evaluate various strategies, learning from as many sources as possible. And the best way to do that in our Quest for Rule Breakers 2001 is to read the lessons, do the assignments, join in the discussions and don't be afraid to ask questions and express your point of view and informed opinion. That's how you will gain maximum benefits from this seminar experience.

Ready to Proceed with Caution,

Judy $:-D
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