Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 3

Hello, David and Tom, and other participants in this discussion board:

Well, I've finally gotten around to reading RB/RM. I read your first book a few years ago, and RB/RM is as entertaining and educational as anything I expect from the Motley Fool.

That being said, I don't agree with everything you say. I thought it would be worthwhile to solicit discussion on some things in the book that I do question. I'll start with this:

David's treatise on the "art" of finding a true Rule Breaker and riding that stock to outstanding returns is quite cogent. However, I detect a fundamental inconsistency that sheds light on just how much risk there is in investing in Amazon.com, et al.

David's final criteria for identifying a Rule Breaker is that it will be prominently featured in the mainstream investment literature as "grossly overvalued". At another point, he mentions how "momentum traders" drive stocks like Amazon.com to unprecedented heights - the implication being that the price does not reflect fair valuation. I understand many Internet stocks are held for an average of only about 7 days - consistent with this observation.

Well, what's it going to be? Over the last few years, has Amazon.com been typically undervalued or overvalued? I find these statements from the book contradictory.

My concern is that the risks in investing in Rule Breaker stocks are understated in the book. The investment race is a marathon, not a sprint, and even a *long* early lead does not necessarily mean one will win the race. In ten or twenty years, will Amazon or AOL more resemble king-of-the-mountain Microsoft, or now-defunct Visicorp, one of the many casualties to Bill Gates?

RB/RM goes a long way toward giving an investor the tools to find tomorrow's Rule Maker in its infancy. It's the best road map I've seen yet to try some bold investments in today's stock market, and I'm looking forward to promoting and discussing many of your ideas in my (otherwise stodgy, NAIC-based) investment club. But I think it will be a long time before we know if you're right.

Tim Klepaczyk





Print the post Back To Top
No. of Recommendations: 0
Hi Tim,

I'd like to give you my own views on your post- I'm sure that others will be along later with theirs.

First of all, I'm not sure that the book does understate the risks, and certainly the Breaker portfolio reports on the site do not. Investing in companies that you hope will be the giants of the future will always involve risk, no matter what methods are used to find them. However, the market rewards the greater risks with greater returns, so if you can find a method to remove those who are risky but have little chance of success, you should be able to do better than average. That is what the Breaker portfolio is trying to do.

As far as the press calls of overvaluation, here are my thoughts. If you watch the financial media, you will see that it does move markets. A good example from the UK was a daily show called "Show Me the Money", where teams would make daily investment decisions, and CEOs would appear to "discuss" (erm, ramp?) their company. It was found that the companies that appeared would jump upon their appearance, and the "picked" stocks would sometimes double within minutes (I understand that the programme may be under investigation as a result, but I'm not certain). Given this tendency for lazy investors to jump on a bandwagon, if I want to improve my returns, I want to buy at a low price. Given that it fulfills the rest of the criteria, it is a company that is popular (seen by price rise). By looking for the Overvalued report, if this is satisfied there should have been a bit of a lemming sell-off, allowing me to buy in cheaper before normal service resumes.

Of course, I could be totally wrong here, I'm no expert.

I must say, though, for myself I'm still trying to get fully comfortable with the Breaker philosophy.

Lost
Print the post Back To Top
No. of Recommendations: 1
Tim,

One thing I hope you picked up clearly from the book: I don't believe many stocks GET significantly over- or undervalued. I believe most stocks are fairly valued. I think therefore that when the media begins to say something is overvalued -- particularly in a lemminglike fashion -- it is probably just "valued," and the media is scaring off people from investing in it, making it a good selection.

I do write that some people are momentum investors, but I don't recall the passage you've cited in quite the way you recall it. Perhaps you can quote verbatim what you're referring to. Again, I don't believe that even momentum investors necessarily are driving stocks to being "overvalued." My criticism of them is that they only look at price performance, and know little to nothing else about the company.

I believe for the most part that the market is "efficient" and that the prices you see out there are as fair as the price tags you find at your local Wal-Mart. For this reason, I reject purchasing stocks based on their "valuation."

Fool on,

David
Print the post Back To Top
No. of Recommendations: 0
Dear David Gardner,

I wonder if your defn. of momentum investor is the same one as mine.

A momentum investor should look at CHARTS, FUNDEMENTALS, AND NEWS. Ultimately charting using INDICATORS SUCH AS RSI, STOCHASTICS, MACD, will indicate when to move in and when to exit. Momentum trader is NOT A DAY TRADER neccessarily (often not). My defn. comes from Wealth Mastery - Anthony Robbins seminar. Robbins is a MASTER OF EMULATION AND EMULATES THE BEST in various fields, condenses the info. and disseminates it in his seminars.

If 33% at the most is invested (of one's assets in life) towards momentum - and not money that is urgently required- then (according to Tony's boys- chuck mellon and tom mccarthy and chris manning) one can create CASH FLOW. Another 33% should be in the Buy and Hold Box.

Alledgedly covered calling is a great strategy too- making 10% returns PER MONTH! Of course in all momentum trading there MUST be defensive strategies such as "stop losses" and/or selling PUTS (in covered calling). How to select such stocks for covered calling OR ANOTHER STRATEGY CALLED "CHANNELLING"? ONE should see those free websites... then research using telecharts and the indicators, to determine when to get in/ and out ... and make PROFITS within a few months.

Do you agree - or know much about these particular MOMENTUM STRATEGIES which are an emulation of Wade Cook's ways (so I hear)?

If you are going to give me grief on Wade Cook- pls. tell me something new- see my postings on the Fool Wade Cook board - trying to justify his existence!

Take care and Fool on!

Print the post Back To Top