The Motley Fool Investment Guide: Third Edition: How the Fools Beat Wall Street's Wise Men and How You Can Too (An Investment Guide for Beginners) - Softcover

Über die Autorinnen und Autoren

Tom Gardner learned from his father how to invest, and with his brother, David, started The Motley Fool in 1993 with a mission to educate, amuse, and enrich. Today, the Fool works to empower individual investors, reaching millions every month through its website, premium services, podcasts, radio show, newspaper column, and more. With David they have coauthored several books, including You Have More Than You Think, Rule Breakers, Rule Makers, and The Motley Fool Investment Guide for Teens.

David Gardner learned from his father how to invest, and with his brother, Tom, started The Motley Fool in 1993 with a mission to educate, amuse, and enrich. Today, the Fool works to empower individual investors, reaching millions every month through its website, premium services, podcasts, radio show, newspaper column, and more. With Tom they have coauthored several books, including You Have More Than You Think, Rule Breakers, Rule Makers, and The Motley Fool Investment Guide for Teens.

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The Motley Fool Investment Guide: Third Edition

1

“FOOL”?

Take heed . . . The wise may be instructed by a fool . . . You know how by the advice and counsel and prediction of fools, many kings, princes, states, and commonwealths have been preserved, several battles gained, and divers doubts of a most perplexed intricacy resolved.

—Rabelais

The world has changed dramatically since The Motley Fool began its quest to help the world invest better in 1993. Today’s individual investor is armed with more information and greater—and cheaper!—access to the markets than ever before. Today, we can find a stock idea, research it online, and buy shares, all in a matter of mere moments . . . not that we think you should.

But much remains the same. Investing in individual equities remains the truest path to lasting wealth. Many Wall Street brokers will argue to their last breath that you can’t do it on your own. But we have clear evidence—now with a track record that spans more than twenty years—that individual investors can beat the market . . . so long as they can overcome a few key behavioral barriers.

And yes, we’re still answering questions about the name we chose for our company. So let’s start there.

Fool?

That’s certainly not a very wise choice for a name when you’re trying to ply your trade in the investment world. For decades, financial professionals have done their best to sell customers on their Wisdom. Whether it’s the pinstripe suit, the knowing smile, or the self-satisfied advertising slogan (one company referred to itself as “Rock Solid, Market Wise”), your typical broker, money manager, or financial planner has striven for an image of success, intelligence, experience, respectability—in a word, Wisdom.

And for decades, they’ve been making a fair amount of money off of fools. You know about fools. You might even have been one yourself at some point. Ever bought a stock on your dentist’s recommendation with only a vague understanding of the company’s business model? Or have you plunked down your money for shares of an under-the-radar business because an email in your inbox breathlessly proclaimed it a “can’t miss opportunity . . . bound to double from $0.04 to $0.08 because of CAN’T-MISS catalysts?” How very foolish of you. Or what about the time you snapped up shares of the International Dashed Hopes Load Fund just because your broker said it was the top performer in its category last year? Terribly, terribly foolish.

And the financial establishment thanks you.

Fortunately, you don’t need to be the one who provides the funds for other people’s dreams. It’s possible—now more than ever—to make informed, intelligent decisions that will help you make the most of your financial future.

The Wall Street Wise would have you believe that “A Fool and his money are soon parted”—we get that a lot. But in a world where more than eight out of every ten mutual fund managers lose to the market averages, year in and year out, how Wise should you aspire to be? In what other realms could such a paradox exist: that the paid professional can do no better than—in fact, cannot even do as well as—dumb luck?

And yet, in few other arenas are the trappings of the profession so enmeshed with the job itself—massive desks, expensive suits, gold cufflinks, precision watches. You be the judge of whether those accoutrements are designed to impress, intimidate, or overcompensate for their underperformance.

And that got us to thinking, working out of a far-from-glamorous 12-by-8-foot backyard shed all those years ago, that we should just go ahead and call ourselves Fools, since our attitude and approach to life were so radically different from what was being passed off as Wisdom all around us.

So we launched the very earliest iteration of The Motley Fool, taking the name from (an admittedly nondescript quotation from) Shakespeare’s As You Like It: “A fool, a fool! I met a fool i’ the forest, a motley fool.”

We’d always loved Shakespeare’s Fools: they amused as they instructed and were the only members of society who could tell the truth to the king or queen without having their heads lopped off. The Motley Fool began as a monthly newsletter distributed to a very . . . let’s call it “exclusive” membership base. The printed newsletter soon transformed into a daily feature in the early days of America Online, when users paid by the minute they spent in our community. From those humble beginnings, the Fool has become one of the premier financial destinations online, with millions of investors reading our free analysis and advice, conversing in our community, participating in our stock-picking game, and performing their research in pursuit of winning stocks. The Fool now offers a suite of premium services catered to different investing styles, mutual funds that follow our Foolish tenets, and even a wealth-management business for those who love our style and advice but want to leave the heavy lifting to someone else. And The Motley Fool continues to seek new avenues to achieve its mission: to help the world invest . . . better.

Our goal was and is very simple: beat the market and show others how to do it—whether that’s a teenager deciding how to invest the proceeds from her summer lawn-mowing business or a savvy, seasoned investor who wants to profit from advanced options trades. In our decades pursuing this goal, we’ve enabled millions of people to invest their own money—without the help of Armani suits—and set a course to the financial future they seek.

Our approach is best characterized by our general disinterest in, and mild disdain for, conventional wisdom. For example, the Wise will encourage you to invest your money in loaded mutual funds. (This “double dip” enables them to charge you for that advice and then charge you on an annual basis for the funds’ management fees.) We, on the other hand, are telling you to buy stocks. They might tell you, “All right, take on that risk of stocks, but only buy the very safest ones.” Or, alternatively, some brokers will try to sell you a collection of rinky-dink shares of penny stocks, dubious entities with an even more dubious likelihood of ever paying off. And many brokers, once you’ve entrusted them with your savings, will quietly rotate you into and out of investment vehicles, maximizing their transaction fees . . . but not your profits.

We want you to buy shares of great companies, sprinkle some more volatile growth stocks in with an array of blue chips, and skip the penny stocks altogether. Then hold those stocks for the long haul—think decades, not days. We espouse this approach for one simple reason: it works. Going back through history, you’ll see that the stock market is pretty close to a sure thing, if you have the proper timeline (no day trading!) and temperament (no panicking!). From 1871 through 2012, holding periods of a single day were essentially a coin flip—52 percent of those days earned positive returns. But investors with longer horizons fared much, much better. Eighty-eight percent of ten-year holding periods were positive, and (this is not a typo) 100 percent of twenty-year and thirty-year holding periods made money. In pretty much any comparison between...