THE CUTTING EDGE: COMPUTING / TECHNOLOGY / INNOVATION : Motley Fool and His Money Are Soon Having Fun Making More

By DAN AKST

Sept. 13, 1995 12 AM PT

My friend Mark, no fool in most walks of life, was in an awfully good mood the last time we had lunch. Shouting over the din--and a table of marinated pork, garlic chicken, black beans and plantains--he told me how he was making money following the investment advice of the Motley Fool.

Aside from Cuban food, making money is one of my favorite things, so I recently spent some time capering with the Motley Fool. I can’t say for sure that it’s any way to get rich, but it’s certainly more fun with a modem than almost anything else I can think of. The Motley Fool, in fact, is one of the best uses of this new medium.

The Motley Fool is a sort of investment club on America Online, reachable by using the keyword motley. Founded by the brothers Gardner (Thomas is an ex-business professor, David a former business journalist), the Motley Fool started life as a newsletter, but was soon subsumed by the on-line world. The court jester serves as what they used to call in English class “the controlling metaphor.”

The Gardners “like to think of Folly Online as a many-storied library, but one where you can make as much polite noise as you like, with no limits on fun. Picture yourself surrounded by bell-capped jesters punching madly at calculators, leaning over dusty atlases in the balcony above, huddled here and there in small groups conjecturing, or lurking about the dark carrels beneath the tower. . . .”

Understand that foolish in this context means good. Thus, really well-reasoned and researched investment ideas are considered foolish, and there is a whole set of foolish principles that governs life with the Motley Fool.

The result is an unusually imaginative, informative and, yes, interactive experience that has proven profitable both for the Gardners and their on-line fans. The brothers make money by providing one of the most popular services on America Online, which gives them a portion of the revenue generated by the time Motley Fool users spend in that area of AOL.

Fans of the Fool have profited by following the Gardners’ investment system, which has trounced the Standard & Poor’s 500 and Nasdaq market indexes ever since the Fool’s on-line antics commenced about a year ago.

The Motley Fool makes ideal use of the on-line medium, and with a fast modem and version 2.5 of AOL’s software, visiting with the Fool is a pleasure. The Gardners and their helpers do a fine job of cooking up contests and providing well-written guidance. AOL users also provide a wealth of information and stand ready to answer questions from other users. There is even a Foolish chat schedule.

One of the great things about the Fool is the way it balances seriousness of purpose with a sense of fun. For all the Foolishness, the Gardners trade with their own money, in public, in what’s known as the Fool Portfolio, and they post their performance every single day for all the world to see. They measure this performance in real terms, by the way, taking account of trading costs. And the Gardners announce every trade to fellow Fools in advance, so there can be no question of the brothers’ profiting by selling others on a stock they already own.

Foolish investors can also profit simply by keeping up with all those Foolish message boards, which is what forums are called on AOL. This is not the kind of place where you find idiotic postings blaring “MAKE MONEY FAST!!!” Instead, Foolish boards are filled with mostly reasonable discussion, debate and information about investing, thanks to the Foolish principles for posting, which warn against ignorant ranting and even insist on punctuation.

The Gardners have an interesting philosophy on investing: They believe in buying individual stocks rather than mutual funds, and they believe that even relatively small investors can profit by short-selling--that is, selling borrowed shares in the hope that you can replace them by buying them later at a lower price.

The brothers also believe in something called the Fool Ratio, which they explain as follows: “In a fully and fairly valued situation, a growth stock’s price-to-earnings ratio should equal the percentage of the growth rate of its company’s earnings per share.” Actually, they explain it at much greater length, which is why I won’t bother doing so here. Since the stock market has always risen over the long term, they also believe in staying fully invested.

Besides the opportunity to invest along with the Fool’s Portfolio, AOL users get the chance to participate in several Foolish games, including Port Folly, in which users can step into a medieval town, take up a trade and “cast your lot with one of the seaport’s eight Houses . . . which are actually investment portfolios.” A Noble in each house does all the stock picking, but there’s also a House of Commons, where stocks are chosen by voting, and a house run by the Village Idiot, who is wilier than he looks.

If you get bored with investing, there is some fun about football and movies as well, and if you really get caught up in the spirit, they’ll sell you a floppy jester’s cap on-line.

Daniel Akst can be reached at akstd@news.latimes.com. His World Wide Web page is at https://www.caprica.com/~akst

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Tipbox

With the Motley Fool, Thomas and David Gardner have proven that they can create an attractive on-line community, but they’ve also shown themselves to be pretty savvy investors; their Fool Portfolio is up 69% versus 25% for the Standard & Poor’s 500 since August, 1994. As of Friday, their portfolio held the following stocks:

America Online

Ride Inc.

Iomega

Sears

General Electric

Chevron

The Gap

KLA Instruments

Applied Materials

Sonic Solutions

Here’s how the Fool Portfolio has fared, as of Monday:

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