• October 2011

It's the Economy, Stupid!

The economy: There’s little that small business owners think about more these days. And that makes me hark back to the iconic phrase, “It’s the economy, stupid!” which was the underlying message of Bill Clinton’s successful 1992 presidential campaign.

The phrase seems particularly timely this month, given the September Census Bureau report that the number of Americans in poverty jumped to 15.1 percent in 2010—the highest level since 1993. About 46.2 million people, or nearly one in six, are in poverty. That’s up from 43.6 million, or 14.3 percent, in 2009.

What’s an entrepreneur to do? For advice, we look to Tom Gardner, CEO of The Motley Fool, and our October Entrepreneur of the Month. Having been through several recessions, and rebounded to a position where he’s hiring at a surprising clip, Gardner provides us with insights and tips on what to do to hang tough in unsettling economic times.

Also this month: You’ll get great investment tips from LouAnn Lofton, author of Warren Buffett Invests Like a Girl—And Why You Should, Too.

And remember what Warren Buffett advises: “Be fearful when others are greedy, and greedy only when others are fearful.”

Here’s to your success!Hope Katz Gibbs, Be Inkandescent

Picking the Brain of the Head Motley Fool

CEO, The Motley Fool

By Hope Katz Gibbs
Be Inkandescent Magazine

How do you master the art and science of investing? That’s one of the many questions we asked Tom Gardner, CEO and co-founder of The Motley Fool, a multimedia financial-services company based in Alexandria, VA, which provides financial solutions for investors through various stock, investing, and personal-finance products.

“Use your brain, your emotions, and your personality,” says the leader of the 265-person firm that he and his brother, David, founded in 1993. “If you harness these ideals, your investment returns will lead you to financial freedom in the Foolish fields of opportunity. But if they harness you, close your eyes because the chili won’t stop hitting the fan.”

What he means, as eloquently expressed in the foreword to LouAnn Lofton’s 2011 book, Warren Buffett Invests Like a Girl—And You Should, Too, is this: “Don’t sell when you should be buying. Don’t believe what you should have doubted. Don’t shout while you should be learning. And don’t trade when you should be investing.”

A Foolish History

Those “words to the wise” embrace the Shakespearean concept of the “fool,” a jester dressed in motley that instructed, amused, and could speak the truth to the king—without getting his head lopped off. That approach to spreading the word about how to achieve investment success is the basis of the company that Gardner, then 25, and his brother David, then 23, came up with back in the 1993, shortly after graduating from college.

“Dad taught us how to invest when we were kids, and Dave caught the bug as a teenager, but it took me until I was an adult to see how fascinating investing could be,” says Gardner, now 45. Of course, starting their own company also enabled the brothers to avoid getting a day job. It worked like a charm. Within a year, their online newsletter had 300 subscribers and about a dozen advertisers, and became renowned for its early recommendations of stocks such as America Online (AOL) and Amazon.com.

Then, the boys got lucky. “We made fun of penny stocks, and that led to an article about us in The Wall Street Journal’s humor section,” Gardner recalls. “It ran in the lower corner of the second section of the paper. We thought it was pretty cool, but had no idea that it would set us on a new path.”

In fact, the article caught the attention of now billionaire Ted Leonsis. By August 1994, the Gardners had parlayed their one-year-old investment newsletter into a content partnership with the company where Leonsis was an executive: AOL.

Soon after, The Motley Fool was featured in a cover story for Fortune magazine (1996), about the emergence of online interactive discussion as a new form of investment research. In April 1997, the “Fools,” as the site’s enthusiasts refer to themselves, migrated their home page off AOL and onto the Fool.com website. They also established a site in the UK, fool.co.uk.

But it hasn’t always been smooth sailing for the Fools.

When the plentiful financing dried up and the dot-com bubble burst in 2001, the company ran into trouble, resulting in the loss of 80 percent of the staff in a series of three layoffs, and the closure of its nascent operations in Germany and Japan.

Much like firms are having to do today, the Gardners recalculated. They added more services, such as a range of investment styles, from small-cap stock investing to growth and technology stocks to dividend investing. In April 2002, the company launched the first of its premium subscription services, and the brothers began picking one stock each month in a brotherly competition to best each other.

It caught on with gusto. Not long after, Mark Hulbert, publisher of The Hulbert Financial Digest, wrote: “In the last few years, The Motley Fool has earned an average return of 22 percent, annualized, versus a comparable return of 7 percent for the Wilshire 5000. They maintain a consistent buy-and-hold style, tending to let their winning stocks compound returns over longer periods of time.”

The dot-com bust also gave the Gardners the opportunity to buy back the shares of their company. Why did they take that step?

“Every investor wants liquidity at some point,” Gardner knows. “It’s usually written into the contract somewhere. So after the AOL/Time Warner merger, when they were looking to clean up their portfolio. We bought out their stake, and then we began buying out the other venture capitalists that had invested in us. The timing was perfect because most of them were 10-year funds, and needed to return the money to their partners.”

The Gardners also knew they could have gone public, but didn’t think it was a great time in the evolution of the business to do so. “We are not wed to being a public company, and since nothing was forcing us to do that, we were happy to stay private.”

Today, The Motley Fool is north of being 90 percent internally owned, and Gardner says it’s a nice feeling. “It could be dangerously bad if the owners are idiots, but assuming we aren’t, the good side is that we can take a long-term perspective. There’s no push to make valuation worth something high, or too quickly. We have the freedom to make investments that might hurt earnings this year, but that we feel will be incredibly great five years from now, so long as we play it right.”

The Gardners also know that their future success is based on their employees.

“I think our biggest breakthrough came a few years ago when we learned how to manage our staff,” Gardner believes, explaining that to keep employees happy, learning, and loyal, the senior staff sets aside an entire day multiple times a year to review the progress and potential of everyone at the company.

“The best athletes get coaching every day, but when you run a company, it’s more likely that your staff gets coached once a year,” he realizes. “When things got sketchy for us in 2002, we knew that if we didn’t take the time to coach, teach, assess, and encourage our team, we’d never get to the place we wanted. So now we are anchored in high performance, and we coach, mentor, and focus on internal training and development. Even if I had a company with six employees, I’d take the same approach.”

One lap around the two colorful, super-size floors of Fool headquarters, and you’ll find employees dressed in uber-business-casual attire (jeans, flip flops, sneakers). They are encouraged to roll their wheeled desk chairs around to collaborate with other staff members, and above each desk is a list of qualities that describes their role and goals.

Employees are also able to create their own job title, and some high performers also get to craft their jobs, says Alex Vidales, a man who at any other company might be considered the director of human resources, but at The Motley Fool is the “Spirit Guide.”

Recently, he says, a star employee named Ben Sterling came to him with a concern: “He wanted to work as a fitness trainer rather than a financial analyst, and was hoping the Fool would create a new position for him—or he might quit and become a fitness trainer somewhere else. After a little debate, we made him the Fitness Fool, and Ben now spends his days educating the staff on proper nutrition, and helping them meet their fitness goals.”

Concerts, Free Food, Massages, and More

The reason that Gardner and the other C-level leaders thought the new job was a good option for Ben was that they knew he was an employee worth keeping on staff. They also believe that good health—mental and physical—is a key ingredient in the company’s success.

Every Monday and Wednesday, the firm gets healthy sandwiches and snacks from the nearby Whole Foods market, which employees are free to take from the kitchen area. Each month, massage therapists, hairdressers, and other salon professionals (mani-pedi anyone?) come in to the office to spoil the staff. There’s also a monthly pizza day, cake day, recess during the warm summer months, a periodic scavenger hunt, and trivia night.

As a thanks for meeting a company-wide challenge, The Motley Fool also treats the staff to special outings. Case in point: See the photo above, by Chris Wisecarver. In August, the Fool rented out the 9:30 Club in nearby Washington, DC, and held a private concert for employees and friends with the band Thievery Corporation.

And that’s not all. Once a month, the name of an employee is drawn from a hat and that employee is then required to take two weeks off to expand his or her horizons. “It’s called the ‘Fools Errand,’ and in addition to making sure that everyone takes a vacation—whether they want to or not—it keeps the company from being too reliant on one employee,” says Alison Southwick, who joined the firm in January 2011 as its media relations director.

Another perk that she says keeps staff on track is the Foolish Internal University, where employees participate in classes given by each other—from six-month courses that focus on how the company works, to a photography class.

“The classes and fun activities help employees do their jobs better because we are always learning from each other, so there’s a real team mentality,” Southwick explains, adding that the only real downside to working at The Motley Fool is the fact that the turnover rate is so low. “So if you want to climb the ladder quickly, it’s not likely to happen. But the good news is that top performers have a great opportunity to carve out their own career path.”

Gardner says that’s what keeps The Motley Fool—and other forward-thinking firms—on top. “We are an intellectual property company, and therefore rely on the people who work for us. Performance goes up if you coach people; it helps them do a better job for you—and for themselves. That’s our recipe for Foolish success.”

Does Gardner think the economy will pick up anytime soon? Click here for more.

Five Do’s and Don’t’s for Investing in a Volatile Market

Will the economy pick up anytime soon? What can companies do to recession-proof themselves in the future? And will Wall Street and the banking system ever change?

Tom Gardner, CEO and co-founder of the financial advisory company, The Motley Fool, offers his insights on those topics—and explains why the financial industry needs a Hippocratic Oath.

Be Inkandescent: Tell us about what you think is coming, in terms of a potential uptick in the economy. Will the economy get better soon, or will businesses continue suffering through more months of recessionary drama?

Tom Gardner: I get asked that question a lot, and like everyone else, I can’t say for sure. But I wouldn’t be planning for a quick turnaround. There is a lot of fluctuation happening, and I believe we’ll continue to see ups and downs as we work our way out of this bad financial situation. Nonetheless, I am an optimist. I see a lot of opportunities for tremendous innovation. Just look at what Apple created during the last two bear markets.

Be Inkandescent: In the last few years, there has been a lot of discussion about what landed us in this financial mess, and who is to blame. What is your take on the situation?

Tom Gardner: I believe that most business owners don’t realize what we’re actually going through now commercially in the US. While there is something very good about technological change, I think the problem for a lot of companies is that they aren’t built to last.

What’s worse is that when you have a very big company, such as Enron Corp., or WorldCom Inc., and have it collapse, the fallout is devastating. Not only does it impact the people who work, supply, or have invested in those firms—it impacts the impression of US business around the world. And that is disgraceful.

I have to say that Wall Street and our banking system are a big part of the problem. In fact, last year I heard Whole Foods’ CEO John Mackey talk about the issue regarding how corporate greed is ruinous to the brand of entrepreneurship and business.

Be Inkandescent: Indeed. Mackey wrote on his blog, “Virtually all of our societal organizations seem to have either forgotten or have never really known why they exist and what their higher purposes are. Instead, they have often elevated narrow individual and institutional self-interest into the only purposes that they recognize as valid.[Click here for more.]

Tom Gardner: Right. Look at Whole Foods. Mackey will be the first to tell you that he has made mistakes. And at The Motley Fool we are transparent when we say that we don’t always pick winners when it comes to stocks. Every basketball team will miss shots—but that doesn’t mean we have all lost touch with our core values.

What I think we need is a Hippocratic Oath for everyone who practices in the financial industry. Right now, there is a lot of doing harm. We need to change that.

Be Inkandescent: Talk some more about making your company recession-proof, or as recession-proof as possible—specifically, when you look back at how you fared in the 2000-2002 recession. Explain if, and how, that prepared The Motley Fool to better handle the recession that hit in 2008.

Tom Gardner: In 2000-2002, we took a big hit because we were reliant solely on subscribers and advertisers. So when their businesses took a hit, ours did, too. After that, we made sure that what we were doing wasn’t built on quicksand. We created offerings that didn’t rely on the one-off sale. We created a model that I love most, one that feels more like a partnership with a continuous revenue stream.

In our present model, we have a couple hundred thousand customers, and their contracts are from one to three years. Most importantly, we have a great relationship with them. We also have loyal advertisers who have been with us for years. As a result, when the current recession of 2008 and 2009 happened, there wasn’t a heavy blow to our business.

Be Inkandescent: What advice can you offer other companies struggling to stay afloat amidst the recession that seems it won’t end?

Tom Gardner: I encourage the small businessperson to look at his or her customer base, and ask, “What do I have in terms of bankable long-term commercial relationships?” If nothing else, at least be aware of the fact that you may not be in the best position to succeed in turbulent times. If this isn’t your situation, don’t treat the good times as a reflection of what your business is going to look like in every environment.

Be Inkandescent: What else should we do when times are rocky and the stock market is in flux?

Tom Gardner: Don’t run and hide. Rather, pick up a copy of LouAnn Lofton’s book, “Warren Buffett Invests Like a Girl—And You Should, Too!” (That’s Lou with Warren Buffett, pictured at right.)

It analyzes what will make or break your performance as an investor—your brain, you emotions, your personality. If you harness them, your investment returns will lead you to financial freedom in the Foolish fields of opportunity.

But if they harness you, close your eyes because the chili won’t stop hitting the fan. You’ll sell when you should’ve been buying. You’ll believe what you should have doubted. You’ll shout while you should’ve been learning. You’ll trade when you should always have been investing.

Be Inkandescent: You agree with Lofton that the key to investment success is mastering your temperament, right?

Tom Gardner: Definitely. That’s something that my brother David and I knew years ago when we founded The Motley Fool. If you want to sustainably make more and more money in the market—using common stocks or mutual funds—do the exact opposite of what’s on offer in the high-octane world of Wall Street.

There, men will be men, right up until they ask taxpayers to bail them out. So be smart, stay calm, and follow these simple Foolish rules that are inspired by the world’s third-richest man, Warren Buffett.

Five Rules to Investment Success From the Motley Fool

By Jeff Fischer
Advisor of Motley Fool Pro, and Motley Fool Options

1. Don’t: Panic. Volatility happens. Long-term investing success depends on how you manage your emotions during the rocky times. Keep your cool! Otherwise you’ll be more likely to make rash decisions that will hurt you in the long run. Take a page from Warren Buffett’s book, arguably the most successful investor of all time: If you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

2. Do: Focus on the Long-Term. Volatile markets are often compared to roller coasters—clearly because they both have their violent ups and downs—but a better reason might be that both can make you a little queasy. Instead of obsessing every hour on which way the market goes, invest in solid companies that you know will be around for the long haul.

3. Don’t: Cash Out. We only have to take the Way-Back Machine to 2008 to learn the lesson about how cashing out when the market takes a fall is a bad idea. Amidst the lowest lows of the recession, many people worried about losing even more money, so they pulled all of their money out of the market. Unfortunately, when you pull out of the market at the bottom, you’ve locked in your losses and won’t benefit from the returns when the market recovers. According to a recent Fidelity study, people who pulled out in 2008 and didn’t enter back into the market until 2011 only saw returns of 2 percent compared to those who stuck it out and saw returns of 50 percent.

4. Do: Re-Allocate and Diversify. Creating an all-weather portfolio that can withstand the ups and downs takes more than a few cherry-picked stocks or parking it all in a mutual fund. If you want to dampen volatility in your portfolio, keep 10 percent to 20 percent in cash for great opportunities that come along with a decline. If you’re a more advanced investor, you can use options and “sell short” to smooth returns and earn gains during declines, too.

5. Don’t: Let Opportunity Pass You By. Even companies that are solid long-term buys can be affected for the worse by a volatile market. While The Motley Fool doesn’t suggest you try to time the market, dips in the market are a great opportunity to buy blue-chip stocks while they are on sale.

About Jeff Fischer

Jeff Fischer, advisor of Motley Fool Pro and Motley Fool Options, started working at the Fool in 1996, soon after he won the Fool’s first year-long online portfolio contest. Jeff co-managed the original Fool Portfolio with co-founders David and Tom Gardner, and co-founded and managed the Fool’s Drip Portfolio. Jeff also wrote “Investing Without a Silver Spoon” and served as editor on several other Motley Fool bestsellers. All four of the real-money portfolios Jeff has managed or co-managed publicly since 1996 have beaten the S&P 500, although that isn’t his first objective, which is steady returns with reasonable risk.

For more information, visit www.fool.com.

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The mind is everything. What you think, you become.”

– Buddha

Instead of loving your enemies, treat your friends a little better.”

– Edgar W. Howe

We are all faced with a series of great opportunities brilliantly disguised as impossible situations.”

– Charles R. Swindoll

I can’t go back to yesterday—because I was a different person then.”

– Lewis Carroll

To be what we are, and to become what we are capable of becoming, is the only end of life.”

– Robert Louis Stevenson

The world I believed in, back in my most innocent, uninformed, childish mind—is real.”

– Martha Beck

Always look at what you have left. Never look at what you have lost.”

– Robert H. Schuller

Inspiration and genius — one and the same.”

– Victor Hugo

Permanence, perseverance and persistence in spite of all obstacles distinguishes the strong soul from the weak.”

– Thomas Carlyle

You must learn to be still in the midst of activity 
and to be vibrantly alive in repose.”

– Indira Ghandi

Confidence is the most important thing you can teach someone… if you can teach them confidence, you don’t have to teach them anything else.”

– Vin Diesel

Entrepreneurs need to search purposefully for the sources of innovation that indicate opportunities for success.”

– Peter F. Drucker

As each woman realizes her power, she transforms the world.”

– Patrice Wynne, WomanSpirit Sourcebook

Entrepreneurs are willing to roll the dice with their money or reputation on the line in support of an idea or enterprise.”

– Victor Kiam

The only way to compel men to speak good of us is to do it.”

– Voltaire

Darkness cannot drive out darkness: only light can do that. Hate cannot drive out hate: only love can do that.”

– Martin Luther King Jr.

If you were independently wealthy and never had to work a day in your life, would you still choose to spend your time attempting to become a successful entrepreneur?”

– Steven Schussler

There is only one success – to be able to spend your life in your own way.”

– Christopher Morley

He who knows he has enough is rich.”

– Tao Te Ching

Let us seize the day and the opportunity and strive for that greatness of spirit that measures life not by its disappointments but by its possibilities.”

– W.E.B. Du Bois

The only person you are destined to become is the person you decide to be.”

– Ralph Waldo Emerson

If my mind can conceive it, and my heart can believe it, I know I can achieve it.”

– Jesse Jackson

Practice kindness all day to everybody and you will realize you’re already in heaven now.”

– Jack Kerouac

Remember that it’s okay to ask for help when you’re stumped, because sometimes you really can’t be expected to handle everything alone.”

– Martha Beck

I may not be able to change what takes place, but I can always choose to change my thinking.”

– Michelle Sedas

The aim of life is to live, and to live means to be aware, joyously, drunkenly, serenely, divinely aware.”

– Henry Miller

If your actions inspire others to dream more, learn more, do more and become more, you are a leader.”

– John Quincy Adams

Our deepest wishes are whispers of our authentic selves. We must learn to respect them. We must learn to listen.”

– Sarah Ban Breathnach

Education is not the filling of a pail, but the lighting of a fire.”

– William Butler Yeats

Happy are those who dream dreams and are ready to pay the price to make them come true.”

– Leo Jozef Suenens

A man who strikes first admits that his ideas have given out.”

– Chinese Proverb

Passion makes perfect.”

– Eugene Biro

Let yourself be silently drawn by the strange pull of what you really love.”

– Jalaluddin Rumi

Don’t think. Thinking is the enemy of creativity.”

– Ray Bradbury

Whosoever knows how to fight well is not angry. Whosoever knows how to conquer enemies does not fight them.”

– Lao Tzu, Tao Te Ching

Acknowledging the good that you already have in your life is the foundation for all abundance.”

– Eckhart Tolle

I was taught at a very young age that you can do whatever you want to, but you have to make it happen — not just talk about it.”

– Kathleen Jo Ryan

You only live once. But if you do it right, once is enough.”

– Mae West

Think of yourself as on the threshold of unparalleled success. A whole, clear, glorious life lies before you. Achieve! Achieve!”

– Andrew Carnegie

Treat the attainment of happiness in the same way an entrepreneur would approach building a business — with a vision, plan, goals, and a systematic approach.”

– Ted Leonsis

We are not meant to resolve all contradictions, but to live with them and rise above them.”

– William Blake

Find somebody to be successful for. Raise their hopes. Think of their needs.”

– Barack Obama

Only those who will risk going too far can possibly find out how far one can go.”

– T.S. Eliot

Have the courage to follow your heart and intuition. They somehow know what you truly want to become.”

– Steve Jobs

Why am I whispering when I have something to say?”

– Eve Ensler

We make a living by what we get; we make a life by what we give.”

– Winston Churchill

“Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently.”

– Steve Jobs, Apple, Inc.

Only those who will risk going too far can possibly find out how far one can go.”

– T.S. Eliot

There’s nowhere you can be that isn’t where you’re meant to be…”

– John Lennon

When I was younger I thought success was being a star, driving nice cars, having groupies. But today I think the most important thing is to live your life with integrity.

– Ellen DeGeneres

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