Building an Empire of Fools

Maybe they aren't so foolish after all. Brothers Tom and David Gardner, founders of the Motley Fool financial advice site, have built a minimedia empire with their a do-it-yourself philosophy toward personal finance. Mutual-fund managers, the Gardners like to say, don't know anything more than you do - and they have a similarly low opinion of Wall Street investment analysts. Success in the stock market, the Gardners advise, takes little more than patience, common sense and a basic financial education.

But maybe they're having second thoughts. The Gardners, highly public proponents of self-reliance, have apparently adjusted their philosophy to take advantage of the realities of the Net. The free-wheeling, fun-loving Gardner boys last year hit up Sand Hill Road for some cash. Now they have decided to get themselves a regular, old-fashioned CEO. Assuming the stock market cooperates, an IPO will almost surely follow.

It's a strange turn of events. The Motley Fool debuted in 1993 as a financial newsletter written by the Gardners for their family and friends. It evolved into a hugely successful America Online site, and then in 1997 expanded to the Web, where it now gets about 1.8 million monthly visitors. From the beginning, Dave and Tom Gardner, along with cofounder and COO Erik Rydholm, consistently repeated the same basic financial advice: Invest in companies you know and like. Don't buy or sell stocks on the spur of the moment. Avoid penny stocks like the plague. Don't invest any money that you can't live without for at least five years. And ignore Wall Street advice, which often isn't all that great.

The Gardners, though they agree on many things, have slightly different ideas on stock selection, a fact that is apparent from the portfolios they track on the site. David's Rule Breaker portfolio holds shares in innovative companies that create new business standards, such as AOL, Amazon.com and Celera Genomics, a Rockville, Md., company working to decode the human genome. Tom's Rule Maker portfolio focuses on companies with long and successful track records, like Coca-Cola and the Gap.

Despite their different investment preferences, the brothers are united in their conviction that investing is not about instant gratification. When the stock markets dipped sharply Jan. 4, David was quick to remind his readers that truly "foolish" investors should be focused on the long haul. "Tide goes in, tide goes out," Gardner wrote. "It could happen this entire year - are you prepared for that?"

What the Gardners need to prepare for is the idea that outside investors might find the company a more attractive place to put their money with an experienced chief executive at the helm. The brothers say they're searching for a CEO who's grounded in media, marketing, financial services and the Internet - not necessarily in that order.

"We realize we lack the necessary [operational] experience," says Tom. "But we're not going to hire someone until we've found the right person - someone who shares our uncontrollable enthusiasm for the Internet."

Presumably, the ideal candidate would also share the Gardners' distrust of old-line Wall Street financiers.

"A lot of financial trading is suspect," Tom says. "Most [traders'] backgrounds are sales-oriented, not research-oriented." The upshot: Stockbrokers are out to make a buck for themselves, not to make you any richer. Professional money managers do little more than prey on investor ignorance and fear, he says. To invest your assets properly, the Gardners say, do it yourself.

It's the Foolish way.

The company's name, borrowed from William Shakespeare's As You Like It, evokes the medieval court jesters who were the only subjects who could speak unabashed truth to royalty without the fear of losing their heads. Company employees use forms of the word "fool" interchangeably, as a noun, a verb and an adjective.

In the corporate lexicon, "foolish" is good, smart and informed. Any rash, hasty or ill-considered action is frowned upon as "unfoolish."

The Gardners credit their stock market success to two factors: their father and Strat-O-Matic baseball.

Paul Gardner, who was an international banking attorney and is now a private economist, taught his sons early and often about the virtues of thrift and the wisdom of common-sense investing while they were growing up in Washington's Georgetown neighborhood. They picked up some useful ideas as well from their many Saturdays afternoons playing Strat-O-Matic, a tabletop fantasy baseball game.

"It teaches you numbers, checking stats, doing ratios in your head," explains David, a Minnesota Twins fan. "You have to be calculating constantly."

In college, both Gardners took the liberal arts path, each earning degrees in English - David from the University of North Carolina in 1988, and Tom from Brown in 1990. After graduation, David went to work as a writer for Louis Rukeyser's Wall Street, a newsletter run by the host of the PBS show Wall Street Week. Over time, David became frustrated by what he saw as the newsletter's overly cautious editorial policy.

"They were constantly undercutting everything I wrote and creating a world of grays," he says. "If I recommended using discount brokers, the editors would include a list of all the reasons they shouldn't be used."

David quit the newsletter in 1993. Not long after, he and his brother launched the Motley Fool newsletter. A year later, working out of a tiny garage behind David's house in Alexandria, Va., the Gardners and cofounder Rydholm moved online, running an investment tips page on AOL. The Motley Fool grew to became one of the most popular destinations on AOL's service, famed in particular for the often heated stock discussions on the site's well-populated message boards.

On April Fool's Day 1997, the company started Fool.com. Like the AOL site that spawned it, Fool.com has hundreds of pages of free investment and financial advice. It also offers free newsletters, stock market coverage and, of course, message boards.

As the company grew, it moved out of the garage - initially to the first floor of a nearby town house and later to present-day "Fool HQ," three floors of a nondescript office building in the heart of Alexandria's colonial-era Old Town district.

The Motley Fool offices are a study in irreverent nonchalance. The walls, painted in lighthearted greens and purples, bend and twist at fun-house angles.

The company logo - an insouciant jester in a brightly colored cap - is everywhere. It's even carved into the doors. (Photos of the Gardners wearing jester hats have become cliche.) In the lobby at Fool HQ sits a sculpture of a jester cavorting with a personal computer in one hand and a bag of money in the other. The piece boasts a quotation from Twelfth Night: "Foolery, Sir, does walk about the orb like the sun, it shines everywhere."

Most of the company's 250 employees work at Fool HQ, where they track and report on the markets and staff FoolMart, a subsidiary responsible for selling the Gardners' books and investment reports, as wells as Fool-branded merchandise like baseball caps and T-shirts.

One unusual thing about Fool.com is that many of the site's writers, customer-service staffers and computer technicians were recruited from its message boards. The boards were moderated by volunteers until a couple of years ago, when the company decided it would be, well, Foolish to hire the moderators in order to make them more accountable.

FoolMart is presided over by Jill Kianka, who started at the company as an intern in 1995 while earning her MBA at Georgetown University. Kianka, who's been around since the garage days, contends the corporate culture in Fooldom has changed little as the company has grown.

"It's a chaotic environment, but it's really cool," Kianka says. "There are so many things to do and there are so many ideas out there."

Not all of the ideas worked. A marketing scheme that had the company passing out Motley Fool stickers for people to affix to paper money was quickly scrapped. Customers told the company they were nervous about violating federal laws against defacing U.S. currency.

In any case, there's further expansion ahead: Expect new international sites to crop up, for instance. Also in the works are financial services, including credit cards, and the addition of commentary in nonfinancial fields, like health care, politics, and popular culture.

"The focus of the company will always be on helping out in ways that are relevant to everyday life," says David. "Solutions have always interested us."

For Tom and David, the solution to the question of how to grow their company was to take a more professional approach to running things. Nothing foolish about that.

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