A big Internet phenomenon during the glory days of the stock market in 1999 was the Motley Fool website. The irreverent site was started in 1997 by David and Tom Gardner, two 30-something brothers out to show just average folks that they could beat the investment professionals and the markets with simple investment strategies. They touted stock picking as fun and easy and rode the growth market wave of the latter 1990s to fame and fortune. Millions of investors hit their site every day to bone up on strategies known as “The Foolish Four” and “Rule Breakers.” They were even praised by former Securities & Exchange Commission Chairman Arthur Levitt for being “an effective investor advocate.”
These days the site—and those who followed its advice—are looking more and more like fools who prospered on plain dumb luck during a bull market. Among the losers was the simple strategy known as the Foolish Four. It consisted of buying the four most depressed stocks in the Dow Jones Industrial Average and holding them for a year and a day. Two professors at Brigham Young University in 1999 disproved the strategy. The Gardners did another test looking back at 50 years of data and abandoned the strategy, but not before it cost investors 30% last year.
Another strategy, the Rule Makers, which dictated buying market-dominating giants like Coca Cola, Microsoft and Yahoo, has also blown up as the prices of those stocks fell much more than the stock market.
The Motley Fool itself is falling on hard times. The business recently laid off more than half of its staff and closed some subsidiaries. And The Wall Street Journal reports that the majority of recent visitor postings on the site have been about non-stock market topics.