They pose as the champions of us small investors, but fall into the same growth-in-market-price trap the Wall Street establishment wants us locked into.

Oh, from that perspective, they give lots of good advice. I have no doubt that anybody who follows all their guidelines will find stocks that will go up in price. Though I seriously doubt that more than a tiny fraction of this book's readers follow all their rules (they lay out a lot of rules in this book).

I have no doubt that David and Tom are sincere in their intention to empower small investors, I just believe that most small investors who want to follow their advice take the logical short cut -- they go to the Fool's website and see what the brothers are recommending now.

David and Tom can't be faulted for this -- gurus and teachers of all kinds have pushed for student-independence only to be thwarted by student-dependence . . . probably since the first fire-master tried to get his students to try new ways to barbecue a sabre-tooth tiger's steak.

Yet who can fault the students? All this research, analysis, application of ratios, studying of business plans, deciding whether a given company is a true rule breaker or faker breaker . . . takes a lot of time.

Time which -- I'd argue -- would be better spent either making more money in a part time endeavor or just enjoying activities with your family.

That's why so many people send their money off to mutual fund managers in the first place -- they believe they don't know enough to buy individual stocks. Or they know that buying many stocks is less risky than buying the stock of one or a few companies. The Motley Fool ignore the risk of buying individual companies and the benefits of diversification, which they say is overrated.

From the standpoint of Modern Portfolio Theory, they stand accused of encouraging people to take on more risk than necessary . . . with the hope that their one winner out of four will make up for the three losers.

The book is divided into two parts. The first is written by David and tells you how to find stocks that are "Rule Breakers." That is, small companies that have revolutionary products that are going to kick the rear-ends of their industry giants and grow the companies into powerhouses.

There's a lot of good advice that should help such "foolish" investors avoid many obvious losers. However, you will also have to learn how to tell a promising rule breaker from a faker breaker such as Boston Chicken.

Once a company has grown past the rule breaker stage, it becomes a tweener and either dies or goes on to become a rule maker. Tom writes the second half devoted to finding these Rule Makers -- companies large and sucessful enough to dominate their industries.

He explains a lot of criteria, all of which make a lot of sense. (Though I think many accountants could argue with the Foolish Flow. Yes, excess inventory is bad. But stores need some inventory if they plan to open their doors tomorrow. So how much is too much? Same with accounts receivable and accounts payable. He turns these accounting rules upside down.)

Yet, when all's said and done, you still need a lot of insight into the businesses of these companies to properly evaluate them -- and most of us don't have that, certainly not for every industry. After you use the math to choose potential winners, you still need some good judgment to pick the ones you think will win.

Analysing successful companies in easy in hindsight. Predicting which ones will survive and thrive far into the future is not so easy without a crystal ball.

And both David and Tom warn that you'll still lose money on some losers -- or perhaps their lawyers insisted they add that. And to their credit they agree that the small cap stocks, which are certainly more speculative and risky than the large cap stocks, should be only a small portion of your overall portfolio. Yet even with the large cap Rule Makers, you'll invest in more losers than winners.

This book was written during the market euphoria of mid-1998, and so the Fool also fall into what Dr. Jeremy J Siegel in THE FUTURE FOR INVESTORS calls the "Growth Trap." That is, overpaying for stocks because of their prospects for growth. The Fool brag about not paying any attention to a stock's P/E (or Price/Earnings ratio). If your research shows a stock is a rule breaker or rule maker company, you should buy it without worrying about the price. This is asking for poor returns -- even if the stock grows as you expect.

This was a common delusion during the dot com boom -- the Internet was growing so fast, how could prime Internet stocks not be worth whatever the market was asking?

As the Fool put it -- "At what point this century should the investor in a spectacular business like Coca-Cola or Schering Plough or Hershey's or Johnson & Johnson have worried about the immediate valuation of their stock stubs?"

The answer should be obvious -- at the time they planned to buy said stock stubs.

After that, they should cash their dividend checks and pay no attention to the market price -- which is far less attention than the Fool pay to "immediate valuation."

And it's clear from the context in the book that The Motley Fool assumes that good stocks are simply those that go up in price. So at bottom, The Motley Fool advocate that put your money into investments that may not return you any money until you sell.

I don't recall seeing the word "dividend" anywhere in this book. Maybe I missed it, but any mention of dividends was not important to rate a listing in the index.

They praise the rise in market price of Coca-Cola, but don't point out that not only has its market price have gone up tremendously over the years, it has paid out an ever-increasing amount of income.

So Tom fails to bring on what in my opinion is a prime attribute of "Rule Makers" you want to invest in -- they share their success by paying an ever-increasing amount of dividends to stock holders.

I applaud the Fool's criticisms of mutual funds. However, they make no mention of exchange traded funds, which have the advantages of mutual funds without the disadvantages of actively managed mutual funds.

EFTs were not as popular when this book was written in 1998 as they are now, but Spiders (an EFT that tracks the performance of the S&P 500 index) had been available for 5 years old. But a simple way to invest in the broad market is too easy for these brothers. The Fool would rather have you spend your evenings analyzing annual reports.

If you really enjoy the game of researching companies and picking individual stocks, and you have the time to indulge in such luxuries, allocate a small portion of your total portfolio to the Fool's investment plan. Research and analyze to your heart's content. Have fun. (Meanwhile, I'll be on a tropical beach).

But please keep the vast majority of your money in diversified interest and dividend paying investments.

After 10 years, compare the money you've received from your income portfolio with that of your "Foolish" portfolio. I bet you'll be glad that you kept 95% of your money invested in proven income investments.

And maybe you'll head for your own tropical beach.

Copyright 2007 by Richard Stooker

Profit from the stock market and receive income . . . dividends and fixed income interest.