The Gardners were very clear in 1999 and prior that ‘Price/valuation doesn’t matter!’ in the Rule Breaker portfolios. They thought that paying a ridiculous price for an RB now is okay, because several years later the stock would be worth even more.
Here’s what RB staff said in spring 1999 [before your arrival]:
Unlike some of the other portfolios in Folly, the Rule Breaker method does not worry much about current valuation. For those who love finding the disparities between current price and intrinsic value, let me suggest the Boring portfolio. Here in the Rule Breaker portfolio we look at valuation with some sort of vague interest…
The Motley Fool's Rule Breakers, Rule Makers published 1999
In the book, they tell investors not to pay attention to earnings statements for Rule Breakers. It makes the point that for good companies, you should buy the stocks at any price. There is no discussion of valuation ratios and company fundamentals in the book.
At year-end 1999, they had 75% of their Rule Breaker assets in 3 stocks: AOL, AMZN, and Celera Genomics, mostly in the first two:
AOL fell from $80 to $11 in 3 years.
Amazon went from over $110 to $6 in less than 2 years. They advised selling half in the $11-11.50 range in March 2001! Even though it had crashed to only 6% of the RB portfolio at this point.
They also said this: We don’t think that [Amazon] can achieve worthwhile appreciation over the next 10 years or so…Yes, we could have sold it at $100, or $75…We don’t worry much about market pricing, however."
Celera was acquired in 2011 at $8 after Rule Breaker bought it at $80 in 1999.
5th biggest holding was At Home which went out of business less than 18 months later.
By Feb 2003, they had discontinued their RB/RM portfolios due to their poor performance, but prevaricated and said tracking 9 RB stocks was too hard, so they went into the paid newsletter biz:
The time it takes to track the companies in the existing portfolio are substantial. Tom and David Gardner don’t have time to do it…
http://discussion.fool.com/i-never-knew-diy-was-such-hard-work-1…
In TMF Bogey’s own words, the RM performance was ‘Returns were terrible relative to the market… the fact that we refused to acknowledge valuation makes this one disappointing for me.’
Then they rebooted RB in 2004 after shutting it down the prior year when Tom/Dave didn’t have time to track 9 stocks.
Rule Breakers portfolio, …has more than doubled the S&P
That’s funny, their own press says it’s less than 40%:
https://www.fool.com/investing/heres-how-you-get-motley-fool…