FOOLS AND THEIR MONEY

Small investors have always fretted that they are the last to know when it comes to stocks. But their status at the bottom of the information food chain is changing, and quickly. "This is a revolution," says David Gardner, who with his brother Tom is responsible for starting the wildly popular online personal-investing forum called the Motley Fool. Located on America Online, the Fool (the name is inspired by a line in Shakespeare's As You Like It: "I met a fool i' the forest, a motley fool") has spearheaded a spectacular shift in the way investors' money is funneled into the stock market and challenged Wall Street brokerages for control of information (and rumors) about companies and their prospects. Drawing more than 350,000 visits a month, it is the most prominent of a growing number of online sites, such as the Silicon Investor www.techstocks.com or the newsgroup misc.invest.stocks, where investors can ask questions and share knowledge. Says David Gardner: "The small investor wasn't getting a fair shake. Wall Street analysts often had conflicts of interest on the stocks they were touting. They were trying to generate commissions and make their clients' stocks go up."

The Gardners aren't money managers, but they are investors, and they use the power of online communication to spread their insights. They began investing in stocks at age 18, started an investment newsletter in 1993, and now, at the ripe old ages of 28 (Tom) and 30 (David), direct the Fool's daily operations from a small office in Alexandria, Virginia. The Fool's mission is to take some of the mystery out of the game by offering basic advice outside the Wall Street loop. The real action is on the Motley Fool electronic bulletin boards, where plugged-in investors trade info and gossip with a spirit of camaraderie that can be quite hostile to nonbelievers.

Since starting its AOL forum in August 1994, the Fool's most notable accomplishment has been discovering a company called Iomega long before the wing tips in downtown Manhattan did. Iomega, based in Roy, Utah, makes devices for computers called Zip drives and Jaz drives that enable users to store massive amounts of information speedily, reliably and affordably. In early 1995, various Fools, as the participants call themselves, began posting news about the first Zips to hit the market. They soon put their money where their modems were and reaped the rewards. Many of the earliest posters on the Iomega board have seen their initial investment rise more than 7,500%.

Not surprisingly, Iomega stock has achieved something like sacred status with its followers--and may also have created one of the biggest short-selling debacles in recent Wall Street history. Short sellers, who bet that the price of a stock will fall, thought they saw easy pickings in Iomega's skyrocketing price. Anticipating a slump, they borrowed millions of shares and immediately sold them, hoping to buy shares back later at a cheaper price. The slump never came, as the Fools furiously beat back any attempts made to bad-mouth the stock. According to the Wall Street Journal, the short sellers lost nearly $1 billion.