The Best Get Better
by Tom Gardner
Alexandria, VA (July 22, 1998) -- Good evening, I'm filling in for Rob Landley today. The Cash-King Portfolio, which you can always quote by bookmarking Cash-King Quotes, benefited from rebounds in Microsoft and Pfizer and the Gap, today -- our three best-performing investments.
Ain't that just the way it seems to go in the public markets? The odds favor the best getting better -- just like elsewhere. Spielberg keeps putting out great movies. Jordan still slams the best dipsy-doo dunk. Seinfeld only got better with time. And who ever wanted Ella Fitzgerald to stop singing?
The best got better.
The unique advantage of investing in the best public companies -- rather than in celebrities -- is that the best companies are not tied to the eventual decline of the individual. The best public companies don't announce that they're facing career-ending back surgery, or that their voice is shot for good, or that they're taking time off for personal reasons, or that they're no longer hip and happenin'.
Superior public companies thrive on disciplines and ideas, with individuals playing a supporting role to the Team and its Mission. Because when Michael Jordan retires, the Gap will still be featuring young Fools swinging and grooving in khakis. When the syndication of Seinfeld ends -- just like Sanford & Son did -- General Electric will still be making toaster ovens. And when Spielberg shoots his last feature film, Coca-Cola won't have stopped selling lemonade at the concession stand.
It's for this reason that I think three critical questions for the Foolish investor to ask are: Where is the world going, what companies have the capital structure to take it there, and how far out can I extend my investing time horizon? The answers to these three questions can lead small investors to unimaginable and unnecessary amounts of wealth -- and maybe, too, charity. And I hope The Motley Fool and the Cash-King Portfolio are helping you to answer these three questions.
I'll take a shot at answering them here. Jump into the Cash-King Strategy folder with your own thoughts, if you like:
#1: Where is the world going? American business is definitely moving toward providing worldwide branding, more technology, and greater convenience. Around the globe, people will increasingly look for 1) familiar products and services; 2) technologies that provide greater efficiency; and 3) stuff that is incredibly convenient. We're putting our world in a microwave, setting it to high, and waiting for everything to be ready in an instant. Say it's good, say it's bad -- but if you're an investor, recognize that it is happening!
#2. What companies have the capital structure to lead? I think a Fool can concentrate all of her attention on the balance sheet and income statement, and come up with the answers to this question. Even narrowing down to these few: Cash-to-Debt, The Flow Ratio, Sales Growth, Gross Margins, Net Margins. Then, she has to recognize that companies go through three stages. Phase I -- they lose money and struggle to gain an audience. Phase II -- they establish themselves and look to expand. Phase III -- they begin to dominate, driving gross and net margins higher. In fact, from phase to phase, I'd be looking for the five qualities above to improve, inchmeal.
#3. What's my investing time horizon? With short-term debt eliminated, I don't believe there's a single person out there who can't put a small amount of money away for 20 years. Whether they're 17 or 82, I think folks should discipline themselves (and encourage family and friends) to look forward 20 years with at least a portion of their savings.
If you agree with those three definitions -- worldwide brands, convenience, a strengthening balance sheet, and a long-term investment horizon -- some company names begin to pop up.
Amazon.com and Yahoo in Phase I.
And plenty of others. The mainstream media would have you believe that ALL of these companies are badly overvalued. But the mainstream media is over-rating the present. Worldwide brands, convenience, a strengthening balance sheet -- and an investor with a long-term time horizon. In that scenario, the quality and longevity of a company becomes just so much more important than its short-term valuation.
Investing chatter done for now, I'd like to point you all to two wonderful new folders at The Fool. The first, Improve the Fool, is where we take your suggestions for how to improve our service. Would you like us to carry a new feature, do you have a data offering you'd like to see, is there a way we can improve navigation on our site, do you think we should invite Donnie Osmond in to be a regular contributor? Drop us a note in that folder. Can you imagine what life would be like if the Baby Bells or local cable providers set up a similar folder?
The second folder is one that we opened only ten days ago, but which has exploded with activity. Over 475 notes have been posted to our Living Below Your Means folder, dedicated to simple savings strategies for Fools of all ages. Everything from whether to buy pet insurance, to how to handle car salesman, to why not to drink too much expensive beer. (I wish I'd been introduced to that back in college.)
Take a look at those two folders, tell us how to improve our service, and learn a few ways to save some more moola for long-term investment.
And Fool on!
Day Month Year History C-K +1.10% 5.16% 19.93% 19.93% S&P: -0.08% 2.67% 16.26% 16.26% NASDAQ: -0.47% 3.96% 19.17% 19.17% Cash-King Stocks Rec'd # Security In At Now Change 2/3/98 24 Microsoft 78.27 116.63 49.01% 2/3/98 22 Pfizer 82.30 116.38 41.40% 5/1/98 37 Gap Inc. 51.09 62.50 22.33% 2/27/98 27 Coca-Cola 69.11 83.88 21.37% 2/6/98 56 T. Rowe Pr 33.67 39.13 16.19% 6/23/98 23 Cisco Syst 86.35 98.38 13.93% 5/26/98 18 American E 104.07 111.63 7.26% 2/13/98 22 Intel 84.67 82.38 -2.72% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 63.15 88.00 39.36% 3/12/98 20 Exxon 64.34 71.81 11.62% 3/12/98 15 Chevron 83.34 84.13 0.94% 3/12/98 17 General Mo 72.41 71.88 -0.73% Cash-King Stocks Rec'd # Security In At Value Change 5/26/98 18 American E 1873.20 2009.25 $136.05 2/3/98 24 Microsoft 1878.45 2799.00 $920.55 2/3/98 22 Pfizer 1810.58 2560.25 $749.67 5/1/98 37 Gap Inc. 1890.33 2312.50 $422.17 2/27/98 27 Coca-Cola 1865.89 2264.63 $398.74 2/6/98 56 T. Rowe Pr 1885.70 2191.00 $305.30 6/23/98 23 Cisco Syst 1985.95 2262.63 $276.68 2/13/98 22 Intel 1862.83 1812.25 -$50.58 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 15 Chevron 1250.14 1261.88 $11.73 3/12/98 20 Eastman Ko 1262.95 1760.00 $497.05 3/12/98 20 Exxon 1286.70 1436.25 $149.55 3/12/98 17 General Mo 1230.89 1221.88 -$9.02 CASH $94.76 TOTAL $23986.26 *The year for the S&P and Nasdaq will be as of 02/03/98