Rule Breaker Portfolio

"Is This The Correction?"
Time to dust off the FoolCam

by David Gardner (DavidG@fool.com)

ALEXANDRIA, VA (Aug. 11, 1998) -- "Is this The Correction?" a friend asked me online, after market close today. I believe she was being facetious, aware of my denigration of that term. Let's talk about the term first, and then the market itself.

"Correction," eh? The word is now ubiquitous in the financial media's coverage, imprinted on the minds of investors everywhere to mean... to mean what, exactly?

"A drop in the market."

Indeed, just you try to use the term "correction" to describe anything other than the market dropping and you'll cause nothing but confusion and bemusement.

"Corrections" only occur to devalue the market, you frivolous Fool!

The market would never be artificially low, right? It would never "correct" higher. Markets are only ever fairly valued or overvalued. When they get overvalued (due to "irrational exuberance," no doubt), it's time for a "correction." If my sarcasm is evident, please note that sarcasm is the wit of Fools.

Beyond just the silly use of the term to describe only market declines as opposed to market rises, "correction" is wrong on an additional count. It suggests point-blank that the market was "incorrect" in the first place. Really? Who's to say? Certainly not Peter Jennings or his ilk, as they read off the teleprompters to bring us the nightly "news." I distrust anyone who tells me how to value the stock market, particularly with an eye toward suggesting where it's going....

The market started weak today, in sympathy with the rest of the world's markets, as was succinctly and accurately covered in our Lunchtime News today. By day's end, though, the S&P 500 had shed just 1.31% of its value. The Nasdaq fared worse, off 2.53%. (The Fool split the difference, dropping 1.83%.) None of these moves merited the fastidious attention paid to the stock market throughout the day in the general news I came across.

Time to wheel out the FoolCam, in order to acquire the proper perspective.

We began with today's move. Let's now pan our FoolCam back and take in a bit more of the picture. Now you'll see that for the month of August so far, the market is down just over 4%. That's a bit more volatile than average (down or up), but again, no great shakes. Pan back further, in order to account for the end of July as well. You'll see we're now off 10% in the past three weeks. OK, that's somewhat more significant. Ten percent drops do not occur every three weeks. A curio.

(Other curios, curious of the day, were Amazon.com rising a few bucks and Mr. Donald J. Trump's stock closing in the fives. All-time low for Donnie, as our short just crossed the 30% mark.)

So, back to the FoolCam. Pan back some more. (Have you noticed yet how the FoolCam can only pan back?) For the year, the S&P 500 is now up 10.16%. Hey, what do you know? An average year.

Press the big purple button that says "Push Me" and pan our FoolCam back just one more time... we've widened our lens to the point that this year's move becomes just one of dozens in view. We discover that the S&P 500 has returned 11% annualized this century.

Tossing the FoolCam back into our disorganized, gadget-overrun closet, we've just taken today's move out of its typical media perspective and restored it to its proper Foolish perspective. I'm not sure you'll find too many other voices outside of Fooldom tonight -- online or offline -- which will clothe the market's move today in the proper language:

A Southerner would say, "Pshaw."

A Brit over at Fool UK would say, "Stuff."

More verbose but to the same effect, a Fool of any stripe in any country (you can of course be a Fool from anywhere, and there are now Fools from EVERYWHERE) might put it thus: "Er... what? Oh, the market dropped a percent today, eh? Say, by the way, have you seen my golf ball?"

To close, if you are worrying about this decline -- if it preoccupies you in any way -- you should consider changing the way you're investing. Perhaps you're not invested in good companies. Or perhaps you've been playing around with charts. Are you on margin? These are all reasons someone might worry over 10% drops. If any of these describes you, report directly to our 13 Steps to Investing Foolishly to review (or learn for the first time) how we invest patiently, successfully, and worry-free.

I worry about world peace. I worry about giving my children a good education. I worry about death (don't we all, past thirty?). I do not worry about my investment portfolio. If you do -- in particular, if a few bad days or weeks or YEARS (yes, years) worry you -- you need to change the way you're investing because you're probably not.

Investing, that is.

Folly forever,

David Gardner

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Bookmark Live Fool Port Quotes

08/11/98 Close
Stock Change Bid ---------------- AMZN +2 3/8 124.00 AOL -6 107.13 T -1 1/8 56.94 DJT - 1/4 5.88 DD -1 11/16 59.94 XON + 1/4 68.00 INVX + 1/16 13.50 IP -1 3/8 42.63 IOM - 3/16 5.06 KLAC --- 30.38 LU -1 5/16 88.63 SBUX -1 13/16 40.69 COMS - 11/16 27.38 TDFX - 5/16 14.25

Day Month Year History Annualized FOOL -1.83% -0.10% 46.93% 393.09% 48.77% S&P: -1.31% -4.61% 10.16% 133.20% 23.47% NASDAQ: -2.53% -4.26% 14.16% 148.92% 25.49% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 107.13 2845.88% 9/9/97 580 Amazon.com 19.11 124.00 548.85% 5/17/95 1960 Iomega Cor 1.28 5.06 295.38% 10/1/96 84 LucentTech 23.81 88.63 272.25% 8/12/96 130 AT&T 39.58 56.94 43.86% 4/30/97 -1170*Trump* 8.47 5.88 30.63% 2/20/98 200 Exxon 64.09 68.00 6.10% 2/20/98 215 DuPont 59.83 59.94 0.17% 2/20/98 270 Int'l Pape 47.69 42.63 -10.62% 7/2/98 235 Starbucks 55.91 40.69 -27.23% 8/24/95 130 KLA-Tencor 44.71 30.38 -32.06% 8/13/96 250 3Com Corp. 46.86 27.38 -41.59% 1/8/98 425 3Dfx 25.67 14.25 -44.48% 6/26/97 325 Innovex 27.71 13.50 -51.28% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 76058.75 $73476.88 9/9/97 580 Amazon.com 11084.24 71920.00 $60835.76 5/17/95 1960 Iomega Cor 2509.60 9922.50 $7412.90 10/1/96 84 LucentTech 1999.88 7444.50 $5444.62 4/30/97 -1170*Trump* -9908.50 -6873.75 $3034.75 8/12/96 130 AT&T 5145.11 7401.88 $2256.77 2/20/98 200 Exxon 12818.00 13600.00 $782.00 2/20/98 215 DuPont 12864.25 12886.56 $22.31 2/20/98 270 Int'l Pape 12876.75 11508.75 -$1368.00 8/24/95 130 KLA-Tencor 5812.49 3948.75 -$1863.74 7/2/98 235 Starbucks 13138.63 9561.56 -$3577.06 6/26/97 325 Innovex 9005.62 4387.50 -$4618.12 1/8/98 425 3Dfx 10908.63 6056.25 -$4852.38 8/13/96 250 3Com Corp. 11715.99 6843.75 -$4872.24 CASH $11876.47 TOTAL $246543.47

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Note
The Fool Portfolio was launched on August 5, 1994, with $50,000. It was renamed the Rule Breaker Portfolio in October 1998. The investing strategy began with the first investments of the Fool Port and has evolved with time and experience. In July 2001, the portfolio began adding $12,500 each quarter (We missed Jan. 2002, so we added $25,000 in April 2002). We skip a quarter if we have enough uninvested cash or cash available in stocks we would prefer to sell to make new investments. All transactions are shared and explained publicly before being made, and returns are compared in each week's column to the S&P 500 (including dividends where noted) and the Nasdaq composite. For a history of all transactions, please click here.