Rule Breaker Portfolio

"We're In A Bear Market"
And I want more of it

by David Gardner (DavidG@fool.com)

ALEXANDRIA, VA (Sept. 22, 1998) -- The Fool Portfolio had another one of "those days," Tuesday, as the market's volatility threw us another 2%. In the case of today, it was 2% up, which -- all other things remaining equal -- we tend to prefer over 2% down. The Fool Portfolio rose 2.30%, vs. a gain in the S&P 500 of 0.58% and the Nasdaq's gain of 1.03%.

Everybody keeps telling me, "We're in a bear market." Have you heard that recently? "We're definitely in a bear market." The pundits, the gooroos, even the occasional cocktail party tete-a-tete. And YET, and yet, the Fool Portfolio has gained 14.37% this month. Meantime, the Nasdaq is up a similar 13.24% and the S&P 500 is up 7.55%.

If this is a bear market, I WANT MORE OF IT.

What is a bear market -- how do you recognize it? How do you define it? Is it evident only in retrospect? And should it affect our investment approach?

I'll take those questions in reverse order.

No. Yes. It's a sustained downturn. You really can't recognize it until it's over, because of the very nature of the word "sustained."

We ALL always know afterward that we were in a bear market. We can look back at 1973-74 and see now that it was a bear market. We can look back at October 19, 1987 and see that despite a 23% drop (in one day!), that was NOT a bear market. Was it evident at the time? No way. And during 1973-74, how could you know how far down things would go -- or when they could come back -- until they had in fact gone down... and then come back? You couldn't, unless you presumed to be someone who could call the market. I have yet to see, speak to, or read anyone capable of doing so consistently. (There are a lot of Bucky Dents out there -- the Yankee shortstop who hit one big home run that most fans remember... and few others.) Of course, that doesn't stop them from saying, "We're in a bear market." And somehow, some people actually believe them... even though the S&P 500 is up 6% for the year and 8% for this month (the very month where it's most been talked about that "we're in a bear market").

(Sigh.)

Fortune magazine, in its eminent ability always to (a) believe it can call the market and (b) go on to make a market miscall (neither of which is useful), ran a piece last week. I don't know whether it was in the magazine (which I don't read) or just up on the online site. It was a six-part series called "The Requiem of the Bull." The title says it all.

Reminds me of Mark Twain writing the London correspondent of The New York Journal, "Reports of my death have been greatly exaggerated."

(There's something uncanny about these magazines' knack for looking at the very recent past and concluding that it will BE the future. Uncanny.... Of course, the next issue will come out, everyone will forget the previous one, and so it doesn't really matter what they write! Sweep it under the carpet, Rochester.)

To conclude: If this is a bear market, I WANT MORE OF IT. You should too.....

Back to the here and now, 3Com was up $5/16. No great shakes today, but it's been nice to see the stock recover from $23 to $32 this month. After the bell, the company reported 24 cents per share (excluding a 2 cent one-time gain) in quarterly earnings for its fiscal '99 first quarter, versus consensus estimates of 20 cents per share. Shareholders can hear the conference call replay later tonight at 615-770-1387.

Otherwise, the usual culprits were responsible for our gains today, with Amazon gaining back $2 11/16 and America Online gaining back $4. Pretty much everything else went our way, except Exxon which dropped a buck. That darned oil stuff. (Exxon's up 5% for us this year, pretty much in line with the market.)

Speaking of reports of deaths being greatly exaggerated, how many articles have we come across the past 12 months letting us know the Dow Dividend Approach no longer worked? A quick gander shows:

Fool Four: 11.57%
S&P 500: 6.12%

If this is death, I WANT MORE OF IT.

Sorry to be so morbid tonight. Fool on.

-- David Gardner, September 22, 1998

WE DELIVER - Get Fool Portfolio Nightly Reports
delivered straight to your e-mailbox every evening!

Today's FoolWatch: all the latest in Fooldom.


Bookmark Live Fool Port Quotes

09/22/98 Close
Stock Change Bid ---------------- AMZN +2 11/16 88.19 AOL +4 106.38 T + 3/8 58.44 DJT + 1/16 3.31 DD - 5/8 57.56 XON -1 1/8 67.06 INVX + 15/16 11.88 IP + 13/16 44.38 IOM - 1/16 4.13 KLAC + 13/16 24.13 LU - 1/8 73.75 SBUX + 5/8 30.44 COMS + 5/16 32.38 TDFX + 9/16 9.94

Day Month Year History Annualized FOOL +2.30% 14.37% 31.65% 341.83% 43.28% S&P: +0.58% 7.55% 6.12% 124.65% 21.64% NASDAQ: +1.03% 13.24% 8.12% 135.75% 23.07% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 106.38 2825.25% 9/9/97 580 Amazon.com 19.11 88.19 361.45% 5/17/95 1960 Iomega Cor 1.28 4.13 222.16% 10/1/96 84 LucentTech 23.81 73.75 209.77% 4/30/97 -1170*Trump* 8.47 3.31 60.89% 8/12/96 130 AT&T 39.58 58.44 47.65% 2/20/98 200 Exxon 64.09 67.06 4.64% 2/20/98 215 DuPont 59.83 57.56 -3.80% 2/20/98 270 Int'l Pape 47.69 44.38 -6.95% 8/13/96 250 3Com Corp. 46.86 32.38 -30.92% 7/2/98 235 Starbucks 55.91 30.44 -45.56% 8/24/95 130 KLA-Tencor 44.71 24.13 -46.04% 6/26/97 325 Innovex 27.71 11.88 -57.14% 1/8/98 425 3Dfx 25.67 9.94 -61.28% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 75526.25 $72944.38 9/9/97 580 Amazon.com 11084.24 51148.75 $40064.51 4/30/97 -1170*Trump* -9908.50 -3875.63 $6032.88 5/17/95 1960 Iomega Cor 2509.60 8085.00 $5575.40 10/1/96 84 LucentTech 1999.88 6195.00 $4195.12 8/12/96 130 AT&T 5145.11 7596.88 $2451.77 2/20/98 200 Exxon 12818.00 13412.50 $594.50 2/20/98 215 DuPont 12864.25 12375.94 -$488.31 2/20/98 270 Int'l Pape 12876.75 11981.25 -$895.50 8/24/95 130 KLA-Tencor 5812.49 3136.25 -$2676.24 8/13/96 250 3Com Corp. 11715.99 8093.75 -$3622.24 6/26/97 325 Innovex 9005.62 3859.38 -$5146.25 7/2/98 235 Starbucks 13138.63 7152.81 -$5985.81 1/8/98 425 3Dfx 10908.63 4223.44 -$6685.19 CASH $12005.75 TOTAL $220917.31

Are you a Foolish investor?
The Motley Fool Recommends...
Industry Snapshot
New format! A stock idea, industry overview, top players, and financials -- every two weeks! Get more info or order.

Fool Port Reports
The nightly scoop on the Fool Port Report, delivered straight to your e-mailbox. Get more info or order.

Foolish Eight Stock Screen
Here at Last! Foolish Eight Stock Screen. Get more info or order.

Other Fool Products...
Subscriptions
Primers
Reports
Investing Tools
Books
Fool Gear

Shop FoolMart!








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.