DRIP PORTFOLIO
A Wise Miscall on Intel
They said "Sell!" at $57 and "Buy!" at $85

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By Jeff Fischer (TMF Jeff)

ALEXANDRIA, VA (Jan. 28, 2000) -- On April 14, 1999, we published a column titled "TV Says Sell Intel." That day, a respected analyst had gone on a popular cable television program and said that he would, and he advised others to, "sell Intel today." The reason: summer would be slow, price competition was heated, and visibility until the end of the year was muddy. The stock price: $57 when the day ended, down three bucks.

Amusingly, the analyst continued to rate Intel's stock "long-term attractive," yet he advised selling the shares. The contradiction and the bold sell proclamation were enough to make us stop and perk up our jester caps. We decided, because the analyst had so visibly made his sell recommendation to the public, that we'd visibly keep track of him and see when he again announced a recommendation to buy.

Time ticked along.

Meanwhile, we again suggested that in a Foolish world, analysts wouldn't tell strangers what to do with their money (that's Wise), but would present their analysis, rightly be paid somehow for the value they share in the process, and leave the buy and sell decisions to the individual, where they belong. Perhaps, someday in the balmy, sunsplashed future, we'll actually see this change occur. Maybe the practice of whisper numbers and obsessing over quarterly earnings estimates will dissipate as well. We could only be so lucky.

Time continued to tick following the analyst's April 1999 "Sell Intel!" proclamation. The month of May blessed us with spring flowers. June and July brought record heat to the East Coast. Then, on July 13, 1999, Intel reported second-quarter results that missed those "crucial, crucial" estimates by two cents per share. The stock rose the next day anyway, to $68, perhaps because Intel's business is exceptional.

Summer waned into an orange and yellow autumn. Leaves fell from the trees, but Intel's stock continued to slowly, steadily rise. Still no word from the analyst.

On October 12, 1999, Intel announced third-quarter results that missed estimates by two pennies once again. Oh, no! Total disaster! (That's just the kind of fun sarcasm that long-term investors can afford.) The next day, the stock fell $4. However, it merely fell from $76 to $72, still well above the $60 level it traded at in April when the analyst yelled "Sell!"

Halloween pumpkins were smashed in the street, soon replaced by Thanksgiving turkeys. The day after the Thanksgiving feast, the holiday shopping season launched. The winter season, it seemed, had officially arrived, and despite circulating fears regarding Y2K glitches, Intel's stock rose above $80 into the holidays, to end 1999 at $82 per share -- nearly 40% above the analyst's "Sell" yell.

Still no word.

In the year 2000, fireworks began early. By mid-January, after a strong fourth-quarter announcement, Intel's stock soared to new highs, topping $89 and then rising above $99. But wait! On January 10, 2000, our analyst had finally changed his mind. The stock closed that fateful day at $85 per share. Our own Brian Graney reported the news regarding the analyst's change of heart. With the stock price more than 40% above where he said on TV to sell Intel, he was now saying, "Buy Intel."

As Brian pointed out, this accountability exercise isn't meant to single out a lone analyst and call him to the mat. This is meant to address a problem that sweeps across the entire stock investment landscape on a daily basis. Analysts are always making near-term price calls on stocks and on the market. In the end, this likely harms millions of investors on various levels.

Sure, those who listen to analysts' "ratings" without thought are partially to blame, but the best way to solve this ongoing problem is to address the source: The investment institutions that are in place are Wise; the practice of making public investment recommendations to total strangers is Wise; the notion that somebody else knows better than you how you should invest your money is Wise.

Key lessons reiterated from this whole Intel fiasco, which spanned nearly eight months, include:

  • Trying to time or predict stock prices doesn't work.
  • Analysts should not advise buy, sell, or hold to total strangers, whose investment situations they know nothing about.
  • Investing for the long-term not only makes you more money, but it saves you a great deal of energy, frustration, and concern. Just imagine how much this highly paid analyst sweated over his Intel call, which turned into a blundering miscall.

What other lessons did we learn? If you think of any, please post them for us on the Drip Companies message board. Have a great weekend, and Fool on!

Related Links:
Intel Upgraded. Time to Sell?, Fool Plate, 01/10/00
TV Says "Sell Intel", Drip Port, 04/14/99
Pay No Attention to the Man Behind the Curtain, Fool on the Hill, 01/05/00

Drip Portfolio

1/28/00 Closing Numbers
Ticker Company Dly Pr Chg Price
CPBCAMPBELL SOUP-1 1/16$29.56
INTCINTEL CORP-4 1/8$94.00
JNJJOHNSON & JOHNSON4$84.50
MELMELLON FINANCIAL CORP-1 7/16$32.44

  Day Week Month Year
To Date
Since
7/28/97
Annualized
Drip -2.18% -3.66% .90% .90% 31.09% 11.41%
S&P 500 -2.75% -5.63% -7.42% -7.42% 44.88% 15.95%
S&P 500(DA) -2.75% -5.63% -7.42% -7.42% 47.51% 16.79%
S&P 500(DCA) n/a n/a n/a n/a 21.13% 7.95%
NASDAQ -3.77% -8.22% -4.48% -4.48% 147.65% 43.62%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
9/8/9722.9799INTC45.635$94.00105.98%
11/14/9711.811JNJ80.721$84.504.68%
11/5/9828.3741MEL34.416$32.44-5.75%
4/13/988.174CPB54.586$29.56-45.84%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
9/8/9722.9799INTC$1,048.68$2,160.11$1,111.43
11/14/9711.811JNJ$953.39$998.03$44.64
11/5/9828.3741MEL$976.51$920.38($56.13)
4/13/988.174CPB$446.18$241.64($204.54)
  Cash: $24.38  
  Total: $4,344.54  


Key
• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.

Note
Drip Port launched with $500 on July 28, 1997, adds $100 to invest every month, and the goal is to own $150,000 in stock by August of the year 2017. Due to the slow nature of dollar-cost-averaging and our relatively significant starting costs, we do not expect to seriously challenge the S&P 500 for the first three to five years as we build an investment base. The long-term advantages of dollar-cost-averaging still overcome the short-term disadvantages, however. Final note: our investment in Campbell Soup is frozen due to fees instituted in its investment plan. Click here for a history of all Drip Port transactions.