The Boring Portfolio

ANN ARBOR, MI, June 14, 1996 -- What can I say? Friday was a lackluster end to a lackluster week. It wasn't out and out ugly, although in some ways I wish it had been. On those really butt-ugly days you can at least snap up some bargains and anticipate better times ahead. No, this week was one of insidious gnawing at stocks in general and the Boring Portfolio more specifically.

All major market indices ended Friday's session lower than where they began, and that story applies to the entire week, as well. The Dow Jones Industrial Average fell on five consecutive days. For the week, the S&P 500 Index lost 1.11%, and the NASDAQ average fell 1.35%. The Borefolio fared even worse: minus 2.78%.

What's the explanation? Well, as I noted in an evening update earlier this week, the two main drivers of the market are earnings and interest rates. On the earnings front, we're slogging through the valley between peak periods of quarterly reports, and what little earnings-related news there is has often been cautionary or even downright negative, especially in the technology sector (whatever "technology sector" means these days). As for interest rates, they've been creeping up -- from 7.03% for the long bond last Friday to 7.09% at today's close. More powerful than the numbers themselves, though, is a prevailing perception (accurate or not) that rates will go higher before they go lower.

To some degree, the Borefolio suffered this week because of those two same variables. Regarding earnings, no Borefolio companies issued any quarterly reports or cautionary statements, but Oxford Health has sagged ever since Humana floated its warning about pinched profits. And some investors apparently thought that per-share earnings would be slowing at Shaw Group and Prime Medical -- again, rightly or wrongly. (All evidence I've unearthed points to "wrongly.")

As for the winds of rising interest rates, they've caused Green Tree Financial to shed a few leaves and may have hindered TXI's share price appreciation, as well.

There's not a whole lot to do in such situations other than maintain a serene composure, comforted by the knowledge that you own high quality stocks that have demonstrated an ability to grow earnings in all kinds of environments. Moreover, what information we have been getting from our Borefolio companies has been uniformly positive recently.

Analysts' reports on Borders Group continue to praise the company's growth; news of heavy insider buying of BGP shares is reassuring, as well. Corporate leadership at Green Tree Financial and Oxford Health Plans have reiterated their comfort with analysts' EPS estimates. And yesterday, Shaw Group confirmed to me that they were "very comfortable" with even the high-end earnings projection for the quarter just ended. SHAW was bullish on business from here on out, to boot.

On Friday, SHAW managed to recover a good chunk of the ground it lost the day before, and Green Tree Financial added a half-buck. Borders, Oxford Health, Prime Medical, and Texas Industries all fell to varying degrees, however, and LCS Industries was unchanged. There was no news on any of these stocks.

So that's about all there is to say about today and this week. I guess the best thing I can offer you is that it's is behind us. As for the coming week, it brings the notorious quarterly "triple-witching" Friday, when options and futures on stock indices expire simultaneously. We don't hold any such stuff, of course, but the market volatility created as traders and arbitrageurs unwind their positions can make for an interesting ride -- and not just on Friday alone. So strap in tight. Or perhaps better yet, don't strap in at all. Hang loose, hit the beach, play some softball, or take a snooze in the hammock. Yeah, that's the ticket!

Transmitted: 6/14/96