The Boring Portfolio

ANN ARBOR, MI, June 25, 1996 -- The Boring Portfolio advanced for the third straight session, as the NASDAQ sold-off toward the end of the day and the S&P closed down slightly.

In last night's recap, I griped about the way the market had taken a weed-whacker to my prized Green Tree Financial, trimming it all the way back to where I had bought it in early February. Today, Green Tree sprouted some new leaves, growing a full dollar's worth. A wire service item notes that some bargain hunter purchased of a big block of GNT shares.

Prime Medical Services was the only other Borefolio winner on Tuesday, rising a half-buck to close at a bid of $17 3/4. LCSI and Shaw Group were "unch." Borders and TXI slipped a bit more today, and Oxford Health Plans slipped a lot -- dipping $1 3/4 to limbo under the $40 level. There was no news on any of these guys, although a press release from Blue Shield that it was cutting rates in Northern California in order to increase market share may have helped fuel continuing worries about profit margins in the HMO biz.

As I noted in my original "buy" report on OXHP, the company's margins are not all I'd wish for. Regardless, Oxford has been able to generate consistently strong earnings, because (unlike Blue Shield of California, say), Oxford's enrollment continues to swell prodigiously. Why? Because it quite simply offers the best products and services available in the regions where it competes -- or almost anywhere else, for that matter.

Last night, I declared that I would add 100 shares of Cisco Systems to the Borefolio sometime during the coming week (i.e., next five trading days), as per our revised rules.

Since last night, a few folks have asked that I say a bit more about what's Boring about Cisco. After all, the company makes and sells highly technologically sophisticated products. Moreover, simply uttering the word "Internet" in the neighborhood of a stock these days seems to be sufficient to set it ablaze. So how can Cisco be "Boring"?

Fair enough question. By way of an answer, perhaps the first thing to note is that the nom de portfolio "Boring" doesn't imply that what I fancy are beaten-down, dog-eared, flat-liners. To the contrary, as the essay available in the Borefolio Info area notes:

"The Boring companies that catch my eye (and wallet) have a sense of quality about them and a demonstrated capacity to grow. I'm not averse to investing in so-called high-tech companies, provided they meet my other criteria. I believe in a diversified portfolio (to reduce risk), and no one should be without some ownership of the technology sector."

In particular, what I like to buy are:

* attractively-priced stocks
* of really high-quality companies
* that offer terrific products or services,
* are situated in reliably growing industries,
* earn lots of money for shareholders thereby,
* and are likely to continue doing so for a good while longer.

While the company is important, "the stock must also pass its own test, which can be summed up in one word: value. By 'value,' I simply mean paying a good price for something of good quality."

To my eye, Cisco, the company, easily passes the first set of hurdles. (My report on Cisco makes that case -- which is a pretty easy one to make, I think.)

As for CSCO, the stock, the ratio of its p/e based on calendar 1996 earnings to its long-term estimated growth rate is: 31/35 = .89. (Like Value Line, I tend to use a "two quarters up, two quarters back" approach when figuring p/e ratios, so the "calendar year" p/e supplied by First Call works fine for me.) Without taking this calculation too literally, it roughly indicates that CSCO is on sale for about 10% off -- a good value in my book.

So did I buy Cisco today for the Borefolio? Nuh-uh. And there's a worthwhile lesson in my non-action, I think.

So far this year, I've managed to buy stocks at or near their intra-day highs. I'm a pretty poor day-trader. So when I saw the share price for 3-Com (a Cisco competitor) start to tank this morning after that company released its (perfectly fine) quarterly earnings report, I figured I'd be cool and wait on Cisco.

So I tended to other things and checked in occasionally to see how the stocks were doing. 3-Com was down big (as in 4-plus points). So was Cascade Communications (another competitor). Ditto Ascend. And Cabletron. Hot ziggies, I thought. Maybe I can snap up Cisco at an even *better* price!

Of course, even though the NASDAQ sold off at the end of the day, and virtually every one of Cisco's stable mates stumbled badly ... Cisco shares were UP on the session. Now *that's* Boring.

Moral of the story: Unless you're really good at it and intend to sit and watch the market carefully, this intra-day entry-point picking game can be pretty fruitless. Sure, I coulda placed a limit order. But then there's no guarantee that would have gotten filled either if I tried to be too cute with my price-point.

So maybe tomorrow?

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Transmitted: 6/25/96