Boring Portfolio

Boring Portfolio Report
Thursday, July 31, 1997
by Mark Weaver, MD (MWEAV)

ST. LOUIS, Mo. (July 31, 1997) -- July went out with a wimper after a record setting month. The S&P 500 was up only a fraction but the Borefolio could not keep pace, falling 0.56%. While every Boring holding rose yesterday, today only ATLAS AIR (Nasdaq: ATLS) held up the Bore.

The only significant news was an announcement by OXFORD HEALTH PLANS (Nasdaq: OXHP) that improvements in billing turnaround time has allowed them to offer the State of New York a guarantee of interest, if claims are not paid within 30 days. At the present time 91% of "clean" (uncomplicated) claims are paid within 30 days and the company believes it can achieve 100% by the end of August. That sounds like good management to me. Readers may recall that the installation of the new computer system slowed claims payment and sent the stock down for a brief spell last winter.

Earlier in the week TMF Jeff wrote a very nice piece on short selling in the Fool Portfolio report. It is worth reading. Jeff eloquently states the con argument on the short selling question and every point he makes is valid. Short selling is tough. Short selling is the salmon swimming against the current. The potential gains with short sales pale next to some of the superstocks mentioned in the article. Ultimately Jeff makes the case that short selling isn't Foolish.

I ask, if not Foolish, is it Boring? Since Greg is off in Hawaii I have the liberty of putting the Boring twist on short selling even though the Borefolio has never had a short sale... (yet).

Well, short selling certainly isn't boring. In fact, it can be quite a stimulating exercise. Even though a look at the progress of the S&P 500 over the past year easily demonstrates the upward momentum of the stock market, it won't go up like this forever. In the midst of the past year's "stockfest" my fellow Daily Trouble writers and I have had no difficulty finding stocks which are 50% off of their highs. There are always stocks poised to drop.

In my opinion the case for short selling is as follows:

#1 - It hedges a portfolio and decreases overall portfolio volatility. Bad stocks can fall in up markets and fall even further in down markets.

#2 - A well chosen short sale can make an investor significant profits. Although the potential for long-term gain is limited to 100% of the short sale value, there is easy potential for market-beating returns on an annualized basis. (The argument that an investor can lose over 100% is spurious. Although technically possible, the reality is that losses on short sales are controlled easily with a good selling discipline.)

#3 - Short selling is an exercise which makes the investor a better investor. A deeper level of research and understanding is needed to identify good short sale candidates. Simply selling a stock because it is "overvalued" won't cut it. It needs to be overvalued with a twist, and finding the twist is where the learning begins.

A short selling investor begins to distinguish hype from reality, fact from fiction, and develops a good understanding of the quality of earnings a company enjoys. Short sellers are contrarians by nature and this is, in my opinion, one of the key ingredients of Boring investing. An investor that can pick good short sales can also pick 'em long. It is two sides of the same coin.

Now, short selling isn't for the passive investor. But, neither is investing in any individual stock. If you want to make money the easy way, simply Beat the Dow or buy an index fund. The returns aren't maximal but the time spent on the portfolio is minimal.

As for me, I am a contrarian by nature. I love to dig around to find over-hyped, over-valued and potentially underperforming stocks. It is an investing challenge. My personal portfolio always contains a short or two. I find having a short in the portfolio creates the same fun as rooting against a team you dislike, and that can occasionally be quite entertaining.

So, in my opinion, short selling can be very Boring and it can be Foolish as well.

DRIP Portfolio-- A new portfolio launches!
Fool Message Boards -- what are Fools saying?
Evening News -- Big movers, up and down.
Daily Double
-- How can you find the next double?
Daily Trouble -- Value in this beaten down stock?
The Fool Portfolio -- The Comeback Kid.
Fool Four -- 23% annual historic returns.

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Stock  Change    Bid
ATLS  +1 1/16  26.38
BGP   -  1/4   25.38
CSL   - 27/43  41.50
CSCO  -  1/16  79.44
GNT   -  1/8   47.13
ORCL  - 15/16  54.31
OXHP  -  9/16  84.06
PMSI  -  5/16  11.25
TDW   -  5/16  50.50
                   Day   Month    Year  History
        BORING   -0.56%  10.44%  23.49%  42.11%
        S&P:     +0.21%   7.81%  28.83%  53.52%
        NASDAQ:  +0.36%  10.52%  23.45%  53.11%

     Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     25.38   125.43%
  5/24/96  100 Oxford Hea    48.02     84.06    75.04%
  8/13/96  200 Carlisle C    26.32     41.50    57.65%
   2/2/96  200 Green Tree    30.39     47.13    55.08%
  6/26/96  100 Cisco Syst    53.90     79.44    47.38%
   3/5/97  150 Atlas Air     23.06     26.38    14.38%
   3/8/96  400 Prime Medi    10.07     11.25    11.73%
 11/21/96  100 Oracle Cor    48.65     54.31    11.64%
 12/23/96  100 Tidewater     46.52     50.50     8.54%

     Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49  10150.00  $5647.51
  5/24/96  100 Oxford Hea  4802.49   8406.25  $3603.76
   2/2/96  200 Green Tree  6077.49   9425.00  $3347.51
  8/13/96  200 Carlisle C  5264.99   8300.00  $3035.01
  6/26/96  100 Cisco Syst  5389.99   7943.75  $2553.76
 11/21/96  100 Oracle Cor  4864.99   5431.25   $566.26
   3/5/97  150 Atlas Air   3458.74   3956.25   $497.51
   3/8/96  400 Prime Medi  4027.49   4500.00   $472.51
 12/23/96  100 Tidewater   4652.49   5050.00   $397.51

                             CASH   $7890.00
                            TOTAL  $71052.50