Boring Portfolio

Boring Portfolio Report
Monday, February 10, 1997
by Greg Markus (MF Boring)

ANN ARBOR, Mich. (Feb. 10, 1997) -- The Dow lost 49 points (-0.72%), hurt by weakness in shares of IBM (NYSE: IBM). The S&P 500 fell 4, or 0.53%. Most eyes were focused on the Nasdaq, however, which dropped 1.65% -- the equivalent of more than 100 Dow points.

Here's what happened:

Last week, INTEL (Nasdaq: INTC) announced that it had cut the price on certain network interface cards (NICs), which are adapters used to link computers to Local Area Networks, or LANs.

Today, 3COM (Nasdaq: COMS), which derives a substantial chunk of its revenues from the sale of NICs, announced: (a) that it was cutting prices on its competing Fast Ethernet adaptor cards, and (b) that the company would most likely not hit Wall Street's sales and earnings targets for the current quarter.

Unsurprisingly, 3Com's warning sparked a breathtaking selloff today in COMS (a holding of my cyber-neighbor, the Foolish Portfolio). Equally unsurprisingly, the news sent a shiver through shares of other companies in the computer networking business. And in the computer business. And the computer parts and assembly business. I haven't checked yet to see if electric utilities also sold off on the news.

Collateral damage inflicted on the Boring Portfolio amounted to a loss of $5-1/8 on each of its 100 shares of CISCO SYSTEMS (Nasdaq: CSCO) and $1-1/4 on each of its 100 shares of SOLECTRON (NYSE: SLR).

TIDEWATER (NYSE: TDW) also sank $1-5/8, but somehow I think that's related more to falling gas and oil prices than it is to 3Com's woes. You can't be too sure these days, though.

So the question du jour is: Should I jettison Cisco from the Borefolio?

In the face of a stampede, sometimes it's best simply to get out of the way and wait for the dust to settle. So anyone who decided today to exit Cisco (or Solectron, for that matter -- or, heck, even Tidewater) will get no razzing from this corner. Best wishes to you.

As for the Borefolio, though, Cisco stays.

Could it drop further yet?

Oh, you betcha. Wouldn't surprise me at all.

So why in the world am I holding onto the stock?

Because, friends, my rule of thumb is to hold until something changes for the worse in the substantive "story" that prompted the buy, or until the stock appreciates noticeably beyond fair value.

True enough, the Borefolio is equipped with an escape slide that may be activated in case of an emergency -- that is, if and when I conclude that the market knows more than I do about a stock and therefore maybe I should just shut up and sell... and perhaps buy again some other day.

But I see no such emergency with Cisco, nor do I perceive any change for the worse in Cisco's story.

My argument for holding Cisco is below -- wide open, as always, for your critical comment. Someone told me once that the definition of a mathematician is: a person who can follow an argument that has more than two steps. My argument has five, for all you mathematicians out there:

1. Cisco don't make no NICs.
2. Cisco don't make stuff that's even like NICs.
3. Cheaper NICs (Stevie's sister?) means cheaper ways for computers to get interconnected...
4. Which means more overall connectivity...
5. Which means more business for Cisco.


Also, this Cisco, uh, experience contains a worthwhile lesson about the value of diversification. Cisco shares are roughly 10% of the Boring Portfolio. So even a 10% loss in the stock results in only a 10% x 10% = 1% change in the portfolio's net asset value. If only all of life's difficulties were of such magnitude.

Elsewhere in the Boring Portfolio, things were pretty good.

BORDERS GROUP (NYSE: BGP) stock rose $1 1/4. The company announced today that it will open its first store in San Antonio on February 22. This will be a 27,500 square-foot superstore, located at the Huebner Oaks Center. According to the press release, the new Borders will contain more than 200,000 book, music, periodical and video titles, as well as a Cafe Espresso.

Make mine a double latte' -- e due biscotti, per piacere, podnah.

GREEN TREE FINANCIAL (NYSE: GNT) rose $5/8, and CARLISLE COMPANIES (NYSE: CSL) continued its quiet move higher following the company's recent earnings report and two-for-one stock split. CSL gained $3/4 to close at $32.

ORACLE (Nasdaq: ORCL) unveiled a new palm-sized security device that will compare users' fingerprints to sets stored in a central file before allowing access a customer's computer system. The unit is made by IDENTIX (ASE: IDX) and retails for around $500. Oracle shares were unchanged on the bid-side today, at $40. In light of the thrashing that techno-stocks took today, I'll call that a win.

(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.

Today's Numbers

Stock  Change    Bid
BGP   +1 1/4   43.25
CSL   +  3/4   32.00
CSCO  -5 1/8   58.00
GNT   +  5/8   39.63
ORCL  ---      40.00
OXHP  -  3/8   51.00
PMSI  -  1/8   11.38
SLR   -1 1/4   54.88
TDW   -1 5/8   41.25

                  Day   Month    Year  History
        BORING   -0.62%   0.87%   0.87%  16.07%
        S&P:     -0.52%   6.03%   6.03%  26.35%
        NASDAQ:  -1.65%   3.43%   3.43%  28.28%

    Rec'd   #  Security     In At       Now    Change

  2/28/96  200 Borders Gr    22.51     43.25    92.12%
   2/2/96  200 Green Tree    30.39     39.63    30.40%
  8/13/96  200 Carlisle C    26.32     32.00    21.56%
   3/8/96  400 Prime Medi    10.07     11.38    12.97%
  6/26/96  100 Cisco Syst    53.90     58.00     7.61%
  5/24/96  100 Oxford Hea    48.02     51.00     6.19%
 10/15/96  100 Solectron     54.52     54.88     0.64%
 12/23/96  100 Tidewater     46.52     41.25   -11.34%
 11/21/96  100 Oracle Cor    48.65     40.00   -17.78%

    Rec'd   #  Security     In At     Value    Change

  2/28/96  200 Borders Gr  4502.49   8650.00  $4147.51
   2/2/96  200 Green Tree  6077.49   7925.00  $1847.51
  8/13/96  200 Carlisle C  5264.99   6400.00  $1135.01
   3/8/96  400 Prime Medi  4027.49   4550.00   $522.51
  6/26/96  100 Cisco Syst  5389.99   5800.00   $410.01
  5/24/96  100 Oxford Hea  4802.49   5100.00   $297.51
 10/15/96  100 Solectron   5452.49   5487.50    $35.01
 12/23/96  100 Tidewater   4652.49   4125.00  -$527.49
 11/21/96  100 Oracle Cor  4864.99   4000.00  -$864.99

transmitted Feb. 02, 1997