Boring Portfolio

Live and Learn
Tuesday, April 7, 1998
by Greg Markus (TMF Boring)

ANN ARBOR, Mich. (April 7, 1998) -- Major market averages backtracked Tuesday ahead of the quarterly deluge of earnings reports. The Nasdaq fell 30 points -- or 1.66% -- and it would have been worse had not a bargain-hunting "buy" program kicked in late in the day.

The Boring Portfolio backtracked, as well, although not quite so dramatically. The Borefolio lost 0.77% on the session, with five of six stocks losing ground, if only negligibly in the case of Borders Group (NYSE: BGP) and FelCor Suite Hotels (NYSE: FCH).

The largest loss of the day in percentage terms was a $1 5/8 descent in shares of Atlas Air (NYSE: CGO). The loss was on meager volume of 24,500 shares, so I'm not inclined to make much of this. Atlas will report its first quarter results in about three weeks. According to First Call, analysts are looking for earnings of $0.19 per share.

Cisco Systems (Nasdaq: CSCO) held steady at a bid of $69 amid the clatter of falling techs. The Kid reported it has completed its purchase of Precept Software, Inc. As you may recall, last month Cisco announced that it had entered into definitive agreement to acquire privately held Precept, which develops multimedia networking software. The purchase price, denominated in Cisco stock, was approximately $84 million.

The big news today was about former Borefolio holding Green Tree Financial (NYSE: GNT). Conseco (NYSE: CNC) announced today it would acquire Green Tree in a deal in which Green Tree shareholders would receive 0.9165 of a share of Conseco for each share of Green Tree.

Green Tree stock jumped $9 7/8 to $38 7/8 on the news. Conseco stock dropped $8 5/8 to $49 1/8, as apparently not all Conseco shareholders were overjoyed with the announcement.

Green Tree's price today is approximately twice that at which I sold the stock in late January, following the company's perfectly horrible earnings report and announcement that it would take additional charges to offset the impact of loan prepayments that ran well ahead of the company's rosy scenarios.

When I sold the stock, I noted that at then current prices and in light of the company's leading position in the manufactured home finance market, "Green Tree could present a target of opportunity in the rapidly consolidating financial industry."

I sold nevertheless because company management had repeatedly and vigorously insisted that their assumptions and financial models were sound... right up until the first shoe dropped last fall. Then they repeatedly and vigorously insisted that they absolutely would not need to take any additional charges... right up until the second shoe dropped in January.

At that time, management at last admitted that their reporting systems were providing some erroneous information and that their prepayment assumptions were out of step with reality. No kidding.

A few long-time readers dropped me notes today asking if I regretted selling the stock. My honest answer is: not for an instant.

Today's news suggests that in a wave of mergermania, it may pay off to hang on to stocks of potential buyout candidates even if you've lost confidence in management -- and even, for that matter, in the business they are in. For the steely souls who held their stock and profited today -- or at least broke even -- I could not be happier. Congratulations to you.

If I have any regrets at all, it's not of selling Green Tree in January, but of hanging on to it far longer than I should have in the first place.

We live and learn.

FoolWatch -- It's what's going on at the Fool today.

Stock  Change    Bid 
 ANDW  -  5/16  19.44 
 CGO   -1 5/8   31.31 
 BGP   -  1/16  32.13 
 CSL   -  11/16 47.94 
 CSCO    ---    69.00 
 FCH   -  1/16  36.88 
                   Day   Month    Year  History 
         BORING   -0.77%  -1.92%  -0.86%  24.74% 
         S&P:     -1.06%   0.71%  14.34%  78.49% 
         NASDAQ:  -1.66%  -2.01%  14.54%  72.80% 
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     32.13   185.40% 
   6/26/96  150 Cisco Syst    35.93     69.00    92.02% 
   8/13/96  200 Carlisle C    26.32     47.94    82.10% 
    3/5/97  150 Atlas Air     23.06     31.31    35.80% 
   11/6/97  200 FelCor Sui    37.59     36.88    -1.90% 
   1/21/98  200 Andrew Cor    26.09     19.44   -25.50% 
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  12850.00  $8347.51 
   6/26/96  150 Cisco Syst  5389.99  10350.00  $4960.01 
   8/13/96  200 Carlisle C  5264.99   9587.50  $4322.51 
    3/5/97  150 Atlas Air   3458.74   4696.88  $1238.14 
   11/6/97  200 FelCor Sui  7518.00   7375.00  -$143.00 
   1/21/98  200 Andrew Cor  5218.00   3887.50 -$1330.50 
                              CASH  $13625.51 
                             TOTAL  $62372.39