Fool Portfolio Report
Thursday, October 26, 1995

Fool me once, shame on you.

Fool me twice, shame on me.

Fool me a third time, shame on everyone who knows me, shame on Fools everywhere, shame on my stock-picking dog, Bully.

Sonic Solutions (NASDAQ:SNIC) sickened its shareholders again today, posting 2nd Quarter 1996 losses of 9 cents per share, on paltry revenues of $3.4 million for the quarter. Take a look at the earnings box: 

                        3 months                6 months

                     1995      1994           1995      1994



Sales                $3,444   $5,236         $7,998    $10,068

Earnings (loss)       ($704)    $780          ($673)    $1,482

EPS (loss)            (0.09)    0.10          (0.09)     0.19

That's right, sales fell 34.22%, quarter over quarter, and are down 20.5% for the six-month period. In its small-caps, The Fool looks for 100%+ annual sales growth. . . any chance of that for Sonic?  And how about the PEG, with earnings falling through the floor?

Now if there are any positives to be found in the report. . . they are that Sonic is roundly praised for their product line, and the Company did control its balance sheet, with liabilities under wraps and inventories under control.

But let's face it, this is just horrible. The Company has been poorly managed ever since The Fool picked up shares two days before last Christmas. Since then, the S&P 500 has climbed over 24% while SNIC has fallen 41%. While our entire portfolio since late December has turned us nearly $30,000 in profit, Sonic Solutions has lost us $2,000.

There are plenty of great lessons here, but one's worth iterating and reiterating: When a Company freezes you out of discussion, all discussion, citing legal matters and other nonsense, you're probably invested in the wrong group of people, in the wrong company. When they run from level-headed shareholders, look out. Perhaps Kevin Wenck of GT Capital Management said it best in his excellent chapter from the book entitled "Small-Cap Stocks":

         The opportunity in small-company investing,
however, is that senior managers typically are
much more available for meetings with the
investment community. If such managers do
not choose to make themselves available,
then that in itself is a company-specific risk
to be avoided.    

Sonic Solutions has been just such a company, one to avoid. One excuse has led to another---in the 4th quarter of 1995, it was component shortages. In the 1st quarter of 1996, it was correctable bugs in their new systems. And in this their 2nd quarter---and third disappointing quarter in a row---"our" president, Robert J. Doris, president, offered this:

"During the September quarter we focused our field organization on retrofitting and restaging Sonic Systems based on our new Ultra-Sonic Processor card which had been previously delivered to customers.  The effort required diverted our field organization and our dealers from normal sales activities, resulting in lower than expected revenues."

Whatever.

Now, the above probably seems like the maniacal rantings of a bedridden character in one of the many great, brooding 19th-century Russian novels.  But we're not embittered here at Fool HQ. . . superior long-term performance is borne out of turning losses into gains, endeavoring to learn from every mistake, and concentrating on portfolio growth. 

It's worth noting here that when SNIC was sitting at $11 1/4 a few weeks back, David Gardner (MotleyFool) spent a morning reviewing Sonic's performance over the past year and pressed for us to sell Sonic and then short it. It's that sort of contrarian thought that keeps chins up here. . . and would it ever have been a profitable short. Might still be.

Besides SNIC, we actually didn't have a terrible day, losing 1.56% versus Nasdaq losses of 0.99%, and an S&P 500 decline of 0.87%. On a down day across the board for techs, America Online actually touched $74 today, before closing down $1/4. KLA Instruments was up $1/2, and Applied Materials climbed $1/4.

Sonic hurts, but is no more than a mosquito around the ears of our portfolio. Time to slap at it?

- Tom Gardner, 10/26/95



Today's Moves
 


AMER  -  1/4
AMAT  +  1/4
CHV   -  1/2
GE    -  3/8
GPS   ---
IOMG  -  7/8
KLAC  +  1/2
RIDE  -1
S     -  5/8
SNIC  -1




Today's Numbers
 


                   Day   Month    Year  History
        FOOL     -1.56%  -0.40%  51.54%  68.25%
        S&P 500  -0.99%  -1.32%  25.57%  25.81%
        NASDAQ   -0.87%  -2.49%  35.32%  41.30%



    Rec'd  #   Security     In At       Now    Change

   8/5/94 340 AmOnline       14.55     71.75   393.27%
  5/23/95 510 Ride Inc.       9.91     20.75   109.45%
  5/17/95 335 Iomega Corp    15.11     24.00    58.80%
   8/5/94 165 Sears          28.93     33.50    15.82%
  4/20/95 155 The Gap        32.55     37.00    13.67%
  8/11/95  95 GenElec        57.91     62.50     7.92%
  8/11/95 110 Chevron        49.00     46.75    -4.59%
  8/24/95 130 KLA Instrm     44.71     40.25    -9.98%
  8/24/95 100 AppldMatl      57.52     46.75   -18.73%
 12/23/94 340 SonicSol       14.48      8.50   -41.31%


    Rec'd  #   Security      Cost     Value    Change

   8/5/94 340 AmOnline     4945.56  24395.00 $19449.44
  5/23/95 510 Ride Inc.    5052.44  10582.50  $5530.06
  5/17/95 335 Iomega Corp  5063.13   8040.00  $2976.87
   8/5/94 165 Sears        4772.65   5527.50   $754.85
  4/20/95 155 The Gap      5045.25   5735.00   $689.75
  8/11/95  95 GenElec      5501.87   5937.50   $435.63
  8/11/95 110 Chevron      5389.99   5142.50  -$247.49
   8/24/95130 KLA Instrm   5812.49   5232.50  -$579.99
  8/24/95 100 AppldMatl    5752.49   4675.00 -$1077.49
 12/23/94 340 SonicSol     4924.18   2890.00 -$2034.18


                             CASH   $5969.86
                            TOTAL  $84127.36