Fool Portfolio Report
Tuesday, October 31, 1995
Check it out below, we won by more than a percentage point again today, leaving anyone unusual enough to name themselves a Foolish Investor on August 4th, 1994 now up 79.09% versus S&P 500 growth of 26.85%.
That sure makes you scratch your head when you think of the 75% of all mutual funds that lose to the S&P 500 each year; when you think of full-service brokerage commissions which too often force market-underperformance; when you think of those financial newsletters that Mr. Hulbert tracks, most of which underperform the market without inclusion of commissions and/or spreads; when you think of all this and far more in the financial world that rewards activity not performance. . . wow, it makes being Foolish, being contrary to it all, a bit more bearable.
Can you imagine that the greatest professional basketball franchise ever, the Los Angeles Lakers in the 1980s, thrived on this motto: NO ACTIVITY WITHOUT REWARD. Consider applying a similar theory to investing. That would demand concentrating on maximizing returns while minimizing the activity---the trading activity, the research activity, the anxiety.
Thus we start with Beating the Dow, the approach Foolishly-modified which has compounded 25.5% annually over the last 25 years. Doesn't take more than two minutes of research a year, unless you read our Dow Area, and then it takes zero research. DowMan does it for you. Sure, sure, AAII may not like it---but then again, they're not in the business of maximizing your returns and minizing your research investments, are they?
So, 25.5% per year. That's the backbone of our portfolio. That's General Electric, Sears and Chevron right now. Sears is up over 50% for us since we bought in August, 1994. General Electric is now up 9.2% for us since August of this year; and Chevron is lagging, down 4.6%. But that's the backbone. We see no indication that these sorts of market-doubling returns are going to slough off anytime soon. Thus, we bolster are savings with the Dow group.
Then we start adding some small- and mid-cap growth stocks. We focus on companies that generate cash internally and loads of it---they don't take on debt, they don't significantly dilute the value of their shares with series of secondary offerings; they are often in new markets, in technology; or they are consumer companies with strong brandnames, showing rapid growth, and a price-to-earnings multiple that falls short of reasonable annual growth expectations.
In there, we find America Online, the stock Wall Street loves to hate. AMER is up 450% in less than 18 months. Then we have Ride Inc., new markets, strong brand, solid management; RIDE is up 144% in less than six months. Alongside is The Gap, which raced forward $1 1/2 to a new high on the bid of $39 1/4. The Gap is up 20.6% in less than six months. Iomega, a new company with 100% sales growth, an overwhelmingly strong product brand in the Zip drive, and much promise with the Jaz. Iomega is up 57% for us in less than six months.
Those are our monster winners. . . not every stock has to roar out of the gates, but your overall portfolio should on average double the market per year, or you're making some mistakes. Remember, the 25.5% annual growth out of the Dow stocks already gets you there on no research. If you're going to venture out and look for great brands, cash-rich companies, new markets, blistering growth. . . you'd better outperform the Dow Four (2-2-3-4-5). Else you're wasting your time. . . there are better ways to pass the hours.
To close this Halloween out we remind Fools of two things: We never get spooked by the market. So what if it falls 35% in the next twelve months. If it does, our $89,500 portfolio will shrink into $58,175 and we'll be up over 16% since we launched on August 4th. While we don't expect to see a market-drubbing, if it happens, we'll let the traditional media and traditional financial services companies make their money off other people, creating armageddon scenarios and swaying the Wise into hopping into and out of their investments, willy-nilly.
The aim is to more than double the market, while each year, reducing the amount of time you have to invest in research and anxiety. Anyone who heads out into our stock folders to stir up controversy, fire off caustic remarks, multipost under various screennames, get people riled up, post long-term bearish posts. . . they are the Wise. They make making money difficult.
Fools just keep buying and holding. (For more of this ranting, refer to posts in the Cash-Kings folder on the Fool's School Board, listed in the Let's Talk Investment Approaches area).
No activity without reward.
- Tom Gardner, October 31, 1995
AMER + 1/2 AMAT - 5/8 CHV + 3/8 GE + 1/4 GPS +1 1/2 IOMG +1 KLAC --- RIDE + 1/8 S - 5/8 SNIC + 1/8
Day Month Year History FOOL +1.80% 1.80% 64.19% 82.31% S&P 500 +0.47% 0.47% 27.20% 27.45% NASDAQ +0.43% 0.43% 38.37% 44.48% Rec'd # Security In At Now Change 8/5/94 340 AmOnline 14.55 86.25 492.96% 5/23/95 510 Ride Inc. 9.91 24.00 142.26% 5/17/95 335 Iomega Corp 15.11 23.63 56.31% 8/5/94 165 Sears 28.93 34.75 20.14% 4/20/95 155 The Gap 32.55 38.25 17.51% 8/11/95 95 GenElec 57.91 62.25 7.49% 8/11/95 110 Chevron 49.00 47.50 -3.06% 8/24/95 130 KLA Instrm 44.71 41.00 -8.30% 8/24/95 100 AppldMatl 57.52 49.38 -14.17% 12/23/94 340 SonicSol 14.48 7.75 -46.49% Rec'd # Security Cost Value Change 8/5/94 340 AmOnline 4945.56 29325.00 $24379.44 5/23/95 510 Ride Inc. 5052.44 12240.00 $7187.56 5/17/95 335 Iomega Corp 5063.13 7914.38 $2851.25 8/5/94 165 Sears 4772.65 5733.75 $961.10 4/20/95 155 The Gap 5045.25 5928.75 $883.50 8/11/95 95 GenElec 5501.87 5913.75 $411.88 8/11/95 110 Chevron 5389.99 5225.00 -$164.99 8/24/95130 KLA Instrm 5812.49 5330.00 -$482.49 8/24/95 100 AppldMatl 5752.49 4937.50 -$814.99 12/23/94 340 SonicSol 4924.18 2635.00 -$2289.18 CASH $5969.86 TOTAL $91152.99