Fool Portfolio Report
Friday, November 10, 1995
Ok, so it wasn't nearly as phenomenal an end to a phenomenal week as we'd hoped for at midday. The Fool closed the day up 0.17% versus S&P and NASDAQ losses around 0.10%. We'll take it. After all, the aim isn't to double our money every year. . . it isn't to hit a particular number of 1%+ days per year. . . it's simply to soundly beat the S&P 500 in the decades ahead.
I think it's safe to say that Foolish staff members at Fool HQ and beyond are having a smashingly good time at the business of helping you with your investments, and helping themselves to market-beating profits, too. Enough so that we all should be a touch wider at the waist, considerably faster on the keyboard, and even more thorough with our research a decade hence as we clack out portfolio reports day after day---or will they come in the form of "brain transfers?" We'll still be here.
Let's look at the returns for the week together.
11/3/95 11/10/95 Change
America Online $87 $81 1/2 -6.3%
Applied Materials $55 1/8 $51 3/4 -6.1%
Chevron $47 7/8 $47 5/8 -0.5%
General Electric $62 3/4 $65 1/2 +4.4%
The Gap $41 7/8 $46 1/2 +11.0%
Iomega $24 5/8 $31 3/4 +28.9%
KLA $46 1/2 $41 -11.8%
Ride Inc. $23 1/2 $23 7/8 +1.6%
Sears $35 7/8 $38 1/2 +7.3%
Sonic $7 3/4 $7 3/4 --
FOOL PORT $93,614 $94,653 +1.1%
S&P 500 590.57 592.72 +0.36%
So, it was a winning week. And if you spy our three biggest winners and our three biggest losers you can get some sense of what's up on Wall Street. The Gap, which announced montstrous third quarter earnings, fully 21% above expectations, and Sears saw their stocks appreciate 11% and 7.3%, respectively. 'Tis typically the season to have some retailers in your portfolio, but this year is unique. Many of these stocks were marked down this summer---some continue to be---as consumer credit, cotton pricing, and Christmas doldrum concerns swept the Street. The Gap had fallen over 30% off annual highs by April, 1995.
What Wall Street forgot in the cases of both these stocks is that they are multi-billion-dollar giants, well-managed, and in the case of GPS, with a load of cash and zero debt on the balance sheet. Pronounced profitability enables businesses to gain market-share in down times, to drive out competition, and to spend some dollars increasing brand exposure.
The Gap's recent quarterly outperformance has us pricing the stock above $50 in the near- to intermediate-term. At present, we concur with sentiments in the Gap folder today---this one looks worth holding into Christmas. We have swept past our initial price target; we are now boosting that target in the wake of earnings. As for Sears, it continues to look like a $45 stock, though we'll necessarily be holding this one until next August---Beating the Dow, Beating the Dow, Beating the Dow.
Technology fell out of favor here in early November. . . we could even call it a correction. America Online down 6.3%, Applied Materials off 6.1%, KLA Instruments slashed 11.8%. At one point on Friday, America Online touched $86, up nearly $5 for the day---which would have made for much different returns for our Port today----but then gave it all back. Anyone out there think this train'll slow down into, through, and beyond the New Year?
And now, we close out the week with a review and celebration of Iomega Corporation (NASDAQ:IOMG). The stock rose 29% this week on the news that Micron would be internalizing Iomega drives in time for the Christmas selling season. It's an agreement that MF Chiros has labeled a "watershed" for Iomega. This is the same MF Chiros who has been consistently right in his research and valuations of the company, management, growth potential, and the stock price in 1995. Thank you, Charles, for your patience, your hard work, your committment to serving Fools across the nation *and abroad*, your thorough analysis, and yes, your strict objectivity. Passion, enthusiasm, and objectivity, an excellent collection of qualities in all Foolish research.
As for Iomega, let's make sure we're all on the same page here. The Company has remade itself, utterly. Go back and calculate the quarter to quarter sales growth, and listen closely to the quarterly revenue growth projections that CEO Kim Edwards has hinted at in his last two earnings conference calls. Then think of the strength of the "Zip Drive" name, and ponder what sort of popularity the Jaz Drive will meet up with. Page back through Kim Edwards' resume, and determine for yourself whether or not we have a consumer-demand genius overseeing our Company.
Then eyeball Joe Besecker's earnings expectations for 1996. . . stack them alongside MF Chiros'. Then flip back through that auditorium event we had, which is available via the listbox in the Hall of Portfolios, and dig out what portions of earnings Mr. Besecker said he is not yet including in his estimates. And why isn't he including it all? Because he wants Wall Street to believe his estimates---understandable.
Then look again at Chiros' estimates of $6 for fiscal 1996. Chiros doesn't care what Wall Street thinks---understandable and Foolish. Generate a reasonable multiple off those numbers? 10x, 15x, 20x? We expect fourth and first quarter earnings to blow things wide open, to startle Wall Street, and to drive the stock even north of here---where it presently sits a clean double for us since last May. And now let's all look forward to Comdex, from where Fools will be reporting back daily on the events there. Will SyQuest have the velcro jump? Will Iomega make any announcements?
To close tonight and this week, let's just re-visit the expectations we've set as investors from the day we launched our forum in August, 1994: To double the market indices that 75% of all mutual funds underperform year after year. We don't think individual investors should put a single dollar of their savings into any mututal fund. Even Vinik at Fidelity is sporting 28% returns this year versus 70.5% for Fools. And many of these mutual funds poke a number of hands in your pockets---entry fees, exit fees, management fees, and market underperformance---its own fee.
As the Standard & Poor's 500 has compounded 10.5% annually over the last six decades, we hope to compound in excess of 21% annually in the decades ahead online. Let's see how it plays out, eh? Not every year is going to find the market up 30%, and Fools scratching at 70% growth. Believe us. We'll LOSE money, and we'll even LOSE to the market over a 12-month period in the next decade. Gasp? Nope.
The aim is to prepare for the future of our families, not free up some cash between now and New Year's for some Lotto-Bucks tickets. The money that you can afford to put away for more than three years should not undereperform the S&P 500, and no professional money manager should charge management fees if over a 3-year period, client money hasn't outperformed the market. That would shut down 3 out of 4 of the 8000+ mutual funds. And it would find hundreds of thousands of more people hanging out in The Fool, *expecting* professional accountability, setting reasonable long-term expectations, and building models like Robert Sheard's Investing for Growth that beat Beating the Dow. How will it all play out. . . one of the more exciting stories to watch into the next century.
And if they come as we build it, then maybe Soros won't walk away with ALL of our money. ;)
Have a great weekend,
Tom Gardner, November 10, 1995
AMER + 1/2 AMAT - 1/8 CHV --- GE + 3/8 GPS - 7/8 IOMG + 3/8 KLAC --- RIDE --- S - 1/8 SNIC ---
Day Month Year History FOOL +0.17% 5.71% 70.50% 89.31% S&P 500 -0.09% 1.93% 29.06% 29.30% NASDAQ -0.16% 2.68% 41.48% 47.72% Rec'd # Security In At Now Change 8/5/94 340 AmOnline 14.55 81.50 460.30% 5/23/95 510 Ride Inc. 9.91 23.88 141.00% 5/17/95 335 Iomega Corp 15.11 31.75 110.07% 4/20/95 155 The Gap 32.55 46.50 42.86% 8/5/94 165 Sears 28.93 38.50 33.10% 8/11/95 95 GenElec 57.91 65.50 13.10% 8/11/95 110 Chevron 49.00 47.63 -2.81% 8/24/95 130 KLA Instrm 44.71 41.00 -8.30% 8/24/95 100 AppldMatl 57.52 51.75 -10.04% 12/23/94 340 SonicSol 14.48 7.75 -46.49% Rec'd # Security Cost Value Change 8/5/94 340 AmOnline 4945.56 27710.00 $22764.44 5/23/95 510 Ride Inc. 5052.44 12176.25 $7123.81 5/17/95 335 Iomega Corp 5063.13 10636.25 $5573.12 4/20/95 155 The Gap 5045.25 7207.50 $2162.25 8/5/94 165 Sears 4772.65 6352.50 $1579.85 8/11/95 95 GenElec 5501.87 6222.50 $720.63 8/11/95 110 Chevron 5389.99 5238.75 -$151.24 8/24/95130 KLA Instrm 5812.49 5330.00 -$482.49 8/24/95 100 AppldMatl 5752.49 5175.00 -$577.49 12/23/94 340 SonicSol 4924.18 2635.00 -$2289.18 CASH $5969.86 TOTAL $94653.61