Fool Portfolio Report
Tuesday, December 12, 1995
This marks the fourth consecutive day that The Fool Portfolio has pocketed a consolation prize, been booed off the stage, and limped humbly back to the hotel accomodations arranged for all contestants. Having lost to the NASDAQ by 0.01% yesterday, we trudged in 0.08% behind the NAZ today, and 0.85% behind the S&P 500.
To celebrate our recent performance, which has seen $4,000 stripped from our account in four market days, David and I will be in the Coliseum at 8 PM EST. Fools can get there by going to keyword: Centerstage and then clicking "Auditoriums" or you can link directly to the event via the entry in our mainscreen listbox.
No sense in yet celebrating General Electric, our single real winner of the day, when our semiconductor stocks did so poorly. Applied Materials and KLA Instruments bowed $3 and $2 3/4, respectively, on news that an internal memo from SoundView Financial proposed more year-end inventory paring, price declines, and a chip oversupply into 1996. How internal was that memo?
Two things about this strike us as interesting.
The first is tied to a recent report that Fidelity Magellan has delisted Applied Materials from their Top Ten Buy List and that Hewlett-Packard now sits atop that list. Fools noted that in the wake of this announcement, Hewlett-Packard fell $3 1/2 to $83 1/8. Possibly the market muses that what one says and what one does ain't necessarily one in the same. . . possibly? Even possibly that they may be exact opposites. . . ?
The second thing that interests us is that whether or not SoundView Financial says and does the same thing, and is right about softness in chip pricing, they're speaking of a single turn into 1996. Fools are looking years out with our KLA Instruments and Applied Materials investments. Companies like AMAT---with $700 million in cash and $1.3 billion in working capital, without significant debt obligations---and companies like KLAC---with $120 million in cash, $230 million in working capital and no debt. . . they don't just rollover and die when the market softens. Actually, we expect 'em to excel in soft markets. . . though the market-share growth may take time to show.
And that reminds us a bit of The Gap (NYSE:GPS), which rose $1/8 to $46 1/4. According to a Dow Jones news story released today, Michael Exstein over at Paine Webber opined that, since Thanksgiving, "[retail] business has gone into a valley, which looks deeper than normal. The customer will eventually show up, but the question is whether the retailer can stand the pain till then."
We agree. A soft market. Price wars. Market-share positioning. An industry gets pounded. But strange as it may seem, we believe that it's under these circumstances that our Gap shares thrive. We hold that investors do well to locate the most profitable, most financially sturdy, most familiar businesses in the beaten-down groups---as long as we ain't talking buggy whips. Lynch said as much in his investment books, proposing buying the best companies out of the worst group rather than middling companies out of the best group.
With twice more cash than debt, and $500 million in working capital [Defined: Current assets less current liabilities], The Gap can stand this season's pain. . . or better, can overtake ailing competitors. It pays to save cash, both at the level of corporate *and* individual. We expect GPS shares to have a nice Christmas run.
Wooosh, it's time to celebrate our only notable winner today, General Electric. The company announced that its NBC unit paid $2.3 billion for the exclusive U.S. network and cable rights to broadcast the 2004, 2006 and 2008 Olympic Games. That's a lot of shekels. Of course, when you're running 10% profit margins off $68 billion in annual sales, you can afford to buy rights in advance. General Electric closed the day up $1 1/4 to $71 7/8, or up 24.11% for us since we claimed our 95 shares last August.
General Electric has also been turned over and again in the rumor mill this past week, with word from Variety magazine that Microsoft was considering a 49% equity position in their network as well as a joint venture on a 24-hour financial news network. Why mention this here at the end of the report?
Well, what better place than Fooldom to remind investors NOT to treat market giants, with loads of capital and broad margins, like small-capitalization high-flyers. The next time you here that Microsoft has been locked out of the new media, that the Internet has swept past 'em, that Netscape hasclaimed the market, and that you, Fool, had better trade out of your heretofore market-walloping positions, well. . . why not just smile?
Netscape has $23 million in cash. Microsoft has over $4.5 billion in cash. Understanding the value of these dollars going forward into a digital world will remind us lowly Fools to hold tightly the shares of great companies, to maintain perspective, often a challenge with the surge in information, to keep investment costs low and to wallop the market decade after decade, without much anxiety about hours, days---short-term price fluctuations.
But we can talk about all that and more tonight in the Coliseum at 8 PM EST.
Tom Gardner, December 12, 1995
AMER - 3/8 AMAT -3 CHV --- GE +1 1/4 GPS + 1/8 IOMG - 1/4 KLAC -2 3/4 S - 1/2
Day Month Year History FOOL -0.97% 0.94% 73.88% 93.06% S&P 500 -0.12% 2.22% 34.73% 34.99% NASDAQ -0.89% -0.68% 39.91% 46.08% Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 40.13 451.71% 5/17/95 335 Iomega Corp 15.11 45.38 200.22% 4/20/95 155 The Gap 32.55 46.25 42.09% 8/5/94 165 Sears 28.93 38.88 34.40% 8/11/95 95 GenElec 57.91 71.88 24.11% 8/11/95 110 Chevron 49.00 52.75 7.65% 8/24/95 100 AppldMatl 57.52 44.63 -22.42% 8/24/95 130 KLA Instrm 44.71 33.75 -24.52% Rec'd # Security Cost Value Change 8/5/94 680 AmOnline 4945.56 27285.00 $22339.44 5/17/95 335 Iomega Corp 5063.13 15200.63 $10137.50 4/20/95 155 The Gap 5045.25 7168.75 $2123.50 8/11/95 95 GenElec 5501.87 6828.13 $1326.26 8/11/95 110 Chevron 5389.99 5802.50 $412.51 8/24/95 100 AppldMatl 5752.49 4462.50 -$1289.99 8/24/95130 KLA Instrm 5812.49 4387.50 -$1424.99 8/5/94 165 Sears 4772.65 6414.38 $1641.73 CASH $18981.96 TOTAL $96531.34