Fool Portfolio Report
Thursday, December 21, 1995

The Fool Portfolio pushed ahead 0.92% versus S&P gains of 0.75% on dollar plus moves by America Online and Applied Materials. There was no news on any of our stocks, except for Sears which announced that it will remodel its four stores in Buffalo. Sears rose $1/4.

Hey, it's time to celebrate one of our favorite folders here at Fool HQ, the "My Dumbest Investment" folder located on the Talk with the Editors board. Therein, hundreds of Fools have lamented over bad real-estate investments, penny stocks that spiraled into halfpenny stocks, great stocks that should have been held, and even a word or two about Crazy Eddie from our very own courageous MF ETurkey---that in Fribbledom.

When you think about it, that's probably the greatest folder in our area. Because when you peer back at your investing career, you're going to dig up plenty of losing investments, plenty of boneheaded miscues, plenty of dumb and dumber investments. And maybe, by publicly reviewing the misadventures of the Halfwitted Investor, we can all improve our results.

Thankfully, for us, with our portfolio up 86.04% versus S&P 500 returns of 33.18%, we really haven't made any mistakes. Sure, sure, we enjoy reading about how other people lose money, how other Fools throw away their savings, but we just don't play that game. I mean think back on this year for a second: The Motley Fool Portfolio has literally been flawless. Can you come up with a single investment decision that we've made since our inception that would imply anything less than genius?

Really, we don't make mistakes here.

Uhhh. . . really?

This is when thoughts huibsian creep into the brain, and the truth outs. Is a market-walloping portfolio really without flaw? Let's look in:


Remember the Alamo, remember the Maine, remember Paychex! At our digital birth, we borrowed 150 PAYX shares, sold them out on the open market, and sat back waiting for the $32 stock to get beaten down into the mid-twenties. Scan forward eight months, to March 13, 1995, and you'll find a portfolio report entitled, "Paychex Pounds Fool." The stock rose another $2 3/4 that day to $44 1/4. When we cashed out of our position two weeks later, the stock was down (or up) 39.7% for us. We lost nearly $2,000 shorting Paychex.

How about your favorite bugged-out, componentless digital-audio-workstation manufacturer, Sonic Solutions. Purchased just about a year ago, sporting that infamous ticker SNIC (like St. Nick), Sonic Solutions missed their first round of estimates, and the stock collapsed like Santa after the ninth bowl of eggnog. Thud. When we sold SNIC in the middle of November, after miserable quarter after miserable quarter, the stock had fallen 55.6%. We lost over $2,700 in Sonic (it hurts to say) Solutions. Solutions?

Hey, how about that brilliant play on snowboards we made last Spring. We gathered up 510 shares of what was then Ride Snowboard at a split-adjusted price of $9.91 per share. When we sold Ride Inc. at the end of November at $21 a share, with 115% growth under our belts in six months, we were feeling pretty self important. We shut the lights off at Fool HQ, dumped a load of soap flakes in downtown Alexandria, VA, strapped on our snowboards, tied 'em up to the back of The Fool bandwagon, and slid down mainstreet, waking up local merchants the whole way! Today, less than a month later, the stock is up 33% higher, bidding $28 a share. We missed out on over $3,500 in profit by stepping out of RIDE in November.

And all of this without even mentioning our entry-points into the world of semiconductors, picking up shares of Applied Materials and KLA Instruments pretty much at their all-time highs. The two stocks are down 27% and 38%, respectively, and combined they've lost us over $3,750.

What are some of the lessons learned? Not really any. . . just lessons RE-learned. Watch the quarterly perfomances versus estimates closely, stay on top of the balance sheet and cash-flows, don't short broadening profit margins, think long and hard about sticking with great companies in great industries, and well, semiconductors. . . we're still confident about these over the long-haul, so in Buffetian tradition, we'll wait on the fundamentals in the year ahead.

Add up all of our dumbest investments over the year, with losses of $2,000, $2,700, $3,500, and $3,750, and you have the Idiocy line of our income statement reading ($11,950), or approximately 24% in losses off our original portfolio of $50,000. Wow. And out of all of this, we've landed a book deal with Simon & Schuster, a monthly column with SmartMoney magazine (January issue is on the newsstands now), a variety of business partnerships, and a subscription base numbering more than 140,000 households in the nation---that's you all. . . FOOOOLS! :)

Holy cow. Only in America, eh?

And what is our answer to all of this stupidity, all of these money-losing investments, all of this failure. Actually, it's Beating the Dow, first. When you bolster your portfolio with General Elecrtic, Sears, American Express, Merck, Chevron, you go a long way towards ensuring that there'll not only be eats on the table, but that you'll outperform the market over the long haul. Would you believe that our Dow stocks have actually UNDERperformed the market in our seventeen months online? They have.

So what's the next step? Find highly-profitable, cash-cowing, unleveraged, well-managed businesses in blooming industries. That's Foolish. Dowing the market and PEGging the market has led us nearly to a clean triple since we showed up in digital form.

But the REAL key to beating the market is to concentrate on maximizing growth whilst minimizing the work and to set high standards of accountability. When you find financial services that don't hold themselves strictly accountable versus the S&P 500, you find companies that don't actually care about beating the market. And that's not good for a Fool's savings.

In the end, it isn't the dumbness or genius of every single investment, it's the bottom-line accountability that matters. [Darn, we just gave away our entire business plan.]

Fool on, one more market day until we can all spend a few entire days looking around at all the human reasons we invest.

Tom Gardner, December 21, 1995

Today's Moves

AMER +1 1/4
AMAT +1 3/8
CHV + 3/4
GE + 3/8
GPS ---
IOMG - 1/2
S + 1/4

Today's Numbers

Day Month Year History FOOL +0.92% -2.73% 67.56% 86.04% S&P 500 +0.75% 0.85% 32.93% 33.18% NASDAQ +1.50% -1.75% 38.39% 44.50% Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 37.25 412.18% 5/17/95 335 Iomega Corp 15.11 45.75 202.70% 8/5/94 165 Sears 28.93 39.38 36.13% 4/20/95 155 The Gap 32.55 43.13 32.49% 8/11/95 95 GenElec 57.91 70.38 21.52% 8/11/95 110 Chevron 49.00 51.88 5.87% 8/24/95 100 AppldMatl 57.52 42.00 -26.99% 8/24/95 130 KLA Instrm 44.71 27.75 -37.94% Rec'd # Security Cost Value Change 8/5/94 680 AmOnline 4945.56 25330.00 $20384.44 5/17/95 335 Iomega Corp 5063.13 15326.25 $10263.12 8/5/94 165 Sears 4772.65 6496.88 $1724.23 4/20/95 155 The Gap 5045.25 6684.38 $1639.13 8/11/95 95 GenElec 5501.87 6685.63 $1183.76 8/11/95 110 Chevron 5389.99 5706.25 $316.26 8/24/95 100 AppldMatl 5752.49 4200.00 -$1552.49 8/24/95130 KLA Instrm 5812.49 3607.50 -$2204.99 CASH $18981.96 TOTAL $93018.84