Fool Portfolio Report
Tuesday, January 16, 1996
Mark this day down. Make mental notes here. Carve out a special journal entry this evening. Write with a thick red pen. Tell your children to remind you of January 16th, 1996 whenever you get anxious about your investments. Don't let the concept of "options expirations" disappear to the grave with you, Fool. Volatility, thy name is short-term speculation!
As we head into the next round of options expirations days, a mere three days hence, wouldya look at our sleek steed, Iomega (NASDAQ:IOMG). By midday, the stock had fallen $5 3/4 to $34 1/4. A lick of news? Nope, not a lick of news. By market close, shares of IOMG had rocketed back up to a bidding close of $38 3/4. A lick of news? Nope, not a lick of news.
Fools don't pass many hours speculating on what happens when options contracts approach expiration; we don't rage about short-term trading activity. And we're certainly not going to drag the cucumber crate out front of Alexandria's Civil War statue (the one that's been knocked over in automobile accidents six times in the last decade), hop up onto it, and passionately call for some regulatory action. You will not hear us shrieking about SOES bandits, the potential for market manipulation, talk of hyping, rumors about media fronts for shorts. . . all the little lunacies of the public markets.
But why not?
Because we don't care. Iomega's fundamental story, the loads of IOMG employees, the (in particular) three outstanding products they've developed, the structure of financing with Wells Fargo, the sequence of earnings announcement, split, and share offering, the consumer reports from the front lines, the financial strengthening throughout 1995---none of it has changed since early December, when the stock was being priced at $53 3/4. And certainly none of it changed in the last twenty-four hours, during which the Company has seen its value fall 14.38% only to rapidly rise 13.14% hours later.
We have found no recent fundamental change in the business in which we hold an ownership position. Iomega's competition is in all cases well-unmarketed, in most cases glassed-off, in some cases comes from companies concerned with many other businesses, and, in our estimation, in all cases isn't yet anything that could be named "competitive."
Strange just how much similarity there is between the above paragraph and the situation America Online, the company and stock, has found itself in repeatedly over the past few years. Apparently, there was no entry bar. According to technology researcher Michael Murphy, the glassed-off Microsoft Network was going to obsolete AOL.
And as for the marketing comparison. . . let's just pull a chapter out of our Label-ology textbook. America is Going Online. . . People Are Picking Prodigy. . . The Club Has Come to CompuServe. Leave out all product analysis and play blind marketer with us for a second: Which one of the three is an easier sell? If the solution seems elementary. . . how about applying the same logic to the Zip and Jaz drives and their "competitors."
America Online (NASDAQ:AMER), in the wake of news about a big-kahuna Prodigy unbundling, rose $3 1/8 to $36. One media organization explained this away as a consequence of the Internet Revolution. One phrase from the article will suffice: "The commercial services are scrambling. . ."
Hooey. Mind you, we love the notion that the companies we invest in scramble to serve customers, employees and shareholders, scramble to scare up new business opportunities, scramble to profitably expand their product and service offerings. But let's be accurate at least here in Fooldom. America Online is growing subcribers today faster than it ever has previously. Let's analyze how profitable the business is. Let's analyze it's new products. Let's study the marketing strategy. Let's assess the growth together. Let's be critical in our search for a fair value.
And let us, perhaps most importantly in light of the Iomega move, look right past the short-term trading activity and the oft oversimple old media analysis that we've been subject to for too long.
Klickety-KLAC, KLA Instruments rallied back $4 to close the day at $27 3/4. That's a 16.8% single-day move---a full 68% above average *annual* market returns. No company-specific news. Applied Materials was up a dollar as well. Have we seen the last round of downgrades?
Irv Hamlin (MF Ham. . . master of the Hamlet folder in The Fool's School) penned a note yesterday that reeks of Folly. In it, Irv talks a bit about the future of technology, about the Street's very broad short-term assault on the group, about the probability that institutional investors are trading symbols and rumors rather than ownership slices of companies, and about how comfortable he feels following his fundamental research, his impressions and his instincts. Irv is a young whipper-snapper. . . another green investor buying into Internet-style hype. . . he has yet to see much of the world. . . he's a rookie compared to the sagacious few, the analysts on Buy, Hold or Punt, the pundits, the gooorooos. . . experience will treat him to a couple hard lessons?!!
Nope. Check MF Ham's member profile and drop by the Hamlet. Intellectual investments in heightened Foolishness pay broad, consistent and long-term dividends.
AMER +3 1/8 AMAT +1 CHV + 1/4 GE + 3/4 GPS + 3/8 IOMG - 5/8 KLAC +4 S - 7/8
Day Month Year History FOOL +2.92% -3.74% -3.74% 79.74% S&P 500 +1.44% -1.22% -1.22% 32.73% NASDAQ +0.74% -5.35% -5.35% 38.28% Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 36.00 394.99% 5/17/95 335 Iomega Corp 15.11 38.75 156.39% 8/5/94 165 Sears 28.93 42.13 45.63% 4/20/95 155 The Gap 32.55 45.75 40.55% 8/11/95 95 GenElec 57.91 70.75 22.16% 8/11/95 110 Chevron 49.00 52.88 7.91% 8/24/95 130 KLA Instrm 44.71 27.75 -37.94% 8/24/95 100 AppldMatl 57.52 32.38 -43.72% Rec'd # Security Cost Value Change 8/5/94 680 AmOnline 4945.56 24480.00 $19534.44 5/17/95 335 Iomega Corp 5063.13 12981.25 $7918.12 8/5/94 165 Sears 4772.65 6950.63 $2177.98 4/20/95 155 The Gap 5045.25 7091.25 $2046.00 8/11/95 95 GenElec 5501.87 6721.25 $1219.38 8/11/95 110 Chevron 5389.99 5816.25 $426.26 8/24/95130 KLA Instrm 5812.49 3607.50 -$2204.99 8/24/95 100 AppldMatl 5752.49 3237.50 -$2514.99 CASH $18981.96 TOTAL $89867.59