Fool Portfolio Report
Tuesday, February 27, 1996

Note to NORTH CAROLINA: David Gardner will be appearing in person to sign YOUR copy of "The Motley Fool Investment Guide" in Charlotte this Wednesday night. Join David at 7 PM for an hour of reading, speaking, and interactive Q&A---and some signed books---at The Little Professor bookstore, 4139 Park Road at Park Road Shopping Center. Bring your best friends, your worst enemies, and everyone in between. Questions? Call the store at 704-527-0706!

By Tom Gardner (TomGardner)

SOHO, NY, Feb. 27 --Let's start with the really bad news today, and gradually wind our way down to Iomega's financing deal announced this afternoon and the continued advance of Gap stock.

No news, however sweet, will make up for the beating The Fool Portfolio took today. The Foolish fowl, wing-clipped, fell 3.49% versus a decline in the S&P 500 of 0.50%. Today's advantage goes to the Vanguard Index Fund. . . the single fund that all of your long-term capital investments should be tracked against. If you can't beat it, join it. Thankfully, one day does not a long-term investment make.

That said, with today's thumping, it may be time to officially fall back on our newest valuation construct: The Leibnitz Preharmonic Oscillator (tm), which is showing very strong sentiment readings. . . which of course are bearish. As you well know, the Leibnitz Oscillator (tm) is a classically contrarian indicator.

And even though our Oscillator demands a little more tweaking before we tear back the covers and release it to worlds known and unknown, my personal feeling is that the Oscillator in its present form is a better tool than the PEG model. More on all this in the weeks and months ahead.

For today, we'll resign ourselves to fundamentally evaluating these companies we've invested in, looking at growth in sales, earnings, earnings per share, past performance, present circumstance, and the future.

America Online (NASDAQ:AMER) fell $5 a share to $48 1/8. Today, AT&T announced that it is entering the Internet fray, planning to provide access to mostly corporate advertisements and brochures (i.e. Web pages) at monthly rates of a whopping $0 per hour for the first five hours. Look out, pricing re-definition attempt.

The news shook Wall Street's faith in our most profitable investment over the past year and a half, which dropped the stock 9.5% today with over 3.9 million shares trading hands. Three things strike me as notable today.

First, we're being spoonfed the "Limited Potential" argument again. . . typically the one thrown about by some of the institutions that, ahem, profit most off your trading activity. No wonder we heard word in our AMER folder today of the pros recommending tight stop-losses, eh? Well, our opinion is that AOL has plenty of business opportunities that can fit around an AT&T direct link to the Web. And call it sacrilegious on this day of American Telephone but cable-modem feeds in the years ahead are most likely going to make shaky phone lines. . . well, cheap.

Second, exactly what are these 80 million customers going to head out on the Web for? With their 9600 baud modems, do they want to stand in line (slow access) to sift through a couple thousand brochures? Not to be too harsh on the well-promoted Web but as of yet, it hasn't proven much more than a technology playground. An extraordinary one at that. But let's give it the proper credit. The Web is not your Hal-&-Harriet-Homeowner's entertainment center. It's technology, often brilliant technology; it can tell us what's coming. Presently, it isn't, and won't any time soon be, a consumer service.

Third, as powerful a force as AT&T is, why don't we study the performance of their stock relative to America Online's over the past two-and-a-half years. Let's go back to July, 1993 when AT&T (NYSE:T) was trading at $65 a share and America Online (NASDAQ:AMER) was trading at $5 a share. Today, America Online is trading at $48 1/8, up ten times its value then. And AT&T is trading at $64, off a dollar from back then.

We still believe that when it comes to maximizing shareholder value, providing services in the interactive world, and creating enterprising business models that serve customers AND shareholders, America Online shines.

But please don't divorce our opinion from our identity. We're Fools. We're in this investment, this business, and this industry for the long haul. Whether you buy and sell, and then buy again, and then sell, buying later, only to get out once more soon after, quickly followed by a jump back into this stock, then an exit, then what the heck, one more stab at it. . . that's of no interest to us. Long-term capital growth, education, and Foolishness: that's our business.

Oof, semiconductors took a drubbing today with Applied Materials falling $3 1/4 and KLA Instruments off $2 a share. We continue to think that the industry is doing a mediocre job of telling the Street the story of its potential in the decade ahead. The less that Wall Street understands the business, the more that rumor plays a role in the intermediate-term pricing. We are, however, in for the long haul.

Ok, let's get to some good news, darn it!

Iomega Corporation (NASDAQ:IOMG) announced a new financing package with Hambrecht & Quist today, priced at $40 million in convertible debentures. There have been a series of outstanding posts in our Iomega folder this afternoon, explaining the structure of the deal with a review of the immediate and more distant consequences. Kudos in particular to "Bankguru" who reviewed in detail the implications.

Iomega rose $1 to $16 7/8, now in striking distance of new highs. Imagine the Lost Individual Investor who, upon reading critical newspaper reports and listening to critical television reports, decided to---aw what the heck---hop aboard the giant shorting wagon in late January, when the stock was trading below $12.

Accountability is going to haunt the Wise. . . no?

It is times like these that remind us how powerful this medium is. What are the chances that your offline friends even know about the deal today, let alone understand the structure of it? It's extraordinary. As we branch out into other media---from SmartMoney to Foolbooks to semiconductor-brainchip-implant communications---the lessons from this online "platform" and its efficacy as a teaching tool primarily are going to sit permanently in Foolish heads.

The Gap (NYSE:GPS), ya kinda gotta love it. The market gets beaten up again today, and GPS keeps on trucking into its earnings report. Gap shares rose $5/8 today and are now up 60.5% for us since last Spring. The important lesson and/or reminder here is this:

Consumers can't be told what to buy. Consumers don't care that you have $70 billion in revenues, or that you once dominated the world of storage technology, or that you're certain they'll want your clothes. Great consumer businesses don't tell America what will work. . . they ask.

With that in mind, look at the three strongest performers sitting in The Fool Portfolio today:

America Online +572.02%

Iomega Corp. +232.48%

The Gap +60.52%

Today's Moves

AMAT -3 1/4
CHV - 1/2
GE - 7/8
GPS + 5/8
MDRX -2 3/4
S - 1/2

Today's Numbers

Day Month Year History FOOL -3.49% 5.86% 12.25% 109.60% S&P 500 -0.50% 1.77% 5.08% 41.20% NASDAQ -0.62% 4.37% 5.13% 53.59% Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 48.88 572.02% 5/17/95 1005 Iomega Cor 5.04 16.75 232.48% 4/20/95 155 The Gap 32.55 52.25 60.52% 8/5/94 165 Sears 28.93 45.75 58.17% 8/11/95 95 GenElec 57.91 77.50 33.82% 8/11/95 110 Chevron 49.00 55.63 13.52% 1/29/96 250 Medicis Ph 27.86 24.75 -11.16% 8/24/95 100 AppldMatl 57.52 38.25 -33.51% 8/24/95 130 KLA Instrm 44.71 26.50 -40.73% Rec'd # Security Cost Value Change 8/5/94 680 AmOnline 4945.56 33235.00 $28289.44 8/24/95 100 AppldMatl 5752.49 3825.00 -$1927.49 5/17/95 1005 Iomega Cor 5063.13 16833.75 $11770.62 4/20/95 155 The Gap 5045.25 8098.75 $3053.50 8/5/94 165 Sears 4772.65 7548.75 $2776.10 8/11/95 95 GenElec 5501.87 7362.50 $1860.63 8/11/95 110 Chevron 5389.99 6118.75 $728.76 1/29/96 250 Medicis Ph 6964.99 6187.50 -$777.49 8/24/95 130 KLA Instrm 5812.49 3445.00 -$2367.49 CASH $12147.13 TOTAL $104802.13