Fool Portfolio Report
Friday, March 8, 1996

by David Gardner (MotleyFool)

ALEXANDRIA, VA, March 8, 1996 -- OK, so the market bombed today. Pretty much all indices, Foolish and otherwise, dropped about 3%. As it turned out, our portfolio lost the mostest, off 3.84% to the S&P 500's 3.08% and the NASDAQ's 2.69%. Whatever. Ugly day, and a bad continuing month (we're now off 6.41% so far in March).

How were we spending the day, we were asked by one reporter. Honest answer? We were watching NCAA hoops. Seriously, most of Fool HQ was grouped around the big-screen TV watching the ACC basketball tournament.




Not really. Nope. Just a pack of long-term investors, that's all. Hey, we know the market doesn't go up all the time. We write about it repeatedly in this space, and days like today are ever-fresh reminders that the market can have bad times. Who knows? Maybe we'll drop another 3.84% on Monday, and then again on Tuesday. Or worse. Maybe we'll drop 25% in the next 8 months.

Then again, maybe the market will bounce back strong this Monday and Tuesday, as it has done so repeatedly over the past year. And maybe we'll go up better than 20 percentage points over the market again this year. Either way, no sweat. What Fools are concentrated on, as usual, is the 10% annualized returns we see in stocks for more than six decades. Or, more importantly, the 25% annualized returns that the Foolish Four have rung up for more than two decades.

These numbers confound the Wise: mediocre hack journalists who think stocks are too risky, full-service brokers who tout high-load mutual funds, or financial planners who would have us think that you either need to hire or BE a professional in order to invest. You've met these types (just as you've met genuinely good journalists, good brokers, and good financial planners, too). If you're succeeding, your success is probably firmly rooted in your ability to ignore such bad messages.

So while we're always disappointed to see on a given day that America Online has dropped $3 1/4, and GE is off $3 1/8, and Chevron and Sears have both surrendered $1 7/8, and Medicis is down $1 1/4, and on and on, that's just one day, in just one month, in just one year.

Remember that day when we finally crossed the 100% total return mark on our portfolio, a few months back? We were the guys who had this to say:

"You know what? We're LUCKY!"

Hey, any numbers you put up in the short term involve about as much luck as skill. We've seen one or two critics---I think of them as the less imaginative, or less intelligent critics---whose criticism of the Fools is that we have done TOO WELL so far. Their big rap on us is our excellent short-term record, as if we should be embarrassed or ashamed of triple-digit returns, or as if we're misleading people into thinking this is actually regularly possible. But that's OK with us. . . we're the ones who pointed out the luck in the first place.

That said, we're also the ones who stuck our necks out in full public view on August 4, 1994 and said, "Avoid mutual funds. Pay no mind to the Wise. We're here to teach you how we invest, we're going to tell you about all of our investment decisions ahead of time, we're going to deduct expenses from our returns, and report our performance with total accountability on a daily basis. We're doing all this right out in front of America, because we think small investors can beat the market, and we intend to prove it."

(Fool Trivia note: In a matter of minor interest, today's 3.84% drop put the Fool Portfolio at an historic return of exactly---to two decimal points, anyway---100.00%. . . on the nose. The value of the portfolio is now $100,002.13.)

The Motley Fool was borne out of the idea that we, average investors, COULD beat the market handily. . . SHOULD do so, in fact, because of all the advantages we enjoy. And so far, at least, we've demonstrated just that. Accused of riding a great bull market in a recent review of our work, we noted the disingenuous writer's failure to note that we are not actually riding but in fact KILLING a great bull market. Sure, the S&P 500 is up 38% since we started. . . the point lost on this poor chap is that we're up 100%. We teach people not to look at their own percentage returns, but rather always to COMPARE those returns to the market averages. It's amazing how few actually do.

Before we close, let's ask ourselves the burning question. How did these little-guy investors possibly do it? Why should such a thing come to pass? Well, we write about the advantages of small investors in our book, "The Motley Fool Investment Guide." And it's always worth reviewing them from time to time.

As investors, you and I are CONSUMERS who actually USE the products we invest in (as opposed to those who must "analyze" them from 40 stories up a Manhattan skyscraper). We get to invest comparatively small portfolios, which we can invest more nimbly than billion-dollar mutual-fund managers. And we needn't grossly overdiversify like them fellas (one of the banes of the mutual fund industry). Even better, we invest by buying and HOLDING for the long term, vs. a Wall Street world whose mentality is, "How did you do this month, or this quarter?" (We on the other hand don't mind the occasional horrible quarter. We think if you're NOT putting up a stinky quarter or two every couple of years, you're probably not taking enough smart investment risk, crippling your rewards.)

I find it important to reiterate these statements in light of occasional misunderstandings of the thoroughly Wise. F'r'instance, with amusement I recently read myself quoted this way:

"The Gardners have been living in a bull market since they were teens. Experience has taught them that stocks only go up. 'The terms bull and bear markets are misleading,' David Gardner says. 'I don't really recognize the distinction. We all live in an eternal bull market.' "

Gee. . . what a daft guy this Gardner fella must be, to say something like that, eh?!

What's missing from my quotation, pulled flagrantly out-of-context, is that I specifically prefaced that declaration by stating I'm a LONG-TERM investor, so that terms like "bear market" and "bull market" batted around by the media all the time are artificial short-term distinctions irrelevant to me. Try this: look at the overall graph of the Dow Jones industrial average this century, and you'll see exactly what this long-term investor means by "an eternal bull market."

The point is that it's not just I who have been living in a bull market since my teens; it's equally true of you, no matter how old you are! Long-term investors---say it again---see 60 years of 10% annualized returns for stocks, the best-performing long-term investment I know of. That's one loooooong bull market, the "eternal bull market" heretofore mentioned, the one that (what a surprise) always hits higher highs after any number of lows. The very same one, in fact, that benighted or disingenuous hacks try to scare you out of.

Yep, scare you out of. In the same article, the esteemed commentator couldn't resist showing his true colors. "The world is simply ga-ga about stocks.... Somewhere, this bull too will die.... This feel-good era likely will... bring us closer to the end."

Buying gold for the last few years, were we?

My fellow Fools, I will close tonight with the very lines verbatim that I wrote to close our book. No prophet me, these lines would seem to bear some small prophetic quality in light of what you just read:

"The Wise will continue to offer you their sophistical ramblings and their many-splendored mediocrities. The whole point of this book is to brush off the worldly wisdom, point not up but OUT at the world around us, and find the next damn winner.

"Folly forever."

---David Gardner, March 8, 1996

TODAY'S OTHER FOOLISH STUFF: (to be read in Casey Kasem voice): The Motley Fool Invesment Guide debuted on the charts at number five this month. The New York Times Business Book Best Seller list shows Bill Gates' "Road Ahead" at number two. A little more momentum, a touch of old guard-new guard rotation, and Foolishness edges out the founder of the most profitable company of the 21st Century. Set to!

Today's Moves

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

Today's Numbers

Day Month Year History FOOL -3.84% -6.41% 7.11% 100.00% S&P 500 -3.08% -1.08% 2.85% 38.20% NASDAQ -2.69% -3.30% 1.10% 47.70% Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 44.00 504.99% 5/17/95 1005 Iomega Cor 5.04 16.38 225.03% 4/20/95 155 The Gap 32.55 52.75 62.06% 8/5/94 165 Sears 28.93 45.88 58.60% 8/11/95 95 GenElec 57.91 74.75 29.07% 8/11/95 110 Chevron 49.00 53.63 9.44% 1/29/96 250 Medicis Ph 27.86 26.25 -5.78% 8/24/95 100 AppldMatl 57.52 33.75 -41.33% 8/24/95 130 KLA Instrm 44.71 21.50 -51.91% Rec'd # Security Cost Value Change 8/5/94 680 AmOnline 4945.56 29920.00 $24974.44 8/24/95 100 AppldMatl 5752.49 3375.00 -$2377.49 5/17/95 1005 Iomega Cor 5063.13 16456.88 $11393.75 4/20/95 155 The Gap 5045.25 8176.25 $3131.00 8/5/94 165 Sears 4772.65 7569.38 $2796.73 8/11/95 95 GenElec 5501.87 7101.25 $1599.38 8/11/95 110 Chevron 5389.99 5898.75 $508.76 1/29/96 250 Medicis Ph 6964.99 6562.50 -$402.49 8/24/95 130 KLA Instrm 5812.49 2795.00 -$3017.49 CASH $12147.13 TOTAL $100002.13