Fool Portfolio Report
Thursday, March 14, 1996

by Tom Gardner (TomGardner)

ALEXANDRIA, VA, March 14, 1996 -- Well, after a 12.5% rise over a three-day period, maybe it was time for a breather. The Fool Portfolio hit a snag, falling 0.98% today versus S&P 500 gains of 0.37%. A poor day, but 1996 has been a wonderful year for our portfolio. The Fool is up 19.23% versus S&P 500 growth of only 4.05%.

To our thinking, though, what is much more important than our nineteen-month returns of 122%, or our market outperformance in 1996 is simply the fact that we're holding ourselves accountable, publishing our investment performance relative to market growth, while deducting commissions and spreads. When we bought General Electric, we paid $57.91 per share. When we purchased The Gap, we paid $32.55 per share. When we bought KLA Instruments, which is down 49.96% for us, we paid $44.71 per share.

Just when our portfolio is crushing the market like a ping-pong ball underfoot, we again make a formal plea to the Street for an end to creative bookkeeping. Would that every financial newsletter bedded down with their actual bottom-line performance. Would that every equities mutual fund stacked their returns up against the Vanguard Index Fund. Would that every brokerage firm showed post-commission returns to their clients. Would that all of these turned against all amateur accounting standards and aimed to educate. Good business expands markets.

If you think we're overly contentious and aggressive on these points, you're absolutely right. I'll reiterate: The unprofessional accounting standards in the financial industry---from the newsletters that don't account for spreads, to the brokerage firms that don't clearly report and *explain* commission costs to their clients, to the mutual funds that don't relate their post-expense performance to the S&P 500 (and the Vanguard Index Fund)---are unforgivable.

Saying this apparently makes us "revolutionaries" here at Fool HQ. Angry and unreasonable Fools. But I don't think there's anything terribly rebellious in there. In many ways it's all as much a curiosity of ours as it is a complaint. Shouldn't we expect of the investment-advisory industry the same reporting guidelines that they demand from the public companies they recommend for investment? Isn't it a profound irony that an equity mutual fund would both holler at a public company for having mislead their analysts on earnings in 1995 and ALSO publish promotional advertisements across all media platforms celebrating 26% growth for 1995!

Dear Fool, the S&P 500 rose 34.11% in 1995.

Hey, it's fine to underperform. Fools will underperform. No sweat there. Underperformance happens. But don't misrepresent yourself. And of all times not to, don't mislead in the Information Age when consumers can gather together online. . . and talk. The top is off Pandora's Box. The mediocrities and worse that today are passed off as glorious, tomorrow morning won't be much to look at.

From our Foolish angle up in the trees in a forest far from the Street, this is not a violent revolution by individual investors. It isn't even a revolution. It's a simple call for professionalism, good business policies and honesty.

What better way, then, to close out tonight's report than to republish MF Yorick's July 10, 1995 Fribble: Honesty and Policy. Being upfront about performance motivates better performance. . . and it doesn't take much to get there.

Tom Gardner, March 14, 1996


by MF Yorick (Real Estate. Keyword: Fool REIT)

Writing for Foolish folders online is a lot trickier than writing business memos because no one has to read them. You ask me about a REIT stock and I have two choices. Dig in and try to find something interesting I'm willing to say in front of 2,500,000 potentially very picky people. Or lose the chance to acquire you as a reader.

I can't know about every real estate stock, so every new one sends me back to the books. I have another life and there's only 24 hours in a day, so sometimes I decide to dig in and sometimes I don't. But I'll tell you a secret. Every single day I count how many people contribute to the IOMEGA folder and how few post to Real Estate. Then I sit here and scheme to beat them. I'm really getting killed too, so I truly don't want to let a reader slip away because of something I didn't find time to do.

Trying to answer keeps me young, I guess, but taking on new stocks and still having time for a life requires planning. You might think I'd start looking at a security by studying the financials in detail, but I don't. After a two-minute screen of the basic stats (eps, balance sheet et cetera), I Foolishly phone away for annual reports, 10ks, 10qs, and do all the other things they teach in The Fool's School. When the postman brings the annual report, I leave the financials for last. First I look at the CEO's letter, and I spend real time on it.

I started doing that years ago when I worked at American Express (NYSE:AXP) and helped write the President's letter. It was an honor, but it was also a hot potato. Three or four people would produce competitive versions that would bounce around the executive office for weeks. Eventually the poor, committee-beaten winner would swim limply upstream like an exhausted salmon. In the President's office, Howard Clark (who was in fact The President), filleted it. He re-did, re-read, and re-wrote almost every word. I sometimes thought his phrasing was not as good as the PR department's draft, but I respected that. He was gonna sign it and it was going to say what he believed---and say it his way.

Later I worked on annual reports for mutual funds, banks and even one for Boston Edison (NYSE:BSE). In every case the same thing happened. The men who signed those letters may not always have written well, but they said very revealing things that they thought were important about their companies. If the Chairman spoke about how important his people were, and if he told you what the company was really doing to motivate those people, that meant something. If he loved the buildings he had developed, he told you that. If the next quarter's bottom line was his only concern, you could see evidence of that in his letter. It was sometimes obscured by the PR department but you still got a sense of the man, and as Warren Buffet says, "You can't do good deals with bad people."

Which brings us indirectly to the late Eli Goldsten. When I was working on Boston Edison's annual report, Mr. Goldsten was President of Eastern Gas and Fuel, which owns Edison's major rival, Boston Gas. Whatever we did, Mr. Goldsten was quicker. When we tried to get good PR by helping rebuild Roxbury, Eli was already heading a committee to build low-income housing. While we painted little nuclear symbols on all the trucks to look modern, Eli got Sister Corita to paint a huge peace design on the gas storage tanks that faced the expressway. Finally Boston Gas had a bad earnings year and what did Eli do---print the financials in light-gray small type on shiny paper? Not Eli. The day they came from the printer he had copies of the annual report hand-delivered to every key financial analyst in the city. Inside each envelope was a hand-written note on the CEO's stationary:

Eastern Gas and Fuel

Office of the Chairman


Do me a favor this year. Look at the pictures, not the numbers.



They knew that Eli knew. They also knew that he was planning not to write the same note next year. A genuine blow for better securities disclosure.

Thanks Mr. Goldsten, wherever you are.

- MF Yorick

Today's Moves

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

Today's Numbers

Day Month Year History FOOL -0.98% 4.18% 19.23% 122.63% S&P 500 +0.37% 0.07% 4.05% 39.81% NASDAQ +0.22% -0.82% 3.70% 51.50% Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 55.25 659.67% 5/17/95 1005 Iomega Cor 5.04 18.75 272.18% 8/5/94 165 Sears 28.93 49.75 72.00% 4/20/95 155 The Gap 32.55 55.75 71.27% 8/11/95 95 GenElec 57.91 75.13 29.72% 8/11/95 110 Chevron 49.00 56.00 14.29% 1/29/96 250 Medicis Ph 27.86 26.00 -6.67% 8/24/95 100 AppldMatl 57.52 32.00 -44.37% 8/24/95 130 KLA Instrm 44.71 22.38 -49.96% Rec'd # Security Cost Value Change 8/5/94 680 AmOnline 4945.56 37570.00 $32624.44 8/24/95 100 AppldMatl 5752.49 3200.00 -$2552.49 5/17/95 1005 Iomega Cor 5063.13 18843.75 $13780.62 4/20/95 155 The Gap 5045.25 8641.25 $3596.00 8/5/94 165 Sears 4772.65 8208.75 $3436.10 8/11/95 95 GenElec 5501.87 7136.88 $1635.01 8/11/95 110 Chevron 5389.99 6160.00 $770.01 1/29/96 250 Medicis Ph 6964.99 6500.00 -$464.99 8/24/95 130 KLA Instrm 5812.49 2908.75 -$2903.74 CASH $12147.13 TOTAL $111316.51