Fool Portfolio Report
Friday, March 15, 1996
(FOOL GLOBAL WIRE)
by Tom Gardner (TomGardner)
ALEXANDRIA, VA, March 15, 1996 -- Iomega Corporation (NASDAQ:IOMG) rose $3/4 to a bid of $19 1/2 today, pushing The Fool Portfolio up 0.32% versus S&P gains of 0.09%. The NASDAQ took the champagne and strawberries this evening, by rising 0.78%. And so today's close brings to an end the single greatest week in the history of The Fool Portfolio, as the total dollar value of our account rose $11,761, or 11.7%.
If we could keep this pace up through the remainder of 1996, climbing 11.7% per week, The Fool Portfolio would swell to over $11 million by January 1, 1997. And if we could then just keep the same pace for another year through fiscal 1997, our $111,673 portfolio today would be valued at over $3.67 trillion then---at which point we'd cash out our holdings and pay down the nation's debt, with a pocketful of change to spare.
Of course that's absurd. But when you look at how presposterous the above paragraph is, you get a sense of just how wonderful a week it was.
Let's start with America Online which opened the week at $44 and closed today at $54 a share. This week's announced partnerships with AT&T, Microsoft, Netscape, and SunMicrosystems support what many investors in Fooldom have been proposing for more than a year. The digital world is too damned broad, too wide and deep for there to be anything that might be called real competition among the very best players yet.
I can't tell you how pleased AMER's moves over the past year make us. Individual investors in our America Online folder for the last nineteen months have been peppered by journalists, hedge-fund managers, newsletter publishers and other old Sages. And unless I'm mistaken, not a single individual investor from that folder has been quoted in the media. Of course, why would they have been? But with the stock now up 642% for us, you think it might be in the media's best interest to go to the expert consumers rather than goooroooos. . . no?
If he knew of it, I would think it'd make Peter Lynch proud to see this band of thousands of individual investors using their consumer extincts to whomp the market. And so I'll break down for a second here and confess to moderate chagrin that the magazine which Mr. Lynch works for has been critical of our investment approach, book, and online service, in fairly unconvincing fashion.
Yet Mr. Lynch hasn't publicly defended long-term equities investing based on sound fundamental research (in the wake of that article) and he hasn't addressed the great power of this new medium for the readers he was aiming to serve in his books. Of course, why would he? But when you look at what's happening here, heck. . . why not?
It's no great shakes if Mr. Lynch never does, and no great shakes if the media keeps calling the rabble of market-underperforming gooorooos for investment ideas rather than the consumers who follow much more closely the businesses that make up 65% of our nation's corporate growth. Consumer businesses.
No great shakes. Either way, The Motley Fool expects to be right here in the decades ahead, serving private investors who've grown weary of widespread mutual-fund submediocrity, and of brokerage firms that seem too much focused on their institutional clients, too little on their individual customers. In the information age, the future in finance appears to lie in services that are actually services. Gotta love it.
Which brings me back to the beginning of this report and Iomega Corporation (NASDAQ:IOMG). The stock closed today at $19 1/2, or $58 1/2 in pre-split terms, within a half-point of new highs. We bought the stock at around $15 (pre-split), or $5.04 split-adjusted, and our $5,000 investment has stretched out into $19,600 in less than a year.
And yet there seems to be sufficient controversy over this investment. Apparently the relationship between rapid business expansion and rapid stock appreciation isn't yet familiar to many on the Street. Today, Iomega announced that it's shipped more than one million Zip drives in less than a year and that it's shipped nearly ten million Zip disks in that time as well. And yet, apparently this is all going to make for considerable controversy in the weeks and months. . . maybe quarters and years ahead.
I honestly am scratching my head over this. A quick review: New management squad enters the picture over a year ago. They call in a group of PC users and ask them what they want. They then design and manufacture a disk-drive that holds 70 times the capacity of the existing floppy drive.
They call it the Zip. Not the HBSD-31242, or the NF-SHX-2343489. It's the Zip. And while the construction is important, Iomega isn't going to market with phrasing like: megabyte cartridges and magneto resistive heads and areal density. Nope. In today's press release, VP of marketing Tim Hill said: "Iomega delivered a personal storage solution that revolutionized the way people manage, save and backup their computer stuff."
They addressed the consumer. They found a consumer need. They restructured to meet that need, to serve the customer. And they've been very aggressive in trying to kick out the jargon that continues to drive consumers away from personal computers, away from storage devices, away from their business. It's the "Zip," and it's there for your "stuff."
Yet, I expect this is going to be turned into a greater and greater controversy in the year ahead. To what end, for what purpose, for whose gain? We need to all ask ourselves that. Why is this a great controversy? Because we have access to the same information that the institutions do? Or because the old media is structured to allow professional investors, with investment positions to strengthen, to leak bogus interpretations or unfounded, unverifiable rumors?
For whose gain, for what purpose, and to what end? I hope that here in Fooldom we'll keep right at our diligent fundamental research of hundreds of companies, and I expect our rigor will lead us to other great investments in consumer growth businesses.
Now, sure, it might be fun if there were some great controversy to this. If there were something terribly, terribly wrong with a business meeting consumers on their turf, hoping to understand them, and aspiring to serve them. Every prosperous consumer business has done just this and our nation's greatest companies---Coca-Cola, Gillette, Nike, The Gap, Microsoft, Hewlett-Packard (and I would add America Online)---have been borne out of basic service.
I don't know whether Iomega will rise up into this category. Their last fifteen months makes them look a lot like a potential giant in a storage-hungry technology world in the years ahead. And the near-300% appreciation in the value of the stock (and company) over the last year certainly tells us something.
But it's far too early to tell. . .and Iomega absolutely has a lot of work ahead of it. Recent complaints about their customer service are cause for concern. There are going to be plenty of obstacles to fly over or skirt past. And we're going to watch this company and the competition, and we're going to continue to study their quarterly earnings reports very carefully. The jury is always out on every company we invest in.
But as of right now, the controversy surrounding the rise of Iomega is simply too far beyond my understanding for me to think it anything other than fantastical, farcical, contrived, and opportunistic. Bring logic, diligence, objectivity, and Folly to the table, and how hot is a potato like this at this point in time.
To close, it seems only right to end with a congratulations to Pete Carril, coach of Princeton basketball. Last night, Princeton upset UCLA 43-41. For the record, our investment approach aspires to what Mr. Carril has created more than the work of any single investor in America. And whether or not you like basketball, we highly recommend watching the Princeton game on Saturday.
Name the mightiest of the mighty, the heaviest of the heavies, the most prosperous of the prosperous in the financial world and I don't think they've hammered out an approach, a competitive vision, nor shown the sort of love for their work that Coach Carril has and does.
Fool, may you prepare so aggressively that all your investments are backdoor bounce passes to open layups. Or enough of them. And when you're asked on national television what the Princeton coach was asked late last night after the game, "How'd you do it?". . . we certainly hope you'll proffer the same response that he did:
"If I had something Wise to say, this really wouldn't be the time for it, would it?"
AMER -1 1/4 AMAT +2 1/2 CHV -1 1/8 GE + 1/2 GPS - 3/4 IOMG + 3/4 KLAC +1 1/8 MDRX + 3/4 S + 3/8
Day Month Year History FOOL +0.32% 4.51% 19.61% 123.35% S&P 500 +0.09% 0.16% 4.14% 39.93% NASDAQ +0.78% -0.04% 4.51% 52.68% Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 54.00 642.48% 5/17/95 1005 Iomega Cor 5.04 19.50 287.06% 8/5/94 165 Sears 28.93 50.13 73.29% 4/20/95 155 The Gap 32.55 55.00 68.97% 8/11/95 95 GenElec 57.91 75.63 30.58% 8/11/95 110 Chevron 49.00 54.88 11.99% 1/29/96 250 Medicis Ph 27.86 26.75 -3.98% 8/24/95 100 AppldMatl 57.52 34.50 -40.03% 8/24/95 130 KLA Instrm 44.71 23.50 -47.44% Rec'd # Security Cost Value Change 8/5/94 680 AmOnline 4945.56 36720.00 $31774.44 8/24/95 100 AppldMatl 5752.49 3450.00 -$2302.49 5/17/95 1005 Iomega Cor 5063.13 19597.50 $14534.37 8/5/94 165 Sears 4772.65 8270.63 $3497.98 4/20/95 155 The Gap 5045.25 8525.00 $3479.75 8/11/95 95 GenElec 5501.87 7184.38 $1682.51 8/11/95 110 Chevron 5389.99 6036.25 $646.26 1/29/96 250 Medicis Ph 6964.99 6687.50 -$277.49 8/24/95 130 KLA Instrm 5812.49 3055.00 -$2757.49 CASH $12147.13 TOTAL $111673.38