Fool Portfolio Report
Friday, March 22, 1996

by David Gardner (MotleyFool)

ALEXANDRIA, VA, March 22, 1996 -- OK, first things first, here's the skinny. Fool Port down .14% today. Darn. Double darn because the market averages we follow---both of 'em---rose .22%. Most of our stocks barely budged, and that was pretty much the case for the market too, in fact. No significant news items to talk about.

For the week, we did very nicely thank you. Credit is due exclusively to a grrrrrreat market day on Monday (our all-time best single-day move: 6.71%). The Fool Portfolio closed out up 4.85% for the week vs. gains in the S&P 500 and NASDAQ of 1.43% and 0.24%, respectively. What did it? Well, Iomega led the portfolio's charge by rising $4 3/8 this week, while we saw new highs as well in our stellar retailers, Sears and The Gap.

America Online, which remains our top stock and has served as a portfolio bellwether in the past, closed the week unchanged at $54.

And now for something completely different. . . let's talk about selling stocks, shall we?

Chapter 18 of our "Motley Fool Investment Guide" is entitled "Selling Strategies," dedicated to answering the toughest question most investors pose themselves. . . "But when do I sell?"

The one-sentence answer is essentially this: ". . . when you find a better place to put the money." In other words, we don't advise selling just for selling's sake; we think you should tend to keep most or all of your money IN the market. The trick is not to think of your portfolio as an assortment of 9 different investments. No. Think of it as we think of our Fool Portfolio: not 9 stocks (in our case) but ONE portfolio, which you should only change if you see something better. When we find an attractive new investment opportunity, we just sell off whatever we deem to be most fully valued in our portfolio, and move the money to that new investment. Let the Wise get bogged down in setting 9 different target prices for 9 different stocks. They're just confusing the issue.

Indeed, we invented a game called "Don't Look Now!" designed to help you evaluate your own selling decisions. The idea is just that---don't look now!---when you sell. Too many people (a) spend too much time scrutinizing the short-term performance of a stock they've just sold, while (b) spending too little time going back and looking at how their sell decision turned out. It was for this reason that we developed our game, in which you see how stocks that you've sold have done against the market over the succeeding THREE months.

And so today's Fool Portfolio is going to do just that: look back at our sell decisions and evaluate them. The idea is pretty simple: go back and see how your sold stock did against the S&P 500 during the three months after you sold it. (In our survey below, we're only including stocks that we made a DECISION to sell; that means Dow Dividend Approach picks aren't included.)

We have closed out 5 positions since starting The Fool Portfolio. Three purchases (Boston Technology, Sonic Solutions, and Ride), and two shorts (Bed Bath & Beyond and Paychex). All of them are more than three months behind us now, so the results are in. Let's check it out, Foolish commentary included:

Boston Technology sold 7/11/95 @ $19 1/2

Three months later (10/11/95): $13 3/4

BSTN: -29.49%

S&P: +4.45

COMMENT: A great sell---our first ever---which receives the score of TOTAL VICTORY in our "Don't Look Now!" sell game. We define this as any stock which dropped 20% the three months after our sell. This one made us look like the geniuses we aren't.

Sonic Solutions sold 11/21/95 @ $6 3/8

2/26/96: $6 3/4

SNIC: +5.88%

S&P: +8.36%

COMMENT: Those who've read our book will know that this counts as a MARGINAL VICTORY, a stock that underperformed the S&P 500 during the three months following our sell. SNIC did rise slightly, but the main thing here is that it was outperformed by the market. Then again, we pretty much left the money in cash, which didn't make 5%, so we're not that proud.

Ride sold 11/30/95 @ $21 1/8

Three months later (2/29/96): $17 1/8

RIDE: -18.93%

S&P (over that period): -5.79%

COMMENT: Gotta love it. Though the stock ran to $30 very briefly after we sold it, we would've been lucky to "guess" at that move. RIDE was down almost 20% three months later. This is a great example of why we created "Don't Look Now!" in the first place. The point is that we'd've been lucky to have caught a price near $30 since the stock was there so briefly. In the bigger scheme, the grander picture looking back, we got out at a good price. MARGINAL VICTORY.

Paychex, a SHORT, covered on 3/31/95 @ $30 1/2 (post-split)

Three months later (6/30/95), $36 1/4

PAYX: +18.85% (which would have lost us money)

S&P +8.80%

COMMENT: An excellent sell, though our game (not really developed for short-selling, though maybe we should do that in our Fool book sequel) doesn't show it. Paychex would have lost us another 19%, while the S&P 500 over that period made 9%. Blowout, but we'll call it a MARGINAL VICTORY by our current game rules.

Bed Bath & Beyond, a SHORT, covered on 3/16/95 @ $24 1/4

Three months later (6/16/95): $23 7/8

BBBY: -1.55%

S&P: +8.97%

COMMENT: Bed Bath & Beyond would've made us 2% on our short had we held it, while the market rose 9%. Another MARGINAL VICTORY. Interestingly, BBBY was kind of like RIDE; both would've made us significantly more money if we'd held a few weeks more, but both returned to MARGINAL VICTORY levels after a few months. In BBBY's case, it knifed down into the $18 range a month after we covered our short, but then came back.

This lesson was not featured today to be self-promoting. That said, our score looks this way:





We don't think of ourselves as particularly good "market timers," and the sample size above is small and thus not completely representative yet of our ability. But it's heartening, too.

Anyway, the point should be clear by now. Fools survey how they did with their cash-outs a few MONTHS (not days) after they've made them. By tallying your own score, you can keep yourself accountable AND learn more about your selling talents (or lack thereof) for future use.

May your weekend proceed Foolishly.

Today's Numbers

AMER - 1/2 ...AMAT + 1/8 ...CHV - 3/8 . . .GE +1 1/8 . . . GPS + 1/4 . . .IOMG ---. . .KLAC + 1/8 . . .MDRX + 1/4 . . .S - 1/8 . . . Day Month Year History FOOL -0.14% 9.59% 25.42% 134.19% S&P 500 +0.22% 1.59% 5.63% 41.93% NASDAQ +0.22% 0.20% 4.76% 53.05% 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 23.88 373.90% 4/20/95 155 The Gap 32.55 58.13 78.57% 8/5/94 165 Sears 28.93 51.00 76.32% 8/11/95 95 GenElec 57.91 78.50 35.54% 8/11/95 110 Chevron 49.00 55.25 12.76% 1/29/96 250 Medicis Ph 27.86 26.00 -6.67% 8/24/95 100 AppldMatl 57.52 36.38 -36.77% 8/24/95 130 KLA Instrm 44.71 24.13 -46.04% Rec'd # Security Cost Value Change 8/5/94 680 AmOnline 4945.56 36720.00 $31774.44 8/24/95 100 AppldMatl 5752.49 3637.50 -$2114.99 5/17/95 1005 Iomega Cor 5063.13 23994.38 $18931.25 4/20/95 155 The Gap 5045.25 9009.38 $3964.13 8/5/94 165 Sears 4772.65 8415.00 $3642.35 8/11/95 95 GenElec 5501.87 7457.50 $1955.63 8/11/95 110 Chevron 5389.99 6077.50 $687.51 1/29/96 250 Medicis Ph 6964.99 6500.00 -$464.99 8/24/95 130 KLA Instrm 5812.49 3136.25 -$2676.24 CASH $12147.13 TOTAL $117094.63