Fool Portfolio Report
Friday, April 12, 1996

by David Gardner (MotleyFool)

ALEXANDRIA, VA, April 12, 1996 -- With the last 6 weeks so dominated by huge moves from our darling stocks America Online and Iomega, it was with no small satisfaction that we at Fool HQ watched the Fool Port beat the market Friday on the wings of other high-flyin' birds. With Sears up $2 3/4, Gap (which split yesterday) up another $1, and General Electric posting a gain of $1 3/8, the Foolfolio strode forward .88% today, edging out the S&P 500 (up .87%) and the NASDAQ (up .34%).

For the week, the market posted its worst of the year, with the S&P 500 off 2.9% and the NASDAQ dropping 1.6%. Our Foolish portfolio declined .9%.

But Friday was a strong day for the market, which occurred amusingly enough in the face of an extremely bearish market forecast on the front cover of The New York Times. "While the rest of the city enjoyed a beautiful spring day, it was drizzling Thursday on Wall Street, where spirits are being dampened by the nasty suspicion that maybe, just maybe, the stock market will not continue to go up forever," the article begins. . . as if the stock market has, or ever will. Y'know, when I come across this sort of misleading premise in the first line of an obviously loaded article, I often don't read on. But this is The Times, right? So I figure I have to.

After pointing out that the previous five days had been the worst in two years, the writer opines, "For the first time in a long time, the stock market is not immediately bouncing back from bad days and bad news." Umm. . . anyone see what happened today?

OK, it's not worth belaboring this point (and it's also not worth reading that article) but if serious journalists are going to take ridiculously short-term movements in the market as signs of doom---signs of ANYTHING, in fact---then their work will inevitably not end up being very serious. I think Fools are beginning to see through this stuff.

(NOTE: We can't help but mention that eternal contrary indicator Michael Metz---a subject of our January column for SmartMoney Magazine---is quoted as saying, "Until last week confidence was very high that inflation was not a problem, rising interest rates are not a problem, the Fed is not a problem. Now the whole story is gone, and it was the only justification for a market that otherwise looks extremely overvalued.'')

By contrast, Fool HQ spends just slightly less than 0.1 minutes a year considering where the market might go, and we continuously encourage our fellow Fools to do the same. That's because we simply don't believe ANYONE consistently KNOWS where the market is going over any short term, and those who presume to do so aren't worth your time. True, the high-powered Wise at New York brokerage firms are everywhere TRYING to do it, and we see the same names (Michael Metz, Barton Biggs, Byron Wien, Laszlo Birinyi) over and over in articles like that in The Times today. But we're here telling you that if you're a long-term investor---if you're a Fool, that is---you should just keep your savings invested in the stock market and keep constantly adding to it over time. There will be good times, there will be bad times, but for those with the fortitude and the faith to stick it out through both, there will be much greater returns than through any other vehicle. That's obvious whether you look at the distant past, the recent past, the present, and (we have every reason to expect) the future as well.

In fact, my personal take on this whole thing is that to me, the future keeps looking better and better. We're living in the midst of an incredible technological revolution that is changing our business world every day. For the better. . . American business is now more profitable than ever before, and bristling with new markets, new products, new technology, and new opportunities. Government used to drive this country. . . government today seems increasingly irrelevant to me. What I see changing our nation and the world today is business (for better and worse) and America is well out ahead leading it. The smartest and most ambitious businessmen and investors are taking advantage of it. And the field day they're having is still in the early-morning stage.

Indeed, the greatest risk posed to our stock market is not economic, I think, but probably one of sentiment. That is, I think you're going to see a monster economy in the U.S. going forward for the foreseeable future. . . just look at what the Internet will mean, then look at all the American companies that are driving it. The stock market over a short-term period could get a bit carried away with these prospects and overshoot real value. But will that be a terminal problem? Will that cause The Crash of No Return that bearish journalists keep suggesting will happen? I don't think so. . . that these people DO write such articles gives a Fool even more reason for confidence.

But one example of the overhyped sentiment mentioned above has to be the Web search engine company IPOs. With simple (and pretty duplicable) Web search engines like Lycos and Yahoo now suddenly commanding market caps of several hundred million dollars, we continue to see a fairly profound misunderstanding of the digital world by our Wall Street brethren. With a current market cap of approximately $825 million (following its debut today), Yahoo---with minimal sales---is valued at approximately 1/5th of America Online. And talk about volatile: Yahoo traded as high as $43 today and as low as $24. You won't find us throwin' any Foolish dollars that way. (A Foolish news package detailing the Yahoo story is available by clicking the Stock Research button on our main screen.)

And now, on to our stocks. The Gap and Sears rose strong again today following same-store sales announcements for them yesterday. As you'll recall, Gap yesterday announced overall sales gains of 32% over March of last year, and its March same-store sales were up 13%, vs. NEGATIVE 7% numbers for March '95. Gap now has 1705 stores nationwide.

Sears posted same-store gains of 6.8%, not quite as impressive but good nonetheless, and enough to send the stock soaring forward today once again, to a new all-time closing high. Both have us pleased as punch, as they're up better than 70% since our initial purchase. . . bought at a time when you could find nary a Wall Street analyst who liked this sector. And more than one journalist and gooroo telling people to avoid the market altogether!

Here's to a weekend unWisely spent. . . .

Transmitted: 4/12/96

Today's Numbers

AMER + 1/8 ...AMAT - 1/2 ...CHV - 3/8 ...GE +1 3/8 ...GPS +1...IOMG + 3/8 ...KLAC - 3/4 ...MDRX - 3/8 ...S +2 3/4 ... Day Month Year History FOOL +0.88% 4.21% 32.45% 147.32% S&P 500 +0.87% -1.36% 3.37% 38.90% NASDAQ +0.34% -0.04% 4.63% 52.86% Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 52.00 614.98% 5/17/95 1005 Iomega Cor 5.04 32.25 540.14% 8/5/94 165 Sears 28.93 51.75 78.91% 4/20/95 310 The Gap 16.28 28.00 72.04% 8/11/95 95 GenElec 57.91 77.00 32.95% 8/11/95 110 Chevron 49.00 55.38 13.01% 1/29/96 250 Medicis Ph 27.86 25.88 -7.12% 8/24/95 100 AppldMatl 57.52 35.13 -38.94% 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 35360.00 $30414.44 5/17/95 1005 Iomega Cor 5063.13 32411.25 $27348.12 8/5/94 165 Sears 4772.65 8538.75 $3766.10 4/20/95 310 The Gap 5045.25 8680.00 $3634.75 8/11/95 95 GenElec 5501.87 7315.00 $1813.13 8/11/95 110 Chevron 5389.99 6091.25 $701.26 1/29/96 250 Medicis Ph 6964.99 6468.75 -$496.24 8/24/95 100 AppldMatl 5752.49 3512.50 -$2239.99 8/24/95 130 KLA Instrm 5812.49 3136.25 -$2676.24 CASH $12147.13 TOTAL $123660.88