Fool Portfolio Report
Tuesday, April 30, 1996
(FOOL GLOBAL WIRE)
by Tom Gardner (TomGardner)
ALEXANDRIA, VA, April 30, 1996 --The Fool Portfolio climbed another 2.72% today whilst the S&P 500 came up empty, closing flat on the day. Our concluding report for the month of March was entitled, "Sad to See March End." And now we write that we're sad to see May oncoming.
Because April has been shocking. The Fool Port closed up 32.17% for the month, while the S&P 500 edged up 1.34%. And heck, those are great numbers for the market. At a growth rate of 1.34% per month, stocks would rise 17.3% for the year, more than 60% above annual market-average growth. But even as it's been a stellar month for stocks, it's been bewilderingly sweet for investors wise enough to name themselves Foolish.
I'm not going to launch into a discussion of Iomega at the outset, though, because at the height of ecstasy, it's time to recollect what it is in the Foolish approach to equities investing that truly got us here. I propose it's Beating the Dow. The single most imporant tenet in our investment model is the one which holds that if you cannot beat the returns of our multi-billion-dollar turnarounds, you shouldn't depart from the model. Why? Because. . .
Accountability drives performance.
I don't think that line above is particularly eloquent, but boy, does it ever cut the fat out of the financial world. Would that every financial *service*---newsletters, TV shows, editorialists, mutual funds, brokerage firms, et al---held themselves to the same standard.
With growth in excess of 22% annually over the last 25 years, with miniscule commission costs, no research fees, and a declared halt on anxiety, the Foolish Four Dow stocks provide the single most revolutionary feature in Fooldom. Observe the group, relate their performance to the market, relentlessly try to beat them with growth stocks, and return to them when you can't. My sense is that from preceding thus, you'll discard 95% of what the Wise throw at you. These multi-billion-dollar, multi-national, high-yielding turnaround investments remind us that that which is most radical is always most simple.
So let's start there today.
General Electric (NYSE:GE) fell $1/8 to close at $77 1/2. Up 33.82%, General Electric is run by a man who doesn't believe that Wall Street can keep up with his company's growth. Jack Welch doesn't believe that the dollars thrown at GE by investors can keep up with returns generated from those investments. Essentially, he doesn't think his stock can be overvalued. A high-margin, broadly-diversified, aggressive, process company like GE can actually make that sort of claim. Be forewarned that the Wise can't accept the notion.
Sears (NYSE:S) fell $1/4 to close the day at $49 7/8. The stock is up 47.22% for us since we added to our position in August, 1995. Sears is controlling its selling platforms, has focused on its core brands, and has aggressively sought to tie together its managers, employees, customers and shareholders. The ideal manager of a consumer business is also an employee, a customer, and a shareholder. The ideal shareholder is also a customer, an employee, and a manager. And it's initially the committment to draw everything under a single brand---much as another once-Foolish-Dow-holding, American Express, has done---that makes all that linkage possible.
Chevron (NYSE:CHV) closed the afternoon off $1/2 to $58 a share; the stock is now up 18.37% for us since August. Chevron has benefitted from the cold winter, shrinking inventories, and delays in foreign oil production. Fools are watching the movement in oil pricing somewhat closely as a fine indicator of sector rotation. I say "somewhat closely" because with the Dow stocks throwing up two-for-one bargains relative to the indices, we don't really waste away sunny afternoons and breezy evenings trying to guess where the market's headed next. We leave that to da Wise.
Dear Fool, I hope that you've profited from the Dow stocks over the past twenty months with us. Our Dow investments have returned us 85.9% off our initial investment of $15,101, or nearly $13,000 in profit. True to its historical performance, the select Dow group is doubling market growth. Hey, it doesn't play out perfectly like this over every short-term period. But the 25-year results---a good twenty years longer than the performance records of the vast majority of mutual funds---suggest that our 86% growth since August 1994 is not at all extraordinary.
We suggest that you regularly ask yourself if your other investments--minus all costs---have matched Dow growth. Is your portfolio up more than 86% since August of 1994? The superiority of performance, the elimination of research and opportunity costs, and the level of accountability promoted by Dow stock investing *enables* us to go out in search of great growth companies, like Iomega. The Wise don't understand this. Blinders on, they see what they want to. And strangely, they believe themselves bigger than the market. They thrive in the land of one-way narrowcasting.
Now to Iomega, which rose $5 1/8 to close at $54 1/2, and is now up 981.79% for us in less than a year. Coverage of the proposed price cuts of Iomega products announced today at the H&Q conference is in full-swing in the IOMG stock folder.
It might surprise the Wise, who allocate too little of their time to performance analyses, that we invested LESS money in Iomega than we did in either General Electric or Chevron. We don't back up the truck when we invest. It might also surprise the Wise, who allocate too little of their time to research, that Iomega not only has product selling into monstrous demand but that it's also in position to dominate and redefine an entire industry. The Wise haven't taken the time to research the business, company management or this industry.
This weekend I received a note from a lifelong investor, a patient man whom I much respect. He wrote, "Alan Abelson should really be ashamed of himself, and Barrons isn't going to survive in this form."
There is only one reason that I agree. And the reason has nothing to do with whether Barrons is right or wrong. Whether Iomega is badly overpriced or no. And it doesn't rely on whether Iomega meets, beats, or underperforms Street estimates, which Mr. Abelson scoffs at. Nor do I care whether he is ultimately right or wrong in his assertion that today's IOMG valuation is silly. While I do believe the market has spoken fairly convincingly since Abelson first started panning Iomega, a couple hundred percentage points of growth in the past, I don't care about that.
Rightness or wrongness isn't the issue here. Nor is the total lack of accountability that Abelson and Barrons are showing. Many financial publications today allow for sweeping prognostication without review. So I don't take issue there. Performance records be damned. Wipe the slate clean of the ten-bagging returns over the past year. And think on this:
Mr. Abelson doesn't even know what Iomega does. Neither does Barrons, or they wouldn't have let this sit at the front of their publication.
For that reason, I concur with my more veteran investing friend. Mr. Abelson has done his readers a great disservice, by preaching on subjects he does not fundamentally grasp. The performance of Iomega's stock from here relative to his predictions means absolutely nothing to me. Whether the stock trends above $70 heading into sales of $1.3-$1.5 billion for 1996 (as Fools project) or droops below $40. . . this isn't relative to my point.
What matters is that Barrons allows one of its columnists to write about a company whose business he has not researched , whose growth prospects he doesn't comprehend, and whose industry he's not at all familiar with. And not just once. . . but twice. And probably a few more times in the months ahead. Put in the context of digital interactivity, of community standards that smile curiously at posturing, it simply cannot last.
In that spirit, I fashion this portfolio report as an open letter to Barrons. If Mr. Abelson would like to debate this issue, if anyone on Barrons' staff would like to review these matters in public, I'll show up promising to look unimpressive, in motley rags, to listen more than to speak, and to engage rather than circumlocute.
It is our strong belief that the the Foolish focus here on research, education, and service has immediately and fundamentally transformed Wall Street. The stock market is a consumer business now, with products that will sell only if they're supported as aggressively as Hewlett-Packard backs its products. With performance, integrity, and value all open for debate.
Therefore, the Street's salesmen---columnists, brokers, money managers---will succeed only if they study, educate, collaborate and serve. The traditional open, consumer business model. Barrons et al. have to restructure. And if that seems brash, then I've done a poor job of writing here, because the truth of this assertion---that the financial world has overnight become a consumer business---is undeniable.
I guess I should say, thought, that that's just one Fool's opinon.
Tom Gardner , April 30, 1996
Day Month Year History
FOOL +2.72% 32.17% 67.98% 213.67%
S&P 500 +0.00% 1.34% 6.21% 42.71%
NASDAQ +0.19% 8.09% 13.15% 65.31%
AMER -1 5/8 ...AMAT - 3/4 ...CHV - 1/2 ...GE - 1/8 ...GPS +1 1/8 ...IOMG +5 1/8 ...KLAC ---...MDRX - 1/4 ...S - 1/4 ...
Rec'd # Security In At Now Change
5/17/95 1005 Iomega Cor 5.04 54.50 981.79%
8/5/94 680 AmOnline 7.27 63.88 778.26%
4/20/95 310 The Gap 16.28 30.13 85.10%
8/5/94 165 Sears 28.93 49.88 72.43%
8/11/95 95 GenElec 57.91 77.50 33.82%
8/11/95 110 Chevron 49.00 58.00 18.37%
1/29/96 250 Medicis Ph 27.86 28.50 2.30%
8/24/95 100 AppldMatl 57.52 39.75 -30.90%
8/24/95 130 KLA Instrm 44.71 28.88 -35.42%
Rec'd # Security Cost Value Change
5/17/95 1005 Iomega Cor 5063.13 54772.50 $49709.37
8/5/94 680 AmOnline 4945.56 43435.00 $38489.44
4/20/95 310 The Gap 5045.25 9338.75 $4293.50
8/5/94 165 Sears 4772.65 8229.38 $3456.73
8/11/95 95 GenElec 5501.87 7362.50 $1860.63
8/11/95 110 Chevron 5389.99 6380.00 $990.01
1/29/96 250 Medicis Ph 6964.99 7125.00 $160.01
8/24/95 100 AppldMatl 5752.49 3975.00 -$1777.49
8/24/95 130 KLA Instrm 5812.49 3753.75 -$2058.74