Fool Portfolio Report
Tuesday, May 28, 1996
NOTE: Our policy regarding Fool Portfolio trade announcements has changed...Click HERE for details (Foolish e-mail list subscribers have a copy in their box, as well). Interested readers should make a point of reading this document.
by Tom Gardner
SAN FRANCISCO, Ca., May 28 -- Another round of Street anxiety over the pricing of high-flying growth stock, Iomega Corporation (NASDAQ:IOMG), set The Fool Portfolio back another 5.42% today versus 1% drops in both the NASDAQ and S&P 500. The last two market days haven't been kind. The declines brought year-to-date growth to 88.18% and historical returns at 251.39%.
Iomega's $5 3/4 move is as life-altering on the downside as it is t'other way. Scored on a scale of 1 to 10 (1 being meaningless, 10 being revolution), I'd say those sorts of moves sit somewhere south of 1. "How so? Praytell, Fool. Investors lost 14% off their investment; the entire company lost 14% of its value in a single day. 24% of our profits are gone since market open on Friday. Less than meaningless?"
That depends on your perspective. If you believe that the price of your portfolio TODAY is extremely important, then you get worried. And you ratchet up the $5 3/4 downdraft to something on the higher end of the ladder. Here in Fooldom, however, where what matters is somewhere ten or fifteen years down the line, this sort of move is considerably less important than, say, the fact that San Francisco---where I am for a few days---is bright and breezy. . . that the trolleys are still running, that Gap hats and sweatshirts seem to sit on every third head and shoulder, that our portfolio is still kicking the market---and by extension, all mutual funds---in the trunks, and that folks focused on Beating the Dow year in and year out for five, ten and twenty years forward really have very little to worry about.
I don't want to prattle on about Iomega again today because you, inveterate Foolish reader, know where we stand on these matters. But let me restate it for newcomers, including the yo-yos who keep inking in "I say" one-way publications that Iomega is a "small-cap" that is being "hyped" via online chatter. Investing Foolishly is all about holding ourselves numerically accountable. If the rest of the financial industry did the same, I suspect you'd see an awful lot of hedge funds unencumbered, a fair number of financial journalists unpenciled, a few television personalities derouged, and an online forum or few analogged.
Foolishness has investors fundamentally researching companies in search of stocks that might reasonably be expected to outperform the Foolish Four Dow Stock which over the last 25 years have, each year, nearly doubled up on the S&P 500, which the vast majority of mutual funds lose to consistently. Articles that toss around the word "Fool" without registering this are the product of dishonesty or of ignorance. Distinguishing between those two---idiocy or deceit---can be tough, but we have our crack staff trying to build up a valuation model to do just that.
None of that goes to a ballpark fair-value on Iomega, but in past weeks, we've worked through these numbers. Briefly, $1.6 billion in sales for 1996, 4x sales, a $6.4 billion capitalization, margins increasing as disk sales rise, brand-name strengthening heading into Christmas, 135 million shares outstanding, and a stock priced somewhere in the $47-$50 range. Now, these numbers do not include OEM deals, new partnerships, and they're based off projections which we think are reasonable, not aggressive. Time will tell.
America Online (NASDAQ:AMER) was strong on the news of a partnership with Pacific Bell. Today's $2 7/8 climb puts AMER at $54, up more 642% since we purchased our shares in August, 1994. This is another stock that reminds poor, blind, herding individual investors like us---the ones that should just be happy with mild market underperformance---that winners often just keep winning, that growing companies produce growing stocks, that worrying about inflection points ("When is it going to turn against me?") is not the best way to invest. Growing operations have a better chance of growing than floundering ones, and trying to time stock price highs and lows is futile. Or so a Fool thinks. Get on good horses and ride.
But only do so, in our estimation, if you've stabilized your portfolio with large-cap companies that the Street is ignoring. The Chevrons, Searses, General Electrics; a year ago, the Mercks, American Expresses and Kodaks. In all the excitement of one or two monster winners, in all the press coverage, the Wise often lose sight of the backbone of this portfolio: ignored Dow companies.
Today Sears rose $7/8, Chevron fell $5/8, and General Electric---with CEO Jack Welch gonging the market's opening bell---fell $2 3/8. The three stocks are now up 23$, 42%, and 75% since we dove in last August. Not terribly exciting for those publications that generate sales via controversy rather than instruction, but still, they bear at mention here in Fooldom, no?
If you can't beat the market, buy an index fund. If you've got an extra ten minutes a year, try Beating the Dow. If you want to outperform the 22% annual returns for the Dow approach over the past 25 years, try large- and mid-cap growth stocks. From there, move another step down the chain to small-cap growth stocks. Beyond the Dow group, do not invest in companies saddled with debt. Do not buy the stocks of companies that are not growing sales and earnings at more than 25% annually. Do not buy into businesses that are cashflow negative. Do not purchase equity in any business that you don't understand. Invest for the next twenty years of your life, at least.
There are plenty of other ways to invest, but that's the Foolish one, as laid out very clearly in our book and in our 13 steps to getting started investing here in Fooldom. 'Twould be nice to have these "ideas" communicated out there rather than an unstudied race through what might be spun as controversial. Ah well.
Enjoy the evening!
Day Month Year History
FOOL -5.42% 12.03% 88.18% 251.39%
S&P 500 -0.92% 2.76% 9.14% 46.65%
NASDAQ -0.92% 3.85% 17.50% 71.67%
*Scroll down or expand screen for full portfolio accounting
AMER +2 7/8 ...CHV - 5/8 ...GE -2 3/8 ...GPS - 1/4 ... IOMG -5 3/4 ...KLAC - 7/8 ...MDRX - 1/2 ...S + 7/8 ...
Rec'd # Security In At Now Change
5/17/95 2010 Iomega Cor 2.52 38.75 1438.33%
8/5/94 680 AmOnline 7.27 54.00 642.48%
4/20/95 310 The Gap 16.28 32.13 97.39%
8/5/94 165 Sears 28.93 50.63 75.02%
8/11/95 95 GenElec 57.91 82.63 42.67%
8/11/95 110 Chevron 49.00 60.50 23.47%
1/29/96 250 Medicis Ph 27.86 33.63 20.70%
8/24/95 130 KLA Instrm 44.71 26.38 -41.01%
Rec'd # Security Cost Value Change
5/17/95 2010 Iomega Cor 5063.13 77887.50 $72824.37
8/5/94 680 AmOnline 4945.56 36720.00 $31774.44
4/20/95 310 The Gap 5045.25 9958.75 $4913.50
8/5/94 165 Sears 4772.65 8353.13 $3580.48
8/11/95 95 GenElec 5501.87 7849.38 $2347.51
1/29/96 250 Medicis Ph 6964.99 8406.25 $1441.26
8/11/95 110 Chevron 5389.99 6655.00 $1265.01
8/24/95 130 KLA Instrm 5812.49 3428.75 -$2383.74