Fool Portfolio Report
Monday, June 3, 1996

Monday, June 03, 1996 (FOOL GLOBAL WIRE)
by Tom Gardner

ALEXANDRIA, VA, June 3, 1996 --The S&P 500---that index built off the likes of Coca-Cola, Nike, General Electric, Microsoft, and Chrysler et al---fell 0.22% today on rumors of rate hikes, apparently. And a mix of what we, on lazy mid-spring days, lazily term "profit-taking."

At first blush it looks like a nothing day. But when you compound out 0.22% drops for an entire market year, Fool, you're looking at an annual hurt of more than 40%. Spun out unexcitedly, day in and out, 0.22% sloughs would tote up to one of the worst market-thrashings of the century. At the close of 1974, after two years of wretchedness, the Dow had declined a disquieting 29.6%. At our rate of 0.22% losses per day, we'd be down 40% by June 3, 1997.

Let's look back for some guidance.

Remember that $10,000 that you plunked into the market in 1973---the year when the Arab oil embargo prompted OPEC's 400% increase in oil pricing, when Pablo Picasso died in southern France, when the last stone was set in Chicago on the world's largest building, the Sears Tower. Remember how that money faded?

And by the end of 1974---with all ground troops out of Vietnam, and Ford assuming the presidency, and Hank Aaron wrestling his way free down the third baseline toward his 715th homerun, and the release of Roman Polanski's classic, "Chinatown"---you're savings took another bodyblow.

You chased down two glasses of lemonade and limped home despairing on New Year's Eve, the night before 1975. Your $10,000 had wrinkled back into $7,040. The mother of all bear markets---or the second worst of the century---had burst from one edge of the campsite of your savings account to the next, bashing open jam jars, tearing through breadloaves, and crunching your nest egg into shards.

$2,960 gone. $7,040 left.

But did you meet a Fool in the forest, with brain as dry as a stale biscuit, venting in mangled forms that there are many things worse than this? A lowly, unheeded Fool?

If you did, no doubt you remember his machinations that an investment in credit-card debt---far more popular then and now than stock---would have returned you blood-curling losses of 39.24%. And all that, without a lick of growth potential. But no, what we seem to remember of 1973-1974 is market mayhem. . . not credit harm.

Correct me if I'm wrong, he said, but I believe our state-sponsored lottery offices extract 56 cents from every greenback, meaning that every dollar you invest in the bouncing balls, or throw at scratch tickets, can be expected to return you a handsome 44 cents. 14 tickets a day for two years? You invested $10,220 and probably reclaimed something on the order of $4,500, making for hand-clapping, foot-tapping, back-breaking losses of $5,720, or 56%.

STATE-sponsored. Jeez.

You'd had enough, nearly so, and pleaded with The Fool to bypass talk of dog tracks, and rabbit feet, and steeple chasing, roulette wheels, and jai alai, shell games, and wheels of fortune, Montana plots of wilderness picked up sight unseen, and a $5,000 game of H-O-R-S-E against Bird, Jordan, and Johnson---up in their faces the whole way.

Fool. . . enough! Leave me.

But before scampering back into the forest, motley coat streaking between sunlit birch and maple, bells flashing, he stopped. You know Beating the Dow? he asked.

Sure, sure.

How well?

I know it well enough. 22% growth annually over the past 25 years, nearly doubling up on the market annually. It's backhanded the heavy-load mutual funds that I used to suffer; it's cracked the efficient markets theories that my colleagues once thrust on me. I know it. Be gone.

How'd the approach do through the 1973-1974 bear market?


It was up 38.86%. So while some shook away 40% at the Grand Hotel, or 39% in credit buying, or scratched off 56% at the FoodMart, or walked through 29.6% declines in the market index, the Beating the Dow wedge of a portfolio----or an entire BTD portfolio---went the other way, turning $10,000 into $13,386.

And he disappeared, but not without one last cry of laughter about market-direction anxiety relative to all the other ways we put ourselves at risk.

Would that credit-cards were labeled 'speculative' and not the stocks that've doled back 10.5% yearly, decades past. Some precedents are precedents. At least with stocks, a crash comes and goes. With plastic and lottery stubs---our nation's fondest plays---the crashing never ends.

I couldn't stop him before he shook off into the shade. And so I couldn't remind him---as you would---that his portfolio didn't dip with the market today, off 0.22%. No. The Fool Portfolio sank 3.75%, with America Online (reviewed on our mainscreen) and Iomega dropping $2 1/4 and $3 respectively.

His wily compounding, his pollyanna chatter left out the fact that, at that 3.75% daily rate of decline, the $181,444 in The Fool Port would fall to less than $4,000 in one hundred market days. Damn Fool. But then it probably isn't fair to expect near-4% bends daily into autumn. Is it?

There were one or two bright spots. I'm sure he'd have emphasized them. The first was Medicis Pharmaceuticals, which landed an additional $3 million in credit facility from Norwest Bank. The stock rose $2, and is now up 35.63% for Fools. Quite nice.

The second was the $3/4 rise in Gap shares, to an all-time new high of $34 3/8, more than a clean double at these prices for The Fool. No news today on Gap that I could find. . . just gradual market attraction to growth in sales, growth in earnings, growth in cashflows, strengthening brand. I believe I remember hearing Fools price this one fairly in the mid-$30s.

But covering today's heavy downs, or scarce ups, isn't what this report was fashioned for. Today we dedicate ourselves to a numerical understanding of stocks relative to other investment vehicles over the 20th century. True, bear markets have hurled savings accounts backwards, dissolved small-caps, and humbled even the most humble-proofed Fools.

But I met a Fool in the forest who reminded me that a mix of great companies, cash powerhouses, high-yield mastodons. . . and patience. . . turns proposed frothiness into opportunity, throws speculation out of house, and in the words of MF DowMan---"gets us to Biminy."

Tom Gardner, June 3rd, 1996

Transmitted: 6/3/96

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Today's Numbers

Day Month Year History

FOOL -3.75% -3.75% 94.34% 262.89%

S&P 500 -0.22% -0.22% 8.40% 45.65%

NASDAQ -0.38% -0.38% 17.73% 72.00%

*Scroll down or expand screen for full portfolio accounting

AMER -2 1/4 ...CHV - 5/8 ...GE + 1/8 ...GPS + 3/4 ... IOMG -3...KLAC - 3/4 ...MDRX +2...S - 1/2 ...

Rec'd # Security In At Now Change

5/17/95 2010 Iomega Cor 2.52 41.13 1532.61%

8/5/94 680 AmOnline 7.27 54.25 645.92%

4/20/95 310 The Gap 16.28 34.38 111.21%

8/5/94 165 Sears 28.93 50.38 74.16%

8/11/95 95 GenElec 57.91 82.88 43.10%

1/29/96 250 Medicis Ph 27.86 35.00 25.63%

8/11/95 110 Chevron 49.00 59.13 20.66%

8/24/95 130 KLA Instrm 44.71 25.88 -42.13%

Rec'd # Security Cost Value Change

5/17/95 2010 Iomega Cor 5063.13 82661.25 $77598.12

8/5/94 680 AmOnline 4945.56 36890.00 $31944.44

4/20/95 310 The Gap 5045.25 10656.25 $5611.00

8/5/94 165 Sears 4772.65 8311.88 $3539.23

8/11/95 95 GenElec 5501.87 7873.13 $2371.26

1/29/96 250 Medicis Ph 6964.99 8750.00 $1785.01

8/11/95 110 Chevron 5389.99 6503.75 $1113.76

8/24/95 130 KLA Instrm 5812.49 3363.75 -$2448.74

CASH $16434.53

TOTAL $181444.53