Fool Portfolio Report
Wednesday, June 5, 1996

Wednesday, June 05, 1996 (FOOL GLOBAL WIRE)
by Tom Gardner (TomGardner)

ALEXANDRIA, VA, June 5, 1996 --Not pretty.

The Fool Portfolio Tug of War team gave up another few inches today, dropping our returns in the month of June to 7.29%. If you jumped into all eight Fool stocks just before market close on May 31, you probably hate our guts right now.

America Online fell $5 1/4 today on news that Cowen cut its June subscriber growth projections, and Montgomery Securities had dropped America Online to a "Hold" from a "Buy." Until we actually get a look at the numerical work there, we don't have any comment. As we've noted here in the past, The Fool believes it's absolutely crucial that investors see the modified numerical projections not just the tag-titles that go with the reports. To us, "buy" or "accumulate" or "hold" or "strong sell" means absolutely nothing without understanding the mathematical work that supports (or undercuts) those labels.

I though it appropriate to share a post that blinked up in our America Online this morning which dealt with just this issue in a more eloquent, more Foolish fashion than I could muster.


"Why does the stock fall so hard when someone downgrades it from a 'Buy' to a 'Hold'? Doesn't 'Hold' mean 'Hold', not 'Sell'. . .?"

RESPONSE from Huibs pht:

", hold means sell, sell means you should have sold already, buy means you should have already bought, and strong buy means buy, accumulate means they don't have an opinion, buy on dips means they have no idea which way the stock is heading, and strong sell is ONLY used for Syquest, and it keeps going up..

..go figure.."

Reverse prophecy: This afternoon Nasdaq announced its intention to delist SyQuest for falling below minimum net tangible assets of $1 million. The stock fell $5, or 35.7%.

America Online's decline since their third quarter announcement has been discouraging. This evening, Randy Befumo (MF Templar) follows up on the Cowen and Montgomery reports, and that report includes a link to the analysis I did on AMER stock over the weekend. Investors in AOL would do well to read through Randy's work. Furthermore, our AMER stock folder is bubbling with excellent work from the likes of Bookladen, S KIM XX, Wishdoctor, TeddyKlugs and ACIDFLASHB. Thanks, Fools.

My own feeling is that if America Online can sort through some of the matters that have been discussed in detail (content and marketing strategies, connectivity issues, and concommitantly, subcriber retention rates), the stock should burst back to new highs in the 12 months ahead. Fortunately, as consumers, we have ringside seats.

Iomega Corporation (NASDAQ:IOMG) fell $1 3/8 today, perhaps down at market close in strange sympathy with the talk of a delisted SyQuest. Remember what your MBA professor taught you. . . the markets are efficient. Sure they are. I personally am falling in line with the very brief comments that Chiros was able to make yesterday---amidst a hectic schedule. He posted that he's feeling even more bullish about the company's prospects with each day.

Iomega's secondary, which will bring in something north of $175 million, is putting money into the hands of a management team that has excelled. That their performance has gone unnoticed by the mainstream financial media is shocking. I mean it really is shocking. We continue to recommend to Foolish investors that when it comes to investing in technology, you focus exclusively on the technolgy media, the technology itself, consumer voices in Fooldom, and the common sense business principles taught by the likes of Peter Lynch.

Let me share this short note from Lurker439, posted just past midnight this morning in the IOMG folder:

"About 18 months ago Iomega stock was selling for $3 (you have to divide that by 6 to compare it to today's price) . And there were ~20,000,000 shares outstanding. So in theory you could have bought 100% of this company for $60,000,000 back then.

Largely due to CEO Kim Edwards' efforts, today Iomega just convinced some of the Wisest investors on Wall Street to pony up $175,000,000 for about 4% of the company.

I'm not complaining."

Funny, there has been some complaint that the Iomega folder is filling up with too much chatter, but I continue to find some of the most extraordinarily honest, diligent, and convincing research carried out there each day. Yes, 86 folders is a lot; that makes for over 40,000 notes on the stock over the past 18 months. But you know what, that's the coverage one ought to expect from the single best performing US stock over that period. And what's more, a careful read of the work performed therein would save $60,000 of business school tuition and related costs for many. The education there has been that powerful.

In the excellent book, Soros on Soros, George Soros offered this:

The misconceptions and misunderstandings that go into our decisions help shape the events in which we participate. Fallibility plays the same role in human affairs as mutation does in biology. . . We are capable of making statements that are either true or false. . . To the extent that we can rely on true statements, we are capable of attaining knowledge. . . So we need to examine what kind of true statements we can make.

I know, enough of the Soros already. Apologies. The truth is, what Soros has outlined in this series of interviews are some solid investment strategies coupled with a powerful vision for the future of truly open markets, unobstructed lines of communication, freely flowing information and the Internet.

But if we just apply the above passage to Iomega, Fools need to continue to demand of ourselves that we focus primarily on the things that we KNOW to be true. Statements like the following:

1. Iomega is now up 1473% since May 17, 1995;

2. Iomega has $508 million in trailing 12-month sales;

3. Iomega outperformed 1Q estimates by 45%;

4. Iomega has OEM deals with Packard-Bell NEC, Micron, Hewlett-Packard, among others;

5. Iomega did not have a high return rate of drives after Christmas;

6. Iomega's secondary offering was not halted by the SEC;

7. The Wall Street Journal has been wrong;

8. Barrons has been wrong;

9. The Motley Fool holds itself numerically accountable;

There are nine factual statements, as far as I can tell. There are dozens more. I'd like it if we could build on this list in the Iomega folder in the days ahead. It may be time for the "Stick to the Facts" campaign, after the silliness I saw on television today around noon.

Believe it or not, I wanted to focus primarily today on The Gap. Late last night, I clicked over to Worth Online (keyword: Worth) and read through the more recent articles penned by Peter Lynch. In one, Lynch explains to folks how he digs out winners from the universe of thousands upon thousands of public issues. Reading through his excellent response, I thought we should once again expose how we locate some of our winners. Our aim, as always, is to put anyone who comes into Fooldom in position to locate, analyze and invest in their own stocks. . .not blindly into those thrown at them at cocktail parties, in train stations, via daily financial newspapers, on television, or here online.

So let's look today at The Gap. How did we find it, back in April, 1995? Here's a step-by-step process:

1. Got Foolish hands on S&P Stock Guide

2. Located all companies with:
a. twice current assets than current liabilities
b. loads of cash, little long-term debt

3. Demanded margins of greater than 7%

4. Ordered financials for all w/ YPEG's below .75

5. Reduced list to only strong consumer brands

6. Ordered Gap shares from discount broker

7. Reported performance numbers on GPS daily

8. Opened analytical eyes 4 times, for each quarter

It was an eight-step process. It took no more than four hours upfront. And with Gap's one dollar move up today, we're now up 120% in just over 13 months. And when The Wall Street Journal reported that The Gap was in serious trouble in 1995, that adolescents hated the brand. . . darn it, we should've added to our position.

Keep your eyes on the performance numbers: the earnings, sales, cashflows, and the return on your investment. Oh, and on the facts. George Soros has.

ANOTHER FOOLISH THING: The Fool Fax covered the restaurant industry this week. Top-notch. MF Bogey keeps cranking them out. . .and it's now available via email, certainly at less that it would cost you to read it online. Send mail to FoolFax or MF Bogey.

Oh, and MF Bogey is getting married this weekend. Drop him an email if you have a moment free. Fool on.

Transmitted: 6/5/96

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.

Today's Numbers

Day Month Year History

FOOL -3.27% -7.29% 87.19% 249.52%

S&P 500 +0.87% 1.39% 10.15% 48.00%

NASDAQ +0.44% 0.46% 18.72% 73.45%

*Scroll down or expand screen for full portfolio accounting

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

Rec'd # Security In At Now Change

5/17/95 2010 Iomega Cor 2.52 39.63 1473.06%

8/5/94 680 AmOnline 7.27 47.63 554.83%

4/20/95 310 The Gap 16.28 35.88 120.43%

8/5/94 165 Sears 28.93 51.75 78.91%

8/11/95 95 GenElec 57.91 84.38 45.69%

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

8/11/95 110 Chevron 49.00 59.00 20.41%

8/24/95 130 KLA Instrm 44.71 26.00 -41.85%

Rec'd # Security Cost Value Change

5/17/95 2010 Iomega Cor 5063.13 79646.25 $74583.12

8/5/94 680 AmOnline 4945.56 32385.00 $27439.44

4/20/95 310 The Gap 5045.25 11121.25 $6076.00

8/5/94 165 Sears 4772.65 8538.75 $3766.10

8/11/95 95 GenElec 5501.87 8015.63 $2513.76

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

8/11/95 110 Chevron 5389.99 6490.00 $1100.01

8/24/95 130 KLA Instrm 5812.49 3380.00 -$2432.49

CASH $16434.53

TOTAL $174761.41