Fool Portfolio Report
Tuesday, June 18, 1996
Tuesday, June 18, 1996 (FOOL GLOBAL WIRE)
by David Gardner
The Fool Portfolio fell 13.73% today, the single worst day since we opened our digital doors in August, 1994. Our two largest holdings, Iomega Corporation and America Online, fell 27.7% and 7.4% respectively.
America Online fell on no material news, marking now a 40% decline since the announcement of 3rd quarter earnings.
But the rage today on the Street was Iomega, which traded 16.7 million (NASDAQ-counted) shares, or over 10% of its float. The stock is now down 38.8% over the past six market days.
America Online and, particularly, Iomega have taken comparable dives heading into equity-option expiration days over the past twelve months. Regular readers of this forum have noted the swirl of Rumor that twists through our digital home each rotation. . . a storm quite familiar to veteran investors on Wall Street.
We don't invest in options. We don't like to pay hefty premiums; we don't believe in applying arbitrary time horizons to the management of our savings; and we're not interested in an all-or-nothing scratch of the ticket, spin of the wheel, or toss of the bones. In fact, don't ever expect Big-Daddy Options to get a Father's Day gift from us. And we won't be sending any Get-Well cards to Big-Mama Options if there's a crackdown on this vehicle.
Options add substantial price-volatility in the marketplace. And that volatility, in our estimation, is principly tied to rumors, a methodical utilization of those rumor, active trading, and pricing manipulation. It consistently does not reflect---in our minds---the financial fitness or underlying business potential of public companies. For those who have been active participants in Fooldom over the past year, the system is transparent. Innuendo fed into the information flow a week or more in advance of expiration---heightened trading activity and often sharp and inexplicable price declines---the falling off of chatter---and a pricing rebound.
Followers of Iomega---investors, regulators, market aficianados---would do well to analyze the volume-and-pricing patterns of Iomega during the weeks preceding equity-option expiration day. Then, link that information to media coverage---print, television, radio and online---of Iomega during those periods. Then, for the sheer pleasure of it, try to tie the information back to its original sources. That would make for quite a story.
Methodical rumor, active trading, price collapse, rebound.
Not all during market hours today was gossip, though. News came flying out of Tokyo as Hitachi-Maxell Ltd. and Mitsubishi Electric Corp. announced plans to manufacture products based on LS-120 technology. Avid storage technologists remember that Iomega sold this technology to Compaq in 1994 when they deemed it too expensive for the consumer marketplace. But the origin and the costs of it were lost in the rumbling today, as was the reality that at present Compaq's drive is only supported by Compaq itself, Matsushita-Kotobuki Electronics, Ltd., 3M and O. R. Technology.
In the other corner, Iomega appears to be in position to systematically drop prices on its drive as a result of original costs and increased automation, and the Company has OEM deals inked with Hewlett-Packard, Packard Bell, NEC, IBM, Acer, Micron, and Power Computing.
After market close, Iomega added Unisys and Japan's Bandai Digital Entertainment Corporation. The Unisys deal is eye-catching as the Company announced that it would feature the Zip drive as a "standard feature into select models of its new Aquanta line of customized PCs, as well as offer Zip as an option across its entire range of personal computers beginning in the third quarter of 1996."
Iomega also announced the arrival of two new accessories, the ZipUnleased battery pack and the PCMCIA-SCSI Zip card, and plans for its IomegaReady support program. Word in the IOMG folder is that after-market trading was sitting around $31 as of 5 PM tonight, up $5.
No doubt all of this is being covered with considerably more sophistication than one small Foolish brain could right there in our AOL Iomega folder, accessible on AOL via our "Messages" bar along the bottom of every AOL screen in Fooldom. I again emphasize the beautiful quality of this medium, where individual and institutional investors can share insights in real time. The analysis in that folder is without question going to arrive faster and show greater expertise than you could find on any other media platform. The world is going interactive, with bushwackers clearing pathways for information to travel.
To close tonight, give me brief leave to mention The Gap, which closed up $1/8 to $34 1/8. In discussions today with two seasoned journalists, we walked through together the philosophical foundations of The Fool Portfolio. . . foundations that we think have been overlooked. We suspect veteran Fools don't need these reminders, but they bear repeating:
a. We do not trade options.
b. We do not invest more than 15% of total assets in any stock.
c. We do not overweight into any industry.
d. We do not go heavily on margin.
e. We emphasize habitual bottom-line performance reviews.
Yes, The Fool Portfolio got squashed like a cicada today. But just as with business so with investment portfolios. In our opinion, those businesses and investment portfolios that focus on research and education, capital preservation, debt avoidance, the search for high-margined growth, and the aim of maximal value off minimal apprehension are those with the greatest staying power.
I would suggest that whether or not you hold any Fool stocks, and of course it's of no benefit to us if you do or do not, if you today's activity hurt, you're mismanaging your savings account. That applies equally to those with the lattitude to trade $1.8 billion in copper or $1.6 billion in derivatives, as to those with $17,000 in an IRA or $580 in dividend-reinvestment plans. If the stock market hurts you over any short- or intermediate-term term, you've mismanaged your funds.
Let the investment suit the size of the portfolio and the time horizon. And if you are investing, to be distinguished from "playing the market", keep your eyes on the financial statements. Quarterly earnings are always right around the corner; they tell the tale.
Tom Gardner, Fool
Day Month Year History
FOOL -13.73% -22.57% 56.35% 191.94%
S&P 500 -0.48% -1.07% 7.48% 44.41%
NASDAQ -2.04% -4.86% 12.44% 64.26%
*Scroll down or expand screen for full portfolio accounting
AMER -3 3/8 ...CHV - 3/8 ...GE - 1/2 ...GPS + 1/8 ... IOMG -10 1/4 ...KLAC - 3/8 ...MDRX - 1/2 ...S - 5/8 ...
Rec'd # Security In At Now Change
5/17/95 2010 Iomega Cor 2.52 26.75 961.94%
8/5/94 680 AmOnline 7.27 42.00 477.49%
4/20/95 310 The Gap 16.28 34.13 109.68%
8/5/94 165 Sears 28.93 50.13 73.29%
1/29/96 250 Medicis Ph 27.86 42.50 52.55%
8/11/95 95 GenElec 57.91 85.63 47.85%
8/11/95 110 Chevron 49.00 59.63 21.68%
8/24/95 130 KLA Instrm 44.71 23.38 -47.72%
Rec'd # Security Cost Value Change
5/17/95 2010 Iomega Cor 5063.13 53767.50 $48704.37
8/5/94 680 AmOnline 4945.56 28560.00 $23614.44
4/20/95 310 The Gap 5045.25 10578.75 $5533.50
1/29/96 250 Medicis Ph 6964.99 10625.00 $3660.01
8/5/94 165 Sears 4772.65 8270.63 $3497.98
8/11/95 95 GenElec 5501.87 8134.38 $2632.51
8/11/95 110 Chevron 5389.99 6558.75 $1168.76
8/24/95 130 KLA Instrm 5812.49 3038.75 -$2773.74