Fool Portfolio Report
Wednesday, June 19, 1996
Wednesday, June 19, 1996 (FOOL GLOBAL WIRE)
by David Gardner
Scale of dragon, tooth of wolf,
Witches' mummy, maw and gulf
Make the gruel thick and slab:
Add thereto a tiger's chaudron,
For the ingredients of our cauldron.
Double, double toil and trouble;
Fire burn and cauldron bubble.
ALEXANDRIA, VA, June 19, 1996 -- Perhaps the Bard's grimmest tragedy,
"Macbeth" numbers among its dramatis personae some of his most memorable generically named characters: First Witch, Second Witch, and Third Witch. Today's quotation comes from the play's fourth act, scene one, as the three hags stir their pot and conjure forth ghostly apparitions to confront the troubled Macbeth.
A day before a somewhat different form of "triple witching hour," the Fool Portfolio resumed its upward path, thanks largely to a rebound in Iomega, and thanks slightly to continued strength in Chevron. Five of our other six stocks were down, with GE unchanged.
For those who have very little understanding of why the heck I led off with today's bewitching chorus, you should know that triple witching hour is the simultaneous quarterly expiration of index options, index futures, and individual equity options. June's date is Friday, and typically brings with it additional volatility in the market. What we've noticed in our own portfolio is that some of our stocks (particularly Iomega) often make exaggerated moves the few days BEFORE triple witching hour. In other words, the "hour" itself seems to be getting anticipated hours before.
As our regular readers know, we don't use options. Enter the Fool's FAQ area (click our Search button below to access it) on the subject of options and you'll find the four subjects covered read:
(2) Why Fools hate 'em!
(3) Are they good for anything?
(4) The bottom line
In fact, if I had my way in this wicked world, I'd tear the options building down. Used by some institutions to hedge risk, I think the turbocharged risk and reward of these investments induce the small private investors who use them to LOSE money over the long term. But don't just listen to me: so says, in fact, Peter Lynch, who posited that in excess of 90% of average investors lose money if they play the options market over time. When you compare that to the annualized 10% GAINS you can get mindlessly with equity index funds, losing money over the long term in anything looks even sadder. Even despite that, options continue to whet the appetites of some investors (albeit, a minority). Then again, so do Las Vegas and state lottery tickets, two other propositions on which 90%+ of our population loses money over the long term.
Even more important to me, though, is that the occasional strident words and claims (bullish and bearish) that I read on our message boards are in most cases probably written by options holders desperate for such-and-such stock to hit such-and-such price by next week, next month, or (as is the case now) tomorrow. Is that investing? Is that a good move for your portfolio? Do you ever want to enjoy any life outside the upticks and downticks of your favorite optioned stock? Answers: no, no, and I hope so!
Those of us who have regularly seen heavily shorted stocks like Iomega make unusual drops during options week are no longer surprised by weird occurrences like yesterday's 10-point IOMG dousing, just in advance of the three witches. Where there's short interest, you can expect put options (ones that pay off when stocks drop to a "strike price"). And where there're options, you'll generally find people real eager to make the market move their way real quick, to meet their deadline. I haven't gone back over it (others, in the IOMG folder and elsewhere, have) but if you take the time to trace out Iomega's move over the past several months during triple witching week, you won't be as surprised to see Iomega make the drop it did yesterday, on what I consider a pretty inconsequential Compaq announcement.
Anyway, does this concern long-term investors, those for whom we toil day in and day out? Nope. Down $10 yesterday, up $3 and change today, and who knows what by next week, or next month? But I can tell you where it was more than a year ago, when we bought the stock. And I can tell you that I expect it to be well ahead of this price six months from now. And that's why we own the shares: that really is our viewpoint, and it has very little to do with the flips and dips driven by greed and fear and media spin.
If you're interested in some excellent Foolish fundamental analysis on this stock, you can do yourself a great favor by going into our Iomega section and reading today's news package. Of particular interest, as usual, is some outstanding numerical work done by MF Chiros... a fellow whose regular input is a great boon to the readership of this forum.
Anyway, Iomega up $3 1/4.
Our two other growth-stock darlings ate into Wednesday's gains. America Online dropped yet again, down $1 1/2, and Medicis sold off $2 1/4. For Medicis, it neared the psychologically important $40 level, where we see two-over-one reverse hyperresistance. For more on that click into the Fool's new technical analysis area... yeah, right, blah, blah, blah. Just kidding. Have to keep our readership on the ball.
Anyway, the NASDAQ followed yesterday's 2%+ bruising to surrender another bit today, and our NASDAQ stocks mainly went down with it. Our Dow stocks, on the other hand, didn't keep pace with the Dow's 20-point rise.
Then again, that was just for today, not the year. The Foolish Four, a primary subject of "The Motley Fool Investment Guide," now show the following returns for the year: 13.96% vs. the Dow's 10.38%. The S&P 500 is up just 7.45%. The returns for this approach year after year speak for themselves. Very little toil, and very little trouble.
And the witches don't seem to pay much attention to stocks like Chevron.
---David Gardner, June 19, 1996
Day Month Year History
FOOL +3.18% -20.10% 61.32% 201.22%
S&P 500 -0.00% -1.07% 7.47% 44.41%
NASDAQ -0.32% -5.17% 12.08% 63.74%
*Scroll down or expand screen for full portfolio accounting
AMER -1 1/2 ...CHV + 3/4 ...GE ---...GPS - 1/2 ... IOMG +3 1/4 ...KLAC -1 1/2 ...MDRX -2 1/4 ...S - 1/4 ...
Rec'd # Security In At Now Change
5/17/95 2010 Iomega Cor 2.52 30.00 1090.96%
8/5/94 680 AmOnline 7.27 40.50 456.86%
4/20/95 310 The Gap 16.28 33.63 106.61%
8/5/94 165 Sears 28.93 49.88 72.43%
8/11/95 95 GenElec 57.91 85.63 47.85%
1/29/96 250 Medicis Ph 27.86 40.25 44.47%
8/11/95 110 Chevron 49.00 60.38 23.21%
8/24/95 130 KLA Instrm 44.71 21.88 -51.08%
Rec'd # Security Cost Value Change
5/17/95 2010 Iomega Cor 5063.13 60300.00 $55236.87
8/5/94 680 AmOnline 4945.56 27540.00 $22594.44
4/20/95 310 The Gap 5045.25 10423.75 $5378.50
8/5/94 165 Sears 4772.65 8229.38 $3456.73
1/29/96 250 Medicis Ph 6964.99 10062.50 $3097.51
8/11/95 95 GenElec 5501.87 8134.38 $2632.51
8/11/95 110 Chevron 5389.99 6641.25 $1251.26
8/24/95 130 KLA Instrm 5812.49 2843.75 -$2968.74