Fool Portfolio Report
Friday, June 28, 1996

Friday, June 28, 1996 (FOOL GLOBAL WIRE)
by David Gardner

ALEXANDRIA, VA, June 28, 1996 -- And, as the week closes, we look back over the numbers and see, yup, $8.75. Yes, ladies, gents, and Fools, that was indeed the Foolish take for the week just concluded... a tally that comes to a total gain of .005%.

To those who lived through it, this may come as a fairly shocking revelation when we consider the week that was. After all, our daily numbers went like this: Monday +0.46%, Tuesday -4.10%, Wednesday -8.51%, Thursday +10.95%, Friday +2.25%. In other words, four of the five days this week featured portfolio moves in excess of 2%. Of course it's not surprising, is it, given that Iomega remains one of the more volatile big-cap stocks I've ever watched, and it represents a significant part of our portfolio? But there it is. Eight dollars, and seventy-five cents.

Hey, at least it was a profit.

In the middle of the week, right after Iomega had nosedived to $20 7/8 following the SELL recommendation of a momentum-stock newsletter, I wrote of the irrationality of short-term market moves, and the greater importance of keeping one's eye on the long term. I received a substantial amount of affirming, supportive e-mails from our readers -- other long-term investin' Fools, the ones for whom we write -- so I realized that the message does indeed strike harmonious chords with so many out there who have renounced worldly Wisdom.

Two days later, I write with the stock exactly eight points above its close that night (IOMG rose $1 1/2 today), representing a 48-hour gain in excess of 38%. And yet, of course, that's not even the point. We could be sittin' flat at $20 right now and the message would be the same: concentrate your investment research on business prospects, and don't ever put yourself in the position of trying to predict share prices by such-and-such date.

To reconsider the point, and go over some new material, think about this: Over the long term, share prices correlate very closely with sales and earnings; better yet, you can research effectively -- and predict -- sales and earnings, especially with the help of The Motley Fool's national readership, several hundred thousand strong.

By contrast, over the short term, share prices move irrationally, slaves to the whim of the latest recommendation (bullish or bearish), the latest media spin (accurate or not), the latest national triumph or disaster, overall market sentiment, you name it. These events are extremely unpredictable, which means when you invest over the short term, you're choosing to dance in the fields of irrationality and randomness. Logic, intelligence, and hard work have a place in those fields, just not a very big one. Logic, intelligence, and hard work shine out over the long term, when investors are most rewarded... that's why we invest the way we do. (It's not the only way to invest, of course, because there are many ways to make money investing. But our historic returns may in some way suggest that we're onto something decent.)

This remains an important message, judging from the share-price movement and volume of Iomega on Wednesday. Many people sold in a panic that day, following the SELL recommendation from the momentum newsletter. These people were victims of a short-term mentality, placed in that position by the random surprise occurrence of a newsletter recommendation, faithfully followed and executed by those subscribers. Because the view was short term, fear played a strong part in their thinking ("Gotta get out now... this thing is caving in!"). For those of us who read no meaning into the short-term movement of share prices, remaining focused instead on Iomega's business, we felt by contrast nothing but ongoing confidence. With every passing day the company appears to us to take another step toward achieving its business goal of dominating the crucial computer storage industry. That's all we see; that's all we look at; ain't no fear in that, my fellow Fools.

Thus, to celebrate that mentality, each of our companies named in today's report will also be a hyperlink to that stock's 12-month price graph. The idea is to encourage you to look at the big picture... the one that really counts. (The hyperlinks show up in blue for users of AOL's new version 3.0 for Windows -- you can get the new version for free via keyword UPGRADE -- and sorry Mac users, but we just work with what AOL gives us. This feature will be coming to the Mac later this summer.)

So anyway, Iomega closed a volatile week up $1 1/2, after a double-whammy SELL from a newsletter and BUY from J.P. Morgan.

America Online, up $3 5/8 for the week, fired its chief operating officer after only four months of work. (The stock closed down $1/2 today, giving away strong morning gains.) The market liked this announcement, especially since it involved Steve Case's "coming back" to take more control of the company on a day-to-day basis.

I must Foolishly note that the excuse given for Razzouk's departure was maybe the lamest I have ever seen... makes me wish companies would just come out and tell the truth, whatever it is. C'mon guys, square with us. We're all adults (most of us, anyway... I don't include myself, of course). If Razzouk was inept, say it! If Razzouk hated the company, say it! Whatever. The "reason" given by the man was as follows: "As the school year ended and the process of uprooting my family began, we came to realize that moving from Memphis was simply not in our best interest."

That wasn't evident four months ago, when the fella accepted the job? Lame-oh. Anyway, you may be interested in reading a New York Times article today on the subject of AOL, which talks about its management future.

Medicis was strong again today, rising $1 3/4 to bid $41 1/4, helping power today's market-beating gain. If you missed it yesterday, Tom updated his opinion on the stock's current PEG, with which I mostly agree. (Tom and I aren't ever allowed to agree completely -- it's a genes thing.) As of today's trailing earnings, and next year's expected earnings, we're looking at current full, fair value around $50.

You want another winner today? It comes in the unlikely form of KLA Instruments (which is not a particularly pleasing graph to review). The stock seemed to be reacting to its mention in today's "Heard on the Street" column in The Wall Street Journal. A fellow named Bruce Gulliver, who works at Jefferson Investment Management in Oregon, identified KLA as one of four stocks that all look "cheap" to him. How's this for half-hearted, though? "In the short run," Mr. Gulliver is quoted as saying, "there is a bit of risk in buying some of these stocks, as cheap as they are.... I liken it to quicksand."

Writing as I am today hip-deep in this stock's quicksand, I know what the man means. It does look cheap though. By market close, it didn't look quite as cheap: KLAC rose $1 3/8 today's to a closing bid of $23 1/8.

The Gap, amid screams from unfortunate villagers, rolled on another $5/8 today, continuing its status as juggernaut stock trampling all in its wake. Run for the hills!

Our Dow stocks -- Chevron, General Electric, and Sears --

all DROPPED. I was all ready to write about how that hadn't happened since last October, or something like that; these stocks have been so strong it almost seems like they could never all go down together. Well, turns out it's only since June 7th.

Ooooooo, wait, did I write "June"? June? Guess I did. Yeah, we hated June. Off a whopping 20.40%! That was indeed the worst month in Foolish history. Period.

But y'know, somehow I don't feel that terribly bad about it. I just kinda feel like it's all part of the natural ebb and flow of investing... we have good months, we have bad months. We finally had a truly horrible month... we'll have others, and we'll grin and bear those in our motley caps just the same. You should too. Because the whole point of all this is that the market goes up more than it goes down, over time, and you and I will reap those benefits.

Some people are under the mistaken impression that "what goes up must come down," applying that mentality to the overall market with erring regularity. The graph of the Dow Jones Industrial average this century begs to differ. I can't point to that one with a hyperlink in this report, but I can show you the longest term graph that AOL's Historical Quotes will provide: a graph of the S&P 500 since January 1st, 1960. Though we're talking here about a two-dimensional image expressed fleetingly across your electronic screen, it speaks eloquently with no tongue.

Best wishes for a weekend free of Wisdom. Me, I'm going to go try to figure out where I can blow eight bucks and seventy-five cents.

--David Gardner, June 28, 1996

(c) Copyright 1996, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Transmitted: 6/28/96

Today's Numbers

Day Month Year History

FOOL +2.25% -20.40% 60.73% 200.12%

S&P 500 +0.31% 0.22% 8.88% 46.30%

NASDAQ +1.63% -4.70% 12.63% 64.54%

*Scroll down or expand screen for full portfolio accounting

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

Rec'd # Security In At Now Change

5/17/95 2010 Iomega Cor 2.52 28.88 1046.30%

8/5/94 680 AmOnline 7.27 43.50 498.11%

4/20/95 310 The Gap 16.28 32.13 97.39%

8/5/94 165 Sears 28.93 48.63 68.11%

8/11/95 95 GenElec 57.91 86.50 49.36%

1/29/96 250 Medicis Ph 27.86 41.25 48.06%

8/11/95 110 Chevron 49.00 59.00 20.41%

8/24/95 130 KLA Instrm 44.71 23.13 -48.28%

Rec'd # Security Cost Value Change

5/17/95 2010 Iomega Cor 5063.13 58038.75 $52975.62

8/5/94 680 AmOnline 4945.56 29580.00 $24634.44

4/20/95 310 The Gap 5045.25 9958.75 $4913.50

1/29/96 250 Medicis Ph 6964.99 10312.50 $3347.51

8/5/94 165 Sears 4772.65 8023.13 $3250.48

8/11/95 95 GenElec 5501.87 8217.50 $2715.63

8/11/95 110 Chevron 5389.99 6490.00 $1100.01

8/24/95 130 KLA Instrm 5812.49 3006.25 -$2806.24

CASH $16434.53

TOTAL $150061.41