Fool Portfolio Report
Tuesday, July 2, 1996
Tuesday, July 02, 1996 (FOOL GLOBAL WIRE)
by Tom Gardner
ALEXANDRIA, VA, July 2, 1996 -- The Fool Portfolio rose 1.84% this day versus losses of 0.34% and 0.53% for the S&P 500 and NASDAQ, respectively. Just when you thought it time to shatter your Fool mug against the wall, incinerate that Fool ballcap, and plunge headlong into the welcoming arms of non-interactivity and Wisdom, just then mayhaps that jangle-headed curiosity, Da Fool, crept back up into a subjacent corner of your hindbrain.
Indeed. . . Fool.
Foolish investing---reliant on the principles of self-sufficiency, collaborative research, bottom-line accountability, and endurance---has now dealt out 203% returns versus S&P 500 gains of 46.95% since our birthing on August 4, 1994.
The curious reader just noted that the notion of market-beating performance is strangely absent from the four founding principles above.
So. . .what about beating the S&P 500?
The veteran reader knows well that David and I believe outperformance will naturally follow in tow. The market will reward private investors who manage their own money, who dig out information and ideas from The Motley Fool and the conversations herein, who wontedly measure their growth relative to the S&P 500, and who have fixed their eyes on the decades ahead---those who treat investing as a lifelong enterprise.
Because eventually the basic lessons of corporate profitability and brand value will sink in. Portfolio structuring will come more easily, as greater expertise rouses one to stop scrutinizing stock prices and start following the businesses. Naturally, the investor will save and invest more, trade less, and hold fewer stocks. The Fool has made one investment since January 1, 1996. During that period, the portfolio has risen 62.32%.
Yes, the endpoint is market-stomping outperformance. Who of us is going to ever get there? Not we. The Motley Fool prizes the process. We believe that the greatest hidden value waiting to be wrung out of our digital home are those principles. Those are the profits: self-sufficiency, the cooperative education, a focus on performance numbers, and the merits of seeing the remainder of our lives leading into those of others. It's the decades-plus endurance that takes one out of speculation and into investment.
So no, we don't think we'll ever arrive at market-performance and be gone!
But on that endless route, what better guts to the body and seat for the king of your portfolio than the Dow turnaround stocks? Four of them. The Foolish Four has turned out 22% growth annually for the previous 25 years. That's not twice market average overall. That's twice the performance each year. And the approach demands all of 10 minutes in labor per year. It hunkers you down into multinational conglomerates---the ones that Wall Street ain't courting. After all, if you want to make a name for your firm on the Street, do you get your clients into Chevron then issue a buy report on it? Or do you offer the same thing for that racy, enchanting, meat-packing-turned-internet-switching mite?
Oil's not in favor when the Internet is.
That's one of the reasons that we recommend eschewing all Wall Street Wisdom. Instead, read your Frost, or Isaac Singer, Langston Hughes, Chekhov or Dickinson. . . or your favorite writers. And cotton your eardrums away from the traditions of chatter on the Street and from those who plod through an incurious, loud and doting coverage of it. Rather, concentrate your energies on digging out high-profitability, brand adoration, and sensational growth. That is, if you attempt to outperform The Foolish Four.
You might not want to try. You might just want to stick with that 22% historical annual growth, those giants, your newfound ability to not worry about your savings growth and your full-time non-financial life.
Sears, General Electric, Chevron. Ask me about their businesses and I'll reply, "Uhh, stuff for your house, electrical appliances and NBC, and gasoline." Sure, sure, I know from whence these companies came, who's running them today, and where they might be headed.
Sears dealt its peripheral businesses, is driving debt off its balance sheet, and has refashioned its brand to stand for service, support, and the home.
General Electric is printing cash out of its NBC subsidiary, ever on the attack via its GE Capital wing---which just purchased Germany's CompuNet Computer ($1billion in trailing revenues) to become one of the largest global providers of desktop and network computer services---and run by a management squad that emphasizes numerics.
And Chevron. . . hey, no responses to my plea for a broad analysis of this company. Chevron has $38 billion in sales, 6% profit margins, and is doing business from Venezuela to Cambodia, from the Baltics to the US of A.
The beauty of the Foolish Dow model is that you don't need to dig through the numerous subsidiaries, valuing each item. In his excellent book on the subject, Michael O'Higgins noted that very few analysts could actually pull off such a feat. Anyone want to take the next year off to analyze every link in the General Electric business chain, which adds up to $72 billion in annual sales today?
And it is our opinion that you needn't reach far beyond, if at all, these Dow giants to construct a consistently superior portfolio of long-term savings. In 1996, the Foolish Four has risen 14.2% versus 9.4% growth for the S&P 500.
For the sheer pleasure of it, we did take a small sidestep from the Dow heavies by adding Gap shares to the motley mix. Gap was down hard with the retailing industry. The goose and the gander move together. At $32 a share, the Company was glidingly cash-flow positive, with the same brand as ever---Gap banners draped in Candlestick Park, Gap-clothed CEOs in the glossy mags, Gap hats on 80-year-old joggers in Central Park and Gap sweatshirts on 7-year-olds in northern Wisconsin---and the YPEG priced the stock at $40.
Then earnings flowed through. Once, and then again. A prominent financial daily panned the Company. Adolescents were taking there (un-fickle?) business elsewhere. Chatter flourished. We decided to just let the quarters flow. Let management, the employees and the earnings tell the story. Today the stock closed at $32 1/2---post 2-for-1 split---and we've doubled our money there in a bit more than a year.
steps. . .
There's no rush. A portfolio of those giants: Sears, General Electric, Chevron and The Gap would not win you any awards for commissions generated in a year. It wouldn't get your face planted on the cover of Business Wisdom Weekly. Don't expect to earn the adoration of your local cocktail-party tipsters with their tickers. Nope. Number yourself not among the paparazzi, Fool. Expect the snapshooters to take their battles for positioning, and their flashcubes---the whole glorious parade---elsewhere.
Your Wall Street-sweeping, market-mashing portfolio of large-capitalization stocks will just have to sleep late on Sunday and spend time at home with spouse and children. You'll have to content yourself with mid-summer barbecues among old friends. You'll have to settle for simplicity, peacability, and consistent long-term superiority.
Again, The Foolish Four is up 14.2% versus S&P growth of 9.4% this year. The Gap is up 56% since January 1st. Zero trades. Outperformance of the market that the vast majority of mutual funds are losing to today. And. . . stress?
Tom Gardner, July 2
Day Month Year History
FOOL +1.84% 0.99% 62.32% 203.10%
S&P 500 -0.34% 0.44% 9.36% 46.95%
NASDAQ -0.53% 0.51% 13.21% 65.39%
*Scroll down or expand screen for full portfolio accounting
AMER ---...CHV + 3/8 ...GE ---...GPS + 3/8 ... IOMG +1 3/8 ...KLAC - 3/4 ...MDRX + 1/2 ...S -1 1/4 ...
Rec'd # Security In At Now Change
5/17/95 2010 Iomega Cor 2.52 28.25 1021.49%
8/5/94 680 AmOnline 7.27 46.00 532.49%
4/20/95 310 The Gap 16.28 32.50 99.69%
8/5/94 165 Sears 28.93 47.25 63.35%
1/29/96 250 Medicis Ph 27.86 45.50 63.32%
8/11/95 95 GenElec 57.91 87.38 50.87%
8/11/95 110 Chevron 49.00 60.25 22.96%
8/24/95 130 KLA Instrm 44.71 22.13 -50.52%
Rec'd # Security Cost Value Change
5/17/95 2010 Iomega Cor 5063.13 56782.50 $51719.37
8/5/94 680 AmOnline 4945.56 31280.00 $26334.44
4/20/95 310 The Gap 5045.25 10075.00 $5029.75
1/29/96 250 Medicis Ph 6964.99 11375.00 $4410.01
8/5/94 165 Sears 4772.65 7796.25 $3023.60
8/11/95 95 GenElec 5501.87 8300.63 $2798.76
8/11/95 110 Chevron 5389.99 6627.50 $1237.51
8/24/95 130 KLA Instrm 5812.49 2876.25 -$2936.24