Fool Portfolio Report
Wednesday, July 17, 1996
Wednesday, July 17, 1996 (FOOL GLOBAL WIRE)
by David Gardner
ALEXANDRIA, VA, July 17, 1996 -- General Electric (up $2 1/8) reported rock-solid earnings, Iomega (up $2 3/8) began to anticipate an expected strong Thursday earnings report, and the Fool Portfolio continued its charge back up the hill Wednesday. Except for another weak show by shares of America Online, today would've been a blowout day. As it is, the Fool Port (up 3.79%) will settle for a defeat of the NASDAQ (up 3.15%) and a romp over a still-strong S&P 500 (up 0.91%).
It was a banner comeback day for the market overall.
General Electric posted numbers so good it brings a tear to our Foolish eyes. We're talking about one of the world's largest corporations, here... can you imagine managing something that just reported sales of $19.1 billion this quarter? And yet, somehow CEO Jack Welch continues to guide this unstoppable world-beatin' juggernaut toward higher margins, stronger growth, more dominant global positioning, you name it. Welch says it most succinctly in today's PRNewswire release: "The quarter's double-digit [earnings] increase again demonstrates the ability of GE's diverse mix of leading global businesses to deliver top-line growth, increased margins, and strong cash generation."
I can tell you, my fellow Fools, that we don't look for much more than those three attributes when selecting stocks.
GE's second quarter of 1996 shows revenues of $19.1 billion, vs. $17.8 billion in last year's 2Q, up 7.1%. Earnings were the highest in GE history: $1.9 billion, up 10.5% over $1.7 last year. Earnings per share increased even more (13%), from $1.02 to $1.15, due to the company's ongoing $9 billion share-repurchase plan.
Observant investors will recognize that growth in profits exceeded growth in sales, always a healthy sign, which indicates profit margins are on the rise. In fact, net profit margin rose from 9.7% to 10.0%.
Now, you may be sitting there thinking, "Hey, what's with this? Not too impressive, guys! Sales growth of 7%? EPS up 13%?! How does this compare to Medicis," you ask, your head cocked slightly sideways, "which last quarter reported sales and earnings gains of 39% and 464%, respectively?" The answer is that GE is, based on most recent quarterly sales reports, exactly 2717.42 times bigger than Medicis. A small increase in GE's margins represents bigger bucks than little MDRX may ever see in its entire corporate history. That's why one gets excited about GE.
Ironically, the two stocks have performed similarly for us, since purchase. As of market close today, GE is now up 43.1%; MDRX is up 41.8% (another $3/4 today, by the way). (We've actually held that one five months less than GE.) Anyway, we love to celebrate the big and the small... pore over the Fool Portfolio holdings any day for a minute or two and that is made amply clear. All part of the Motley Fool approach.
Congratulations on another great quarter, Mr. Welch. NBC wins the ratings sweeps, GE Capital brings in a third of your profits, you launch a new 737 business jet with Boeing, you generate $3.5 billion in cash from operations, that's a report to weep over. Excuse me.
[Pulling out motley hanky.] [Camera compassionately swings away.]
OK, on to other subjects. We have a great event in Fooldom tonight at 8 PM ET (transcript will be available to those who miss the proceedings), with another of America's biggest companies. This time it's Intel, which yesterday at market close announced estimate-crushing second quarter earnings. Tonight, MF Templar will interview Jim Jarrett, head of Intel's investor relations, who'll answer Fooldom's queries for one hour. As always with our interactive format, MF Templar will draw largely off questions submitted by you during the event, so drop by if you get a chance.
Let's close tonight with volatility.
We've now seen a rumbly-tumbly market in action, and I'd like to meditate further on the subject because it should be of great interest to us all. My approach generally involves watching how people react in bad times... it says so much more about their character than good times. Geez, almost everyone can be a jovial, delightful person when the Dow hits new highs.
Anyway, with the NASDAQ having dropped a quick 15% this month by midday Tuesday, I saw some ugly exchanges of feeling in our message folders. As always, this was confined to a minority of readers (unfortunately, a typically vocal minority), but it's sad to see how people can lose their cool, blame other people, attack other people, whatever, when the chips are down. It all goes back to Human Nature 101, of course, though that'll never stop me from wishing things might one day be otherwise.
A day and a half later, the NASDAQ has retraced half of its monthly losses, and the Fool is in the midst of an apparently turbo-charged comeback; feelings are now predictably on the up and up. But I still see some lessons from our "mini-crash" that can serve as education for us all.
Foremost, if you get seriously upset over short-term drops like we've seen in July, sell all your stocks now. I mean it. If you're emotionally unprepared to invest in the stock market, admit it and don't go foolin' anyone. You may have loved our book, eaten up the cassette tape, you may hang in our chat rooms all the time, etc., but if your investment approach causes you bodily disfunction when the market heads south, you're not doing things right. Heck, some people feel too nervous even to try our Dow Dividend Approach, which is about as safe as equity investing gets! It's not a criticism, it's an observation; if you're one such person, admit it and do something less exciting with your money.
In our experience, those who are emotionally unprepared (read: those who cannot sleep or enjoy life when the NASDAQ drops 10%) are generally those who are educationally unprepared; they need to learn more.
In some cases, readers have made very poor choices for investments, either buying stock in companies they know nothing about, buying options, buying on heavy margin (heavy margin, also known as "vapor"). These are all completely unFoolish ways of investing... if you're doing so, you're on your own, and I hope you'll gracefully accept the consequences of your decisions, whether good or bad. I hear of people being forced to sell stocks they love because they've bought on margin, the stock has dropped, and they get a margin call with their broker demanding a sell. If you're getting a margin call, ever, you're gambling, you're not investing. If you ever set yourself up for a margin call, you have left the realm of prudent money management and ventured out onto a pathetic dice-rolling spree; last time I looked, it was the Vegas casinos, not the Vegas customers, that show profits. Isn't this obvious?
I urge any new readers to spend time systematically reading our 13 Steps to Investing Foolishly, just so you're clear on what your forum's silly co-founders feel about investing. You don't have to agree with it, and certainly many people have smaller or greater disagreements, but if in your heart of hearts you know that your investment approach heretofore has been gambling, has been uneducated, has been insecure, or whatever, start over. Because 10% corrections are part of the game.
A final note. Following the mini-meltdown on Monday, my Fool Portfolio recap was fairly flip: "More! More! MORE! Mwa-ha-ha-ha-ha-ha-ha," I wrote, "rooting" the market downward.
Several people, those who've read what we've written and invested in good companies for the long term, enjoyed the writeup. They understood that I was joking, and appreciated a little bit of Foolish levity in the face of so much mass hysteria (a lot of it, media-driven... we get meny more interview requests when the market drops 10% than when it rises 10%).
Others misinterpreted it to mean that I wanted the market to crash, or that I took pleasure in seeing others' lose money (never mind that we had lost a tremendous amount of money over the past several months, as anyone could see). One confused person wrote: "The Fools have never had a clue about the emotions or feelings of their readers.... Days like today cause concerns and real problems for lots of people. I'm sure there are people who lose sleep over what is happening in the market lately. I guess the Foolish response goes something like this 'Who cares! Fools don't have margin calls and only invest for the long term. If you didn't listen to us then too bad. I hope all you non-Foolish investors really get hurt tomorrow.' I'm sure your readers appreciate the sentiment."
That was not and never is the sentiment, and we are sorry if anyone has twisted our good-natured writings into something so alien. Part of the Foolish message is and always will be that we're going to make jokes whether the market is up or down; sorry, folks, but we don't take things that seriously. The Wise may wish you to take your money so dead seriously that you feel you can't manage it on your own; not so at Fool HQ.
The note is of course accurate in places. We do indeed say, when the market goes down, that you shouldn't much care if you're a long-term investor. Correct: "Fools don't have margin calls and only invest for the long term." That's what so much of today's market report has been about, and apparently, we can never say it enough.
But we at Fool HQ are more aware than anyone of how the emotions or feelings of our readership run: we get hundreds of communiques directly into our headquarters every day, many of them so heartwarming you can't stop grinning, some of them so sad that we occasionally call the person.
But here's the crux. If, as the correspondent wrote, "Days like today cause concerns and real problems for lots of people," the only people I can think of who are concerned by "real problems" after one bad day on the market are short-term, leveraged traders who've just lost a bunch. Sorry, fellas, but don't say we didn't warn you that investing like that will cause "real problems." We've spent gallons of ink on that already.
I end today's report as I ended Monday's:
Fool on. For the long term.
--- David Gardner, July 17, 1996
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(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.
Day Month Year History
FOOL +3.79% -10.49% 43.87% 168.63%
S&P 500 +0.91% -5.45% 2.95% 38.32%
NASDAQ +3.15% -8.30% 3.28% 50.89%
*Scroll down or expand screen for full portfolio accounting
AMER -1 1/4 ...CHV -1...GE +2 1/8 ...GPS +1...IOMG +2 3/8 ... KLAC + 1/8 ...MDRX + 3/4 ...S +2 1/4 ...
Rec'd # Security In At Now Change
5/17/95 2010 Iomega Cor 2.52 26.00 932.17%
8/5/94 680 AmOnline 7.27 32.13 341.71%
4/20/95 310 The Gap 16.28 30.88 89.71%
8/5/94 165 Sears 28.93 46.00 59.03%
8/11/95 95 GenElec 57.91 82.88 43.10%
1/29/96 250 Medicis Ph 27.86 39.50 41.78%
8/11/95 110 Chevron 49.00 57.13 16.58%
8/24/95 130 KLA Instrm 44.71 19.88 -55.55%
Rec'd # Security Cost Value Change
5/17/95 2010 Iomega Cor 5063.13 52260.00 $47196.87
8/5/94 680 AmOnline 4945.56 21845.00 $16899.44
4/20/95 310 The Gap 5045.25 9571.25 $4526.00
1/29/96 250 Medicis Ph 6964.99 9875.00 $2910.01
8/5/94 165 Sears 4772.65 7590.00 $2817.35
8/11/95 95 GenElec 5501.87 7873.13 $2371.26
8/11/95 110 Chevron 5389.99 6283.75 $893.76
8/24/95 130 KLA Instrm 5812.49 2583.75 -$3228.74