Fool Portfolio Report
Monday, August 5, 1996

We'll burn that bridge when we come to it. -- Matt Goukas
by Tom Gardner

ALEXANDRIA, VA, August 1, 1996 -- Two years and one day after attaching keyword Fool to a series of screens linked together mostly by generic AOL icons, aided by the strongest producer over at the great digital castle in Vienna, Virginia---Rob Shenk---hey, we're still a going concern. Foolishness has proven enduring.

This afternoon, The Motley Fool Portfolio took a fastball out over the plate for called strike one---losing to the market by 0.43% on the day. Fool statisicians have documented that our leadoff hitter---fiscal 1994---clipped a double into left-centerfield, as we outperformed the S&P 500 by 37 percentage points. Stepping in from the ondeck circle, fiscal 1995 dug her left toe into the back of the batter's box and laced another double, this time high off the motley-colored monster in leftfield. The Fool Portfolio again outperformed the S&P 500 by 37 percentage points in year two.

Interesting numbers there.

Get your tea leaves out, Fool. Massage the Magic 8-ball. Dance with sorcerers, play that hoodoo-voodoo music. Speculate and pontificate with us because I think we have a new theurgical, magical , mystical number: the enchanting 37. Volume bettors in the year ahead may begin to notice sequences of three trailed by the sea-snaked series of seven. Soothsayers ought look for double-named public companies with three letters in the first and seven in the second. Will these two be blessed in the year ahead?

Cam Designs?

JPM Company?

Three and seven.

Our 37% annual outperformance of market averages is certainly more than David and I had planned for. Over the past two years, our portfolio has grown at an annual rate of 57%. The US equities market, as measured by the Standard & Poor's 500, has risen at a rate of 20% annually over the last 24 months. Fools, these growth rates are totally unsustainable. Historically, stocks have risen at a rate of 11% per year---far outpacing all other investment options. Name the investment vehicle, and I promise you that, as a group, it has underperformed equities in the twentieth century. That said, you're not going to see stocks grow at this clip annually over the next handful of years. We know you know that but thought it bore repeating.

But if you consider your investments in hundred-year chunks, as we're wont to do, the overall performance numbers will startle you. Sure, sure, we know. . . who the hell is going to be around in ten decades to live it up on any savings account? 300,000 Fools tapping into our online forum and I daresay not one of them will be alive in August, 2096. Even if we freeze dry our heads like apricots, we're probably not going to find life in the late twenty-second or twenty-third century much to our liking, much worth living. Whether or not our pots of Foolish gold are compounding 20 percent yearly growth then, reheated brainpans attached to foreign trunks probably won't enable us to much enjoy the loot.

So. . . why save?

Why think about investing Foolishly for four decades, five, seven, ten or more? If you're like me, you don't have kids getting ready to head back to school, flattering you into the purchase of another ten compact disks and pleading for that right pair of jeans or those Olympic shoes or, well, tuition.

So. . . why save?

I'm young. Why the hell should I save any money? These are the best years of my life. I suspect and hope that we're all looking out at the year ahead thinking---this is going to be the best damned twelve months of my life. I'm going to learn to do a bunch of new things; I'm going to meet loads of new people; my deeply-held philosophical beliefs are probably going to change a half-dozen times 'twixt now and August 5, 1997; shards of my world will be turned upside-down, others right-side-up. The finest advisors in my life have counseled me to spend my heart and spirit, thoughts, visions, pranks and Folly freely and consistently, like water. This is going to be the best freaking year of my life.

So. . . why save?

Why be methodical? Why plod on? Why project and why prepare? Keynes walked through life with a scalpel and a counting machine in his head. And, hard as we may try, we can only slightly alter his claim: In the long run, we are all dead or limping around Spacestation Luther with Walt Disney rubbing our ears to keep our heads warm. Death and that are one and the same, as far as I'm concerned.

So, why save, as if there weren't any end?

I've got no answer for that one. I can say that if someone in your family had put a dollar away in August of 1896 and---Foolish-Four style---had compounded 22% annual growth on that buck in a tax-deferred account, that dollar today would be worth. . .well, what do you think? Make a guess before reading the next paragraph.

HEY. . . I said make a guess!

One dollar compounded at 22% annual growth for a century. Would it surprise you to hear that today that single dollar bill would sit next to 354 million other dollar bills? In 1803, the United States purchased 885,000 square miles from France for $15 million. A witless Fool might assume that ninety-three years later, the average American could have afforded to put away just a single dollar for long-term investment. No? Perhaps a ten-dollar bill, even. Today, at 22% annual growth, that ten dollars would be worth a cool $3.5 billion.

And the financial media wonders from what dragon broth Mr. Buffett sipped as a young lad. What supernatural forces converged on his being to incite this genius. Behind mahogany desks and in front of students most eager for insight and/or signatured graduation papers, the academics have wrestled with this problem for decades. How the hell did he do it?! To our disadvantage as a nation, far too many of them have quietly accepted that either he didn't really do it (smiling fortuna) or that we have before us an unnatural construction, a bizarre admixture of elechtrochemicals, one in three trillion. . . the wonderkid.

Unintentionally, one and the other---the blind skepticism or the idolatry---has made a mess of our personal finances. Consumer debt has our wagons surrounded. Individuals buy gold coins advertised on financial radio shows, funded by chatter about gold coins. Our media is wooed into acting the role of apologist for tall buildings in Manhattan that are chipping away at our capital. Wasn't it Mr. Buffett who said he believed it should be the bankers themselves wearing the masks?! With firms and mutual funds charging commissions---meaningless commissions---that on par add no value to market-average growth and the Vanguard Index Fund, it seems absurd that anyone should wonder why we named and name ourselves Fools.

I'm sure no one out there believes that we yet think our business mission complete out here. Do as I'll do this week and casually ask anyone over the age of seventeen if they understand stocks and the market. If you ask thirty people and more than ten have a reasonable answer---long-term annual growth of 10%, buy into companies that turn handsome profits, avoid 80% of all mutual funds, the standard Foolish fare---I'd be stunned, frankly. The majority of America thinks the equities market a mix of madness, mayhem, manipulation and rampant speculation.

Why shouldn't they think that? Our schooling's trained it into us. And into those environs, thus, fair or foul (depending on your position) Folly rides.

I hope in year three we'll reach many more of those people who think stocks strange things. We're not wed to the latest greatest technology, which is still too expensive for most to access. The year ahead is going to see a substantially further reach of Folly. . . and why? Dave and Tom want more publicity? Tom really wants the glory of unveiling his shiny head on da big screen? Dave really likes to put on a suit? The forty Fools working double-time at Fool Global HQ in Alexandria really want to focus on customer acquisition above customer service and retention? The over one hundred remote Fools---MFs Yorick, DrRap, Bogey, Mom, Uptrend, BulDog, Pixy, Buck, GRunkle, Edible, Yon, Networx, DowMan and dozens more---would prefer to answer 110 questions a day rather than 10?

The answer to all of these is no.

The Motley Fool will continue aspiring to a broader reach, intent upon informing, educating, amusing, help individuals save and earn profits from those savings in excess of 10% annually over the next century. Turning that $10 today into $3.5 billion when your six feet under isn't all it's cracked up to be. Some people become obsessed by it. But learning how to save and invest is a damned bit better than knowing not where your dollars are, when, and for what purpose. Financial Wisdom will not peter out in the year ahead, but let's do our level best to halt its growth by aiming to meet and beat market-average returns, whether equities rise or fall. . . and by trying to teach those around us about compounded growth, Foolishly.

Can't wait,

Tom Gardner

Today's Numbers

Day Month Year History FOOL -0.77% 6.70% 31.04% 144.69% S&P 500 -0.34% 3.17% 7.19% 44.03% NASDAQ -0.39% 3.70% 6.50% 55.59% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 17.75 604.65% 8/5/94 680 AmOnline 7.27 33.13 355.46% 4/20/95 310 The Gap 16.28 32.13 97.39% 1/29/96 375 Medicis Ph 18.57 35.25 89.79% 8/11/95 95 GenElec 57.91 85.75 48.06% 8/5/94 165 Sears 28.93 42.25 46.07% 8/11/95 110 Chevron 49.00 59.63 21.68% 8/24/95 130 KLA Instrm 44.71 19.50 -56.39% Rec'd # Security Cost Value Change 5/17/95 2010 Iomega Cor 5063.13 35677.50 $30614.37 8/5/94 680 AmOnline 4945.56 22525.00 $17579.44 1/29/96 375 Medicis Ph 6964.99 13218.75 $6253.76 4/20/95 310 The Gap 5045.25 9958.75 $4913.50 8/11/95 95 GenElec 5501.87 8146.25 $2644.38 8/5/94 165 Sears 4772.65 6971.25 $2198.60 8/11/95 110 Chevron 5389.99 6558.75 $1168.76 8/24/95 130 KLA Instrm 5812.49 2535.00 -$3277.49 CASH $16754.13 TOTAL $122345.38 Transmitted: 8/5/96