Fool Portfolio Report
Friday, September 13, 1996
(FOOL GLOBAL WIRE)
by David Gardner
I celebrate myself, and sing myself, And what I assume you shall assume, For every atom belonging to me as good belongs to you.
-- Walt Whitman
Friday the 13th has come and gone, much like any other day. Superstition holds as much sway over Fools as lemonade influences the magnetic poles. And the market closes with a bang-up day and an all-time record for the Dow Jones Industrial average. Broad strength across the boards for the Fool Portfolio, with great shows from Trois Com (up trois!), and America Online.
For the week, we see the S&P 500 up 4%, the Nasdaq up 4%, and The Fool Portfolio up 3%. The Boring Portfolio, our other feature in The Motley Fool's Hall of Portfolios, had an outstanding week (en route to market-beating annual returns). It was up 6%. Greg Markus, the portfolio manager, never gets enough play... Greg's style, his investment success, and his commitment to teaching us about the stock market combine into a delightful cocktail we have the pleasure of serving up every weeknight here in Fooldom. I hope you're making Greg a part of your daily read.
Plus, the guy's crushing our investment returns over the past few months.
(Not that it's been very difficult!)
Ahhhhh, but that's not the spirit of today's writeup. Self-effacement is out in latter half of '96; we're declaring it unstylish. Heck, we're sick of talking about how bad we've been. In fact, today's writeup is going to be our own "Stuart Smalley" look in the mirror, specifically at Medicis.
(Smalley was the character memorably played by Al Franken on Saturday Night Live, the guy with the blond wig who performed hysterical tete-a-tetes with his mirror image in an effort to build his self-esteem.)
OK, so I'm wearing my blond wig gazing in the mirror at myself for the rest of this writeup, with Whitman's "Song of Myself" open on the desk nearby.
Good day for the Fool Portfolio. We put up a 3.15% gain, diminished only slightly by our sale of Medicis at 3:52 PM Eastern. Exiting the stock at $39 3/4, we paid a commission of $27.49, which ate 0.02% of our day's return. Medicis was a great holding for the Fool Portfolio, so we'll bid it a fond adieu.
I was asked today if it didn't frustrate me that we'd put out our sell announcement earlier this week at $43, and we gave up $3 1/4 of that to exit today at $39 3/4. "Brokerage firms don't have to screw themselves like that!" someone might point out. The market does react to our buy and sell announcements, but what sometimes only our readers understand is that no one is penalized more than the Fool Portfolio managers. We sometimes watch our stocks slide 10% away from us when we announce, always ahead of time, our intention to trade them.
So sure, it bums me out to get $39 3/4 for MDRX rather than $43, and it certainly hurts our overall returns. But you know what? I wouldn't want to do it any other way. Sure, the Fools could've set up their portfolio to trade in and out ahead of time, front-running their public announcements as is almost the rule in this Wise, Wise world. But we're Fools! And anyway, is that serving customers? Is it fair for a brokerage firm to buy a large position itself, then sell the shares to its own account holders at higher prices upon the announcement of its own BUY recommendation? It's legal, but it doesn't seem that fair. It certainly isn't serving customers, which is what financial services are supposedly about.
We set up the Fool Portfolio for this reason: to demonstrate that small investors who don't get to sit down with the CEOs of the companies they invest in can beat the market handily through a disciplined approach, one that trades infrequently and doesn't take that much time to employ. Creating on our own the highest standard of accountability anywhere in the financial world, we'll continue to hold ourselves to it, even when it penalizes us. That's the way it should always be, in fact. Openness, honesty, and service should be our financial world's norms, and we make a point of that by featuring an online staff of 150 people, all of whom identify themselves in their posts.
Anyway, with a stock like Medicis, on which we gained 113.62% in less than eight months, we don't kick ourselves too hard over a few points. Would that they all worked out this way.
I like to look back at a stock just sold and recall some of the emotions and events that occurred during the period of ownership. The most prominent was June 13th, when Medicis rose $13 in one day following a BUY report put out by Robertson Stephens. At the time, the media was making a stir over the supposed power of online "Internet chatter" to move the market; a few stories had focused on MF Boring's sale of Zytec a month before, when the runaway momentum stock dropped several points the morning after his sell announcement.
Greg dropped me and Tom a note that day, identifying (as he does so effectively) some ironies and contradictions contained therein. It read simply:
Congrats on MDRX. I'm probably not telling you anything you don't already know, but today's action is a perfect counter-example to the silly and tiresome "online chat hype" storyline.
Here it is that MF identified this stock many weeks ago, spelled out the case for the stock in detail. The "buy" report is then followed up with a continuing conversation about the company and the stock, including input from dermatologists, etc. MDRX gained some, but nothing dramatic.
Then today, a gooroo makes a case for MDRX and the stock goes bananas. Will there be a slew of stories to follow about offline hyping by institutionally based analysts far from public scrutiny? Don't hold your breath.
We didn't, and we aren't. That $13 rise represented the first major expression of institutional interest this stock had seen... exactly the situations we search for with our small-cap approach. A reader on the Web dropped me a note yesterday saying, "I sensed this one would be a winner when I saw you having to do your own earnings estimates." Maybe so. At the time we bought Medicis, no analysts were following the company and I did indeed work up my own numbers.
Imagine my surprise when the very next quarter, MDRX reported $7.02 million in March sales, and my own self-created estimate said: 7.02! Some luck there, of course. Even better luck was that I came in low on margins: Medicis reported net income and earnings 16% above my expectations. All good signs.
As people who wouldn't identify themselves came in and talked trash about the dramatic declines of America Online (up $1 3/4 today) and Iomega (up $1/4), those same people conveniently ignored a couple of other doubles, namely Tom's Gap selection and my Medicis pick. A lesson we learned long ago is to ignore junk like this, because there's always going to be some person with more time than us to criticize some aspect of the Foolfolio. A lesson to us all: keep your eye on the big picture, and stick with your own convictions.
Every atom belonging to me as good belongs to you.
Right. Back to my Stuart Smalley routine. I celebrate myself. Can't help it after a good investment. When we divest ourselves one day of KLA Instruments, we will no doubt condemn ourselves.
No, no... can't do that!
"Hey, I'm good enough, I'm smart enough, and doggone it, people like me...."
--- David Gardner, September 13, 1996
Day Month Year History FOOL +3.15% -2.16% 23.76% 131.10% S&P 500 +1.40% 4.38% 10.49% 48.46% NASDAQ +1.96% 4.13% 12.98% 65.05% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 14.50 475.63% 8/5/94 680 AmOnline 7.27 26.75 267.80% 8/11/95 125 Chevron 50.28 62.13 23.55% 8/13/96 250 3Com Corp. 46.86 52.50 12.04% 8/12/96 110 Minn M&M 65.68 69.88 6.39% 8/12/96 130 AT&T 54.96 55.25 0.52% 8/12/96 280 Gen'l Moto 51.97 49.25 -5.24% 8/24/95 130 KLA Instrm 44.71 18.50 -58.62% Rec'd # Security Cost Value Change 5/17/95 2010 Iomega Cor 5063.13 29145.00 $24081.87 8/5/94 680 AmOnline 4945.56 18190.00 $13244.44 8/11/95 125 Chevron 6285.61 7765.63 $1480.02 8/13/96 250 3Com Corp. 11714.99 13125.00 $1410.01 8/12/96 110 Minn M&M 7224.44 7686.25 $461.81 8/12/96 130 AT&T 7144.99 7182.50 $37.51 8/11/95 280 Gen'l Moto 14552.49 13790.00 -$762.49 8/24/95 130 KLA Instrm 5812.49 2405.00 -$3407.49 CASH $16258.37 TOTAL $115547.75 Transmitted: 9/13/96