Fool Portfolio Report
Tuesday, September 17, 1996

by Tom Gardner

ALEXANDRIA, VA., September 17, 1996 -- The Fool Portfolio drifted today up 1.17%, as if held up by a giant yellow float on tranquil and transparent-blue Pacific waters. The market was flat, the day silent. Nothing doing out there; nothing to see for miles to the north or south. Just a pitch of sunlight, an easy breeze, rainbow fish and speckled stones abounding in color on the ocean floor.

Nothing doing.

Just Fools drifting, not even half-aware of the chest-pounding, table-thumping announcements about quarterly performance from those branded, profitable and global giants, Nike (NYSE: NKE) and Intel (Nasdaq: INTC), each of which rose a few more bucks today.

Nike has compounded over 40% annual growth for five years running. Intel has compounded over 50% annual growth for five years running. Some call it market froth. We stack it against the annualized returns of the S&P 500 over the same period, which register around 14% per year, and the INTCs and NKEs look less frothy than fiery, less bubbled than bubbling, less mania-driven than methodical.

This isn't to suggest that their prices won't fluctuate with periodic drops 'twixt today and 2006. They will. And it isn't to suggest that these businesses can't be numerically valued, or shouldn't. Likewise, I'm not proposing that there aren't times when these stocks won't be cheaper relative to the underlying values of these businesses than they are now. Nope.

But offer me one of these:

a) branded, debt-free, high-margin, global businesses designed around linking together and serving their customers, shareholders and employees

b) powerhouse financial advisors; subscriptions to ten financial magazines, newspapers, and newsletters; a free five-year subscription to The Market-Timing Gooroos 900-Number; and a couple well-marketed mutual funds

Where does the greater value lie above?

Boy, Fool, some peope make a nightmare out of investing. Thirty-seven stocks in their portfolio, some known only by their ticker symbol. Five different advisors. Bond funds, gold funds, t-bills, growth funds, income funds. And all these with the money they plan to keep in the market for the next twenty years! Trades come through tomorrow morning, trades late Friday before the weekend, trades just before the business lunch in San Diego on Monday. And what of all these manila folders full of trading records, file cabinets full of trading folders, spacious offices full of trading cabinets, tall buildings full of trading offices, wide cities full of trading buildings...?

We Foolish few are contrarily content to concentrate our attention on but a few things alone and on the faraway horizon-line of a peach-blown sunset. At Fool HQ and beyond, we like researching business, rather than pricing fluctuation. And studying how companies make money and why. And how great marketing programs are ratcheted together and why. And how long-term businesses build everyone into ownership positions (management, employee, customer) and why. And we Fools content ourselves with buying great companies for many years, with making the process of investing a lifelong endeavor, and with disciplining ourselves to peacably drift a watery course on blase market days like this.

But we're really only very few in America as of today. Just wait.

To provide another reference point for you, I'm linking in again today the group of the fifty top-performing stocks from the Fortune 500 over the past decade. All of these stocks have generated above 20% annual returns since 1986. Most are hugely profitable, many debt free, many are consumer-branded. Jeez, it's simple. The list keeps reminding me of the great follies of the investment community, the darkness of our financial age, and what simplicities the Information Age need usher into our lives.

Click here for: Huge Winners, a Decade Running.

To The Fool Portfolio:

3Com made a few waves today, climbing $3 to $55 3/8 on no news. Their quarterly earnings report should be out in the next week or so. This stock has compounded 84% annual growth over the past five years. The stock has risen from $6 to $54 from September, 1993 through to today.

But the last twelve months for COMS have been like that golden float above, or a globefish or some ocean-floor aquatic with a big sucker mouth, or that easy wind whirring up from the Tropic of Cancer. Namely, slow-moving. 3Com hasn't kept pace with the market. But for us, the stock has sparkled so far... now up more than 18% since our purchase one month back. We're looking forward to scoring their upcoming quarterly against expectations and seeing their business for what it is.

Elsewhere, really, nothing much doing. KLA Instruments rose a dollar, in sympathy with Intel's announcement. Iomega was flat on the day, after a sales-and-earnings downgrade from JP Morgan, which had obviously already been priced into the stock. America Online was essentially flat today after a big media day and a nice upswing yesterday. Later this week, I hope to have thrown together some useful valuation of AOL as we head toward the big retailing season. Robert Seidman in Seidman's Online Investor Email service put together a nice piece today.

Over on the Dow side, General Motors inched past $50 again. GM is the parent company of Hughes Electronic Corporation, and Hughes right now is managing the hottest consumer-electronics product on the market, DIRECTV. Last night, I stayed up from Midnight-2:00 AM EST watching the 1982 NCAA Basketball Championship game between Georgetown and North Carolina, on DIRECTV. Afterwards, I caught fifteen minutes of an Orson Welles film on the Independent Film Channel. After canceling cable when the darned cable-box fizzled for the fourth time, I haven't looked back. I hope our GM stock pays for the DIRECTV this year. This new technology is pretty awesome.

Beyond these notes, what else?

Well, I wanted to close tonight's report in praise of a Fool who has done extraordinarily fine, lucid, thoughtful work since tugging on his MF garb a few months back. George Runkle, a civil engineer on active duty with the Pennsylvania Air National Guard, has written a load of excellent Fribbles, detailing his moves out of mutual funds, into dividend-reinvestment plans, long-term investments and great companies. Among much else, George has written about his great-grandfather's "investments" in penny-stock, promotional mining companies... none of which did not end in disaster. I seem to remember George mentioning a $4000 "play" by his ancestor in a failed mining venture in 1938.

Click-clack, get the calculator out.

Compounded forward at 15% growth annually (an investment in a known company with profits growing and debt managed down), that Runklian $4000 would be worth over $13 million today. Wow. The tax bite would sink it to the $9 million range. I don't know if it would've been appropriate to say, "Ouch!" when filling out the return. Probably not.

As we all know, these tales may come from Runkle, but they're American stories. Colorful pieces about promotional companies, bad business models, and the abuse of the individual investor. They're stories that run through all of our families; and yet, they're lessons that a good 98% of America knows nothing about. Tomorrow's portfolio report will illustrate this in rather Foolish fashion, I think.

Click here for our Fribble Archives.

Thanks, George -- from us and those who follow us.

Tom Gardner

Today's Numbers

Day Month Year History FOOL +1.17% 0.59% 27.24% 137.59% S&P 500 -0.15% 4.75% 10.88% 48.99% NASDAQ +0.78% 5.42% 14.37% 67.08% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 14.38 470.67% 8/5/94 680 AmOnline 7.27 29.13 300.46% 8/11/95 125 Chevron 50.28 63.13 25.53% 8/13/96 250 3Com Corp. 46.86 55.38 18.17% 8/12/96 110 Minn M&M 65.68 71.50 8.87% 8/12/96 130 AT&T 54.96 57.00 3.71% 8/12/96 280 Gen'l Moto 51.97 50.13 -3.56% 8/24/95 130 KLA Instrm 44.71 21.50 -51.91% Rec'd # Security Cost Value Change 5/17/95 2010 Iomega Cor 5063.13 28893.75 $23830.62 8/5/94 680 AmOnline 4945.56 19805.00 $14859.44 8/13/96 250 3Com Corp. 11714.99 13843.75 $2128.76 8/11/95 125 Chevron 6285.61 7890.63 $1605.02 8/12/96 110 Minn M&M 7224.44 7865.00 $640.56 8/12/96 130 AT&T 7144.99 7410.00 $265.01 8/11/95 280 Gen'l Moto 14552.49 14035.00 -$517.49 8/24/95 130 KLA Instrm 5812.49 2795.00 -$3017.49 CASH $16258.37 TOTAL $118796.50 Transmitted: 9/17/96