Fool Portfolio Report
Wednesday, September 25, 1996

by Tom Gardner

ALEXANDRIA, VA, September 25, 1996 -- Yee-haw.

That's about as much celebration as you'll hear from me today. There were occasional moments of jollity in the air at Fool HQ today, as we watched two of our growth stocks blast off, clear the earth in a few seconds, and disappear with a whisper into the cloud cover high overhead. Iomega up $4 1/4. 3Com up $8. But I'm not going to celebrate.

Because we've only just begun.

Not for those stocks, necessarily. I'm not saying that you'll see Iomega climb three points more tomorrow, or Trois Com hit three digits by December. Maybe -- and hey, I'd love it -- but that's not the point. The point is, we've only just begun.

Picture your Fools are sitting here at Fool HQ with our binoculars pointing out the window, scanning the horizon. We focus on the future, not the present or recent past. A month ago, after our portfolio had dropped to just a 19% 1996 return, we counseled readers to look to the long term, not to worry about the occasional brutal market periods that form part of any investor's experience. To go two steps forward, the investor often must be prepared to take one step back. Now back over 50% gains for the year, we're not even particularly satisfied. Sure, we may be 39 percentage points up on the S&P 500 for 1996, but we were once about 80 percentage points up on the sucker.

Our aim is nothing short of complete domination of the market averages, year in and year out. We won't always succeed, but we will never shoot for anything lower. Put away your party hats and your sparklers for now, my fellow Fools. We need to stay lean and mean, and as ever, we have work to do.

Iomega's short interest came out in the papers today, and we see an increase of three million shares from last month. Insofar as IOMG was already the most shorted stock in America, this was more fuel to the fire. We are once again witnessing what happens when a negative herd mentality on the Street meets a great growth company in the midst of its highest prospects. Let them short. Twenty-five million shares. We've heard all the bear arguments, and I still haven't seen one from somebody who looks like he could explain what a parallel port was.

3Com was the interesting stock to watch today. Gapping up strong after yesterday's after-market earnings report, the stock just kept going amid a flurry of brokerage-firm upgrades and sudden recognition of this outstanding company's prospects. They didn't like it at $46, where we purchased the stock on August 13th, but they love it $60. This is once again the instutional herd mentality at play. The Foolish individual investor can make clever use of this psychology.

Trois Com management broke a little ground yesterday when, for the first time ever, it allowed small private investors access to its conference call via tape replay. (You can listen to it yourself by dialing 1-800-633-8284, reservation number 1974669.) Our own Deborah Tidwell (MF Debit), conference-call crusader mentioned in SmartMoney magazine last month, was the primary catalyst driving the company's decision. I haven't yet had opportunity to listen to the replay, but Tom and several others have, and mentioned what an outstanding job management did in communicating and breaking down its business for analysts.

Unfortunately, our company (I say this, since we're shareholders) didn't go far enough. The telephone call halts abruptly just as the company opens up the floor for questions. You see, the most interesting and useful part of any conference call, the question-and-answer segment, was deemed off-limits to all but Wall Street analysts. This was too bad, especially given the Foolish interest in the company from online readers and other technophiles. Particularly ironic is that, um, we're shareholders, remember us? You know, part owners of the company. Feels funny to be treated like children sent up to bed before the parents sit down to talk.

I'm not making a big deal of this, because 3Com is a great company and has treated shareholders to outstanding long-term returns; I'd certainly rather have great returns out of a uncommunicative enterprise than poor returns from a company that'll talk about its balance sheet with you any time.

But we'll keep our fingers crossed that over the next year 3Com management will learn a bit more about today's investment world (to say nothing of the 1934 Securities Exchange Act) and permit its shareholders access to the key information that is communicated over the course of the WHOLE conference call, not just the non-interactive portion.

With 3Com's $8 rise today, we now show decent overall returns of 38% in our investment so far. This flies in the face of some of the conventional wisdom you would've encountered in the 3Com folder on our message boards, the portions put out by technical analysts and traders. I speak here to novice investors and newcomers to the Fool when I reiterate that we do not believe in the principles of technical analysis or rapid-fire trading, so when you encounter it in our message boards, know that we at Fool HQ are generally holding our noses as we click past this stuff.

As usual, this isn't to say that such analysis or trading is evil, or unprincipled, or outright stupid. No, it's just that we think you'll perform better as an investor if you stay well away. Perfect example: witness these posts from the 3Com folder, all within the past month.


Subj: Re:Sign Me On
Date: 96-08-20 19:01:54 EDT
From: RevNasdaq
Posted on: America Online

The only thing that could be worse about choosing COMS right now is that it is in a nasty little downtrend, take a look at the chart. 10-12 points down to the bottom of the channel. Good luck.


Subj: Re:Sign Me On
Date: 96-08-21 00:00:53 EDT
Posted on: America Online

I agree, it seems to have started a downdraft a few days back. I bought the 45 puts for September back last week when the stock was about 46, so I am partially insulated from the fall. But I'd rather eat the option premium and have the stock finally bust up through its resistance points, which seem to be in the 48 and 52 areas. I've seen a couple of comments about how the company is having a good quarter, better than expected. How solid are those comments, or is that a dumb question?

Subj: Re:Here we are again
Date: 96-09-14 09:23:07 EDT
Posted on: America Online

You must be looking at the same chart as me. If the trend continues, which I think it will, we can buy back in the high 30's. 3Com has a history of running up just prior to announcing quarterly results, which I believe are due next week and falling after they beat estimates, which they always do.

I sold 400 shares this week at 50 (average price 16 after the last split). There just is not that much up side left in this market. Good luck to all holding long, I will buy back on the next correction.


My main objection to this stuff is simply (do we need to shout?) that no one can make accurate short-term predictions of the stock market! People invent every sort of device to give them confidence they can -- the more "technical" sounding, the better, I suppose -- and some of those will come on our message boards and speak very self-confidently in strange terms like "10-12 points down to the bottom of the channel." In the past, such talk could go on and on without any accountability. You still see it frequently in a favorite financial media operation near you, all those papers and cable channels we know so well.

Enter new technology, a new medium, a new world. Here at The Motley Fool, comments put up on our message boards stay forever... they don't disappear off your TV dial, or wind up in your paper recycling bin. And so it can be extremely educational -- and again, I'm writing for the benefit of new investors -- to go back and read our message boards from time to time and see market timing pretentions punctured by the intractable whims of the stock market. That's why the next time someone tells you to "look at the chart" or "sell at $46 and buy back next week when it falls below $41 1/2," I suggest you look instead at this 3Com folder post below:


Subj: excuse me
Date: 96-09-18 03:18:47 EDT
From: Steve24601
Posted on: America Online

Excuse me, but I always thought that investing did not mean trading. Trading means going to Las Vegas (or maybe Lost Wages) and guessing what will come up on the dice. Here we've got a company with good earnings and great products. I'd add more at this point but my boss doesn't pay me enough.


Right on, Steve.

Finally tonight, AT&T got bashed yesterday following diminished expectations for the company's second-half profits. I've watched Dow stocks for years, as a Dow Dividend Approacher, and I can tell you that we're looking at a stock just waiting for a management change. When this happens (and the company has already identified six potential successors to Allen), we may well see exactly what happened with American Express several years ago when James Robinson was ousted in favor of Harvey Golub. American Express wound up one of the best performing Dow stocks over the succeeding couple of years.

The similarities: both are companies with blue-blooded old-line brand names that were the high-cost players in increasingly competitive consumer environments. American Express was getting its lunch eaten by Mastercard and Visa; AT&T likewise, by MCI and Sprint (and now every Baby Bell out there, as well). Both had tired old managers that everyone pretty much disliked, running businesses unimaginatively for too long, creating share price erosion that really ticked off large institutional holders. Prior to Golub's arrival, the three-year period from January 1990 to December 1992 saw AXP stock decline from $31 to $19 3/4. Golub entered in mid-1993, and in the three and a half years since, the share price has risen from $19 3/4 to $45.

Now look at AT&T over the past three years: the shares have dropped from $63 to $51 3/4, through a great bull market. Deja vu, my fellow Fools, deja vu.

Now, change the management, and you'll see a radical shift in public sentiment toward this company. That's all many Dow companies need for good appreciation in their share prices. Eastman Kodak is another 1990's example of this, a Dow Dividend Approach stock that suddenly thrived after kicking out the old, ringing in the new.

Today's share price clearly reflects past and present problems. But the future -- and the prospect of fresh blood, fresh strategy, fresh marketing, fresh perspective on this company from institutional investors -- is why I like AT&T here.

We'll enjoy spending time with you watching and learning how this all plays out in the months and years to come. Let us put aside present celebration and work hard to make the future even better. Fool on!

--- David Gardner, September 25, 1996

Today's Numbers

Day Month Year History FOOL +7.22% 19.28% 50.87% 181.72% S&P 500 +0.03% 5.19% 11.34% 49.61% NASDAQ +0.77% 7.28% 16.39% 70.04% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 24.13 857.73% 8/5/94 680 AmOnline 7.27 31.75 336.55% 8/13/96 250 3Com Corp. 46.86 64.50 37.64% 8/11/95 125 Chevron 50.28 62.13 23.55% 8/12/96 110 Minn M&M 65.68 69.63 6.01% 8/12/96 130 AT&T 54.96 51.75 -5.84% 8/12/96 280 Gen'l Moto 51.97 47.50 -8.61% 8/24/95 130 KLA Instrm 44.71 22.63 -49.40% Rec'd # Security Cost Value Change 5/17/95 2010 Iomega Cor 5063.13 48491.25 $43428.12 8/5/94 680 AmOnline 4945.56 21590.00 $16644.44 8/13/96 250 3Com Corp. 11714.99 16125.00 $4410.01 8/11/95 125 Chevron 6285.61 7765.63 $1480.02 8/12/96 110 Minn M&M 7224.44 7658.75 $434.31 8/12/96 130 AT&T 7144.99 6727.50 -$417.49 8/11/95 280 Gen'l Moto 14552.49 13300.00 -$1252.49 8/24/95 130 KLA Instrm 5812.49 2941.25 -$2871.24 CASH $16258.37 TOTAL $140857.75 Transmitted: 9/25/96