Fool Portfolio Report
Thursday, September 26, 1996

by Tom Gardner

***We interrupt this Fool Portfolio report to bring you two late-breaking stories. Topping the news, the Fool will be adding a long-awaited short soon, in the form of a Quarterdeck short sell. The full report is in the listbox to the upper-right of this report.

We now return you to your regularly scheduled Fool Portfolio report:

ALEXANDRIA, VA, September 26, 1996 -- The afternoon hours were not kind to Fools. Yesterday's heroes, Iomega and 3Com, which were each up at noontime today, both closed down more than $1. America Online's $2 1/4 valiant attempt to keep our float afloat wasn't enough, and The Fool Portfolio fell 1.61% versus a flat day for the S&P 500.

Today brought an interesting interview with Joe Besecker of Emerald Resarch by the Dow Jones Investor Network. As many of you know, Mr. Besecker was one of the first analysts to cover Iomega Corporation (NASDAQ:IOMG), back when the stock was trading at split-adjusted prices below $2 a share.

Joe has done an excellent job of covering this industry and analyzing Iomega's turnaround every step of the way. Contrast his analysis with some of the Whispers on the Street columnists, who appear to invest less than an hour a year into business research (if that) and yet whom often gain significant ongoing national exposure, and you'll have no doubts about the great inefficiency of our stock market.

To be honest, it hurts a little bit to link over to the site, even though it's an excellent resource. Why? Today's interviewer still seemed to insist on describing you, the private American investor, as the sort of bloke (or blokette) who spends all day "chatting stocks up or down online." At some point, our nation's financial services are going to stop feeling that obligation to satisfy their own superiority complex or their larger institutional sponsors, and they're going to show some respect and begin to aggressively serve you, the private investor.

After all, Peter Lynch has written that it is the private investor who typically does the most research, who typically best understands the businesses in which he invests, and who typically outperforms the market. The statistics do not bear these out when we study the average professional investor. I'm sorry to have to report it again, but the numbers do clearly prove Mr. Lynch out. Investment clubs have historically posted superior returns. And the rampant mediocrity of mutual funds and brokerage-firm portfolios is well-told here in Fooldom, in Lynch's work, in Vanguard Index Fund reports, and elsewhere.

Armed with this data, you can see that the Great Comedy in the marketplace today is that we focus any of our attention on the institutional investor. Which is again not to discredit the great work that so many fund managers and money managers do -- from the PBHG Growth fund to the 20th Century Giftrust (both no-load, market-smashing funds) to the work done by some great hedge fund managers, financial planners and brokers. We're always ready to partner with great performance, and will.

So there is excellence out there. The travesty is that we haven't taken the time as a nation to learn how to recognize it. Consequently, true fools (small-f) are passing off moronity (or worse) as mastery, nonsense as knowledge, in the money-world every day. Certainly far worse, these same fools propose that the instructional efforts, real analyses and expertise online, in investment club meetings, and among consumers amount to nothing more than "chatter." This kooky taxonomy begs that we wonder aloud about the motivations of the taxonomist.

In a financial environment where 80% of all mutual funds underperform the market because they stand to make more money marketing their fund and boosting assets under management than by concentrating on beating the market for their clients, how can our financial reporters not teach and preach performance measures daily? And in a world where even today brokers are compensated based on sales activity not account performance, how can a financial newspaper or magazine not challenge this established order every single day on the cover of their publication until it ends? How? Instead, many in the money industry seem more content to patch together the words "online" and "chatter" than to dig in, study the numbers, and tell the King -- their reader -- the simple truth.

How apparent this all is when we consider the coverage of Iomega Corporation in the news. Y'know, Iomega is pretty much considered a "dawg" by the non-investigative student of the stock market, the one who reads conventional coverage. A few nights ago, a new arrival to Fooldom floated me an IM that read like this: "Wow, you guys have gotten KILLED in Iomega!" Other comments I've heard and overheard about IOMG in recent weeks in different corners of America go something like these.

"Iomega? It's the stock that fell from $50 to $15."

"That's the one your guys in floppy caps took a bath on."

"Is that the company in fingerprinting technology?"

"Weren't they delisted by the Nasdaq?"

Today's interview with Joe Besecker tells quite another story about Iomega, and reminds us of how different are our mediums of communcation. Many forms of print publishing are going to die a loud and unattractive death in the next five years. Why? Because America isn't going to stand for a one-way, one-voiced communication of information and opinion. It simply isn't defensible. Instead, we can expect many more complete interviews with unedited transcripts. We can expect rapid growth in forums for conversation, educational forums, forums that build toward something. Interactivity is going to take the ego out of traditional media and replace it with service.

And five years from now, the untenable and grim portrayal of America as a home to masses of blathering, ignorant fools will be swallowed up, digested, and discarded by interactivity, with educational voices that ring out from central Louisiana, coastal Maine, the Rocky Mountains, East Texas, southwestern New Mexico... and all parts surrounding far and near. Sure, Manhattan will have much to offer. But she won't be able to withhold information, charge dearly for half-truths, and name her subjects ignorant for not seeing through it all. A networked America will shine its candles, flashlights, and high beams on that shadowy corner of Wall Street and Broad far more than The Motley Fool has done to date.

In this growth out of broadcasting and into what is being labeled "intercasting," we have the distribution now to clarify many things, like the story of the storage-technologist, Iomega Corporation. It does not manufacture fingerprinting pads. It wasn't delisted by the Nasdaq. While it has fallen from $55 down to its present perch of $22 3/8, it has risen from $2.50 a share in May of 1995. In less than seventeen months, it has grown by more than 785%. To put this into context, consider that this is equivalent to:

Chevron rising from $50 to $442 1/2.

3Com rising from $46 3/4 to $413 3/4.

Microsoft rising from $137 to $1212 1/2.

All in the span of less than a year-and-a-half. In other words, it's been an outstanding long-term investment, noting that in accounting terms long-term is defined as greater than one year.

As Joe Besecker explained this afternoon, Iomega is the leader in removable storage technology, in a technological world hungering for greater storage capacity. The Company consulted with the American consumer and asked her what she needed. They refashioned their technology to meet that need and have done a masterful job of marketing their products. The trade magazines, an outstanding resource for investors, have uniformly praised the Zip and Jaz drives.

Iomega will now move to sign on higher-volume component manufacturers in its effort to demonstrate to the IBMs, Dells, Hewlett-Packards et al. that they can produce millions of drives for placement in their boxes. The Zip Floppy as standard is looking more probable each month. The winter retailing season is going to provide great opportunities for Iomega. And this story has been and will be told in the financial statements, as the quarters flow through.

What miffs the establishment is that relatively small firms, like Besecker's Emerald Research, and small investment clubs and the private investors of America found this investment -- and many others like it -- in its earliest stages of growth. The big heavies in the financial world aren't so frustrated that they missed out on nearly 800% growth. Growth in the stock of a single company. No. The Wise are exasperated that the cat has gotten out of the bag, that the lid's been tipped off Pandora's box, that the realities of equities performance and of the damned good fun that can be had following businesses is spreading out across America.

That you can transact from your den in Pittsburgh, and hold onto your ownership position quietly and profitably for years, that you can outdo the S&P 500 or, at the very least, move your money in with the other $26 billion invested in the low-cost Vanguard Index Fund, that there's nothing magical about all this, that fifth-grade mathematical concepts will carry you through to long-term monster growth on your savings, and that the whole process can be Foolishly fun... these are the most profound annoyances to Wall Street's dysfunctional business modeling imaginable.

If you need further proof of these, pick up Michael Lewis's books Liar's Poker and The Money Culture. The truth will out, even if we Fools be the only ones to tell it in the early years.

Tom Gardner, Fool

Today's Numbers

Day Month Year History FOOL -1.61% 17.36% 48.45% 177.19% S&P 500 +0.01% 5.19% 11.35% 49.62% NASDAQ +0.28% 7.58% 16.72% 70.52% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 22.38 788.26% 8/5/94 680 AmOnline 7.27 34.13 369.21% 8/13/96 250 3Com Corp. 46.86 63.00 34.44% 8/11/95 125 Chevron 50.28 61.63 22.55% 8/12/96 110 Minn M&M 65.68 69.75 6.20% 8/12/96 130 AT&T 54.96 52.00 -5.39% 8/12/96 280 Gen'l Moto 51.97 47.50 -8.61% 8/24/95 130 KLA Instrm 44.71 22.88 -48.84% Rec'd # Security Cost Value Change 5/17/95 2010 Iomega Cor 5063.13 44973.75 $39910.62 8/5/94 680 AmOnline 4945.56 23205.00 $18259.44 8/13/96 250 3Com Corp. 11714.99 15750.00 $4035.01 8/11/95 125 Chevron 6285.61 7703.13 $1417.52 8/12/96 110 Minn M&M 7224.44 7672.50 $448.06 8/12/96 130 AT&T 7144.99 6760.00 -$384.99 8/11/95 280 Gen'l Moto 14552.49 13300.00 -$1252.49 8/24/95 130 KLA Instrm 5812.49 2973.75 -$2838.74 CASH $16258.37 TOTAL $138596.50 Transmitted: 9/26/96