Fool Portfolio Report
Monday, September 30, 1996
(FOOL GLOBAL WIRE)
by David Gardner
ALEXANDRIA, VA, September 30, 1996 -- "Time to remember the times in September," runs the ol' ditty from The Fantasticks. Yes, indeedy. September was a fine month for Foolishness, as we tossed up a strong 30-day return of 20.68%, well ahead of the S&P 500's 5.42%, or Nasdaq's 7.48%.
And as we close the third quarter, The Motley Fool Portfolio compares this way to the 1996 market averages:
S&P 500 11.59%
Now, when we account for our returns, we're occasionally accused of bragging. But it just ain't so. Regular readers of ours know very well that we'd be putting our returns up on the stump no matter what they looked like. Just because they're good (and this year has been outstanding), some people would conclude we're tooting our own horns. (TOOT!) No, no... sorry. We'd be doing the same thing if we were down 52% for the year (God forbid).
So that TOOT! you just heard was merely a celebratory TOOT!, because we're genuinely excited about what 1996 has done for our portfolio. It's been another fine year for investors, that is, those of us who aim for the most part to buy and hold good companies, who never worry about calling the market, and who know a good-looking member of the opposite sex when we see one. (Gratuitous non sequitur included just to keep you on your toes.) Oops, we meant a good-looking stock.
So we will remember September. It was the month that ended the summer's dog days (or rather, bear days), the month that brought investors back to great growth stocks, the simple few weeks that increased our bottom line more than 20%. And as always, we hope yours increased by more. Our aim with all this Foolishness is that our readers might crush us... we want you to outdo us Fools at every turn. I get no more satisfaction than when I receive a note from someone who learned investing from the Fool's School -- call her Kathleen -- who then drops me a proud, somewhat excited note effectively saying, "Hey, you guys are doing great, but the Kathleenfolio is up 65% this year." Beautiful.
Now, to our latest trade. There's a new stock in Fooldom, and it's a short sale. Quarterdeck (Nasdaq:QDEK) fulfills our long-awaited goal of adding a new short to the Fool Portfolio. And it entered the portfolio in a somewhat surprising way.
Regular readers will know that when we announce a new trade, we commit to making that trade at any point in the following five trading days. (As we're exceedingly Foolish, we always announce our trades before we make them, in keeping with our attempts at reforming various parts of the financial publishing industry content to let you know what they've done only after they've done it.) So after announcing our intention to short Quarterdeck last Thursday night, we put in a limit order during the afternoon Friday. At the time, Quarterdeck was bidding $7 1/8 and asking $7 1/4. Aiming to short it at that price, $7 1/8, I put in a limit order at $7 1/8 in the mid-afternoon and figured it was a done deal.
Imagine my disappointment when calling back half an hour later, I found the quote still to be $7 1/8 by $7 1/4, and yet my trade had not gone through. Argh. For half an hour, the thing had sat right there on the price I'd asked for, but had apparently never "upticked" (risen from previous afternoon trades). Further, I was then told that the price had just dropped to $7 bid, $7 1/8 asked. It was right near market close, and my limit order now had even less chance of filling, having "downticked" further away from me. So I hung up the Foolphone, planning just to do the trade on Monday.
Calling back this morning, I found out (lo and behold) that I had already shorted it at market close on Friday! Unbeknownst to me or any of us at Fool HQ, the QDEK short had officially gone off, right at $7 1/8 (per the limit order).
And thus, the ninth stock migrates to our Foolish shores.
Quarterdeck closed today asking $7 1/8. But take a quote of the thing on AOL (or in your newspaper tomorrow) and you'll see it reported at $6 7/8. This gives me a good opportunity to describe another of our Foolish conventions, how we report closing prices. (Those unfamiliar with any of the following terms -- "bid," "ask," or "spread" -- should consult our Fool FAQ on the subject of "Bid/ask prices.")
For any stock on the New York Stock Exchange (with its razor-thin bid/ask spreads), we just take the closing quote and report it as is. That's a good approximation of exactly the price you'd get if you tried to trade the stock, so we're satisfied. However, the Nasdaq has always had wider spreads, in most cases. For Nasdaq stocks, we report all of our long holdings at the closing bid price, and our short sales at the closing ask price. The bid, you'll recall, is the price you'd get if you sold a stock. Because that's the only relevant price to people who own a stock (since they will eventually sell the shares), that's always the price we report our holdings at, even when stocks close higher than their bids. We prefer to report our numbers as conservatively as possible, wishing always to penalize ourselves when it comes to representing reality as accurately as possible. Again, if we tried to sell any of our Nasdaq holdings, we could expect to get the price at the current bid (not the ask, and not the last trade), so that's the fairest way to value our stocks even when it doesn't make their returns look quite as good as we otherwise might make them.
For short sales, it's just the opposite. Quarterdeck closed Monday bidding $6 7/8 and asking $7 1/8. The last trade executed on the stock was at $6 7/8 (QDEK traded 365,000 shares today, slightly below its average). Of course, it'd be sweet to show the stock at $6 7/8, since it'd make us look like we've already made profits on our new pick the first day out. But the fact is, the closing bid is $7 1/8, and if we or anyone else tried to cover our short tomorrow, we'd probably pay the $7 1/8 ask to do so. So that's our Foolish ditty on reporting practices, which are as conservative as accurately possible, in an industry that routinely cuts corners or rounds numbers to pump itself up. We're Foolishly more interested in deflating things when possible. Story over.
I got a note from BKing61174 asking if I could supply a bit more info on QDEK short interest, which I'd mistakenly left out of the short announcement. Quarterdeck, which has 36.2 million shares outstanding, has 518,000 shares short as of the September monthly report (you can find this in Investor's Business Daily or The Wall Street Journal around the 25th of each month). This figure was down 28% from the month before, and represents only about two days of average trading volume. In other words, there ain't many QDEK shares, which you might expect from Fool HQ. We have little to no interest in shorting companies that already have lots of shares shorted (and therefore lots of short-term buying pressure).
The Fool Portfolio rose 1.71% Monday, versus relatively flat market averages. With the exception of an unchanged 3M and a 3Com drop of two bucks, all other Fool stocks were up. Most noticeable was Iomega, which gained $1 on an important news announcement.
The implications of Iomega's announcement today are in fact hard understand fully in any quick, superficial way. The company's press release today started this way:
Iomega Corporation (NASDAQ:IOMG) today announced that Intel, Motorola, Texas Instruments and Symbios Logic plan to commit design teams and utilize their wafer fabrication capacity for the development and manufacture of the various IC (integrated circuits) technologies used in Iomega's personal storage products.
Starting in the first quarter of 1997, these companies will join Adaptec and Atmel as suppliers who plan to provide silicon solutions to assist Iomega in meeting the demand for Zip, Jaz and Ditto drives. Establishing relationships with top integrated circuit suppliers will help secure high-volume manufacturing capabilities for Iomega, ultimately helping to drive down the overall cost of current and future models of Iomega's products.
Calling this a "dream team" of suppliers, CEO Kim Edwards called this "a major milestone." The market clearly agreed, bidding IOMG shares up two points in the first hour of trading, before settling for a $1 gain.
One of our readers, RB61, had this to say: 'About two months ago, someone posted here that IOMG was meeting with [these] companies for the purposes of designing a Zip Chip" that would enable IOMG to greatly reduce the cost of the Zip drive and help provide the forward migration path needed to keep Zip in the forefront of its industry. This Zip Chip looks like it will be a reality as soon as the 1st quarter of 1997. This is very much in keeping with Kim Edwards's plan to make a cheap ($99) Zip drive that is profitable that will replace the floppy drive.... To say the least, I am very happy with this announcement.' Echoing these comments, Hey Chet said: 'This alliance came together to do one thing. To build the Zip on one [integrated circuit]. That's why IMP lost the order for the read channel chip. Large scale integration like this will drive the cost of a Zip down to that of 3.5" floppy.' We'll be watching closely, as always.
Lest anyone who's read Barron's too much misses some of today's comments, we have senior management from Motorola saying, "Iomega is ushering in a new era of personal storage," while the Texas Instruments guy opines, "We believe Iomega is a clear leader and a pacesetter in this market." In our Iomega folder, our readers (we hasten to add) were essentially making these comments verbatim more than a year ago, the stock at a fraction of today's price.
Let us celebrate this medium! We're certainly darn glad that we at Fool HQ were reading and learning about IOMG back then, because we ordered up the financial statements et al. based on our reading of our own stock boards. And the fruits of our collective labor were proven once again today. The 858% return we've seen in our shares to date bear eloquent testimony to a new world. It's a world in which using The Motley Fool individual investors can obtain superior information to anything Wall Street has to offer at a fraction of the cost, all of us learning together interactively and Foolishly. It is a world not of the future, but eminently of the present... even (in the case of Iomega) the past. In other words, it's happenin' and it's now. Fool on!
--- David Gardner, September 30, 1996
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Day Month Year History FOOL +1.71% 20.68% 52.64% 185.02% S&P 500 +0.16% 5.42% 11.59% 49.94% NASDAQ -0.26% 7.48% 16.61% 70.36% 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 35.50 388.11% 8/13/96 250 3Com Corp. 46.86 60.00 28.04% 8/11/95 125 Chevron 50.28 62.63 24.54% 8/12/96 110 Minn M&M 65.68 69.75 6.20% 9/27/96-890 Quarterdec 7.08 7.13 -0.58% 8/12/96 130 AT&T 54.96 52.25 -4.93% 8/12/96 280 Gen'l Moto 51.97 48.00 -7.64% 8/24/95 130 KLA Instrm 44.71 22.50 -49.68% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 48491.25 $43428.12 8/5/94 680 AmOnline 4945.56 24140.00 $19194.44 8/11/95 125 Chevron 6285.61 7828.13 $1542.52 8/12/96 110 Minn M&M 7224.44 7672.50 $448.06 9/27/96-890 Quarterdec -6304.75 -6341.25 -$36.50 8/12/96 130 AT&T 7144.99 6792.50 -$352.49 8/11/95 280 Gen'l Moto 14552.49 13440.00 -$1112.49 8/24/95 130 KLA Instrm 5812.49 2925.00 -$2887.49 8/13/96 250 3Com Corp. 11714.99 15000.00 $3285.01 CASH $22563.12 TOTAL $142511.25