Fool Portfolio Report
Wednesday, November 6, 1996


By David Gardner (MotleyFool)

ALEXANDRIA, VA -- November 6, 1996 -- The Fool Portfolio rode higher today, upon the crest of some more Iomega news and another nice surf for IOMG. (Keep in mind, Iomega will be going to the New York Stock Exchange as of this Friday, so it'll soon be "IOM.") And certainly it helped to be buoyed by an extremely strong market as well. Amazing how many gooroos thought the election would create a sell-off -- or even, in some cases, a crash!

The numbers worked out this way: Foolfolio gained 2.09%, the S&P 500 rattled its saber to the tune of 1.46%, and the NASDAQ waved its dagger threateningly, gaining 1.34%. We'd like it to have been more of a market beater today, but had some weakness in a few holdings that held the Fool Port back.

Yesterday, Iomega announced a new original equipment manufacturer (OEM) deal with Gateway, which will be incorporating the Zip and Jaz drives as standard features in a few select models. Today, our company announced it would be manufacturing a new slimmed-down Zip drive for laptop computers, to debut in the second half of 1997. That pushed IOMG up $1 1/4 on the bid to $24.

Company CEO Kim Edwards will be on CNBC's Squawk Box Friday morning at 8:40 AM EST, if you're interested in catching that. Then again, if you don't have CNBC, you can hang out in our Fool chat rooms on AOL for a live reaction to it. Or you could wait till someone transcribes and posts it on our Iomega message folder. It's always enjoyable to watch Kim.

Shortly thereafter, Edwards will be ringing the opening bell of the New York Stock Exchange, as is traditionally done by the CEO of a new company on the Exchange.

The election results were basically completely unsurprising, though the market does seem to have reacted positively showing some pent-up buying demand. What was surprising was the work of Prudential analyst Lisa Thompson. Lisa initiated coverage on five new stocks today with Neutral ratings.

(Don't you love these ratings? Neutral is, well, neutral, but other obscure ratings used include those such as short-term hold, but long-term buy. Or short-term underperformer, long-term neutral. Huh? Today Fool Erik Rydholm (MF Fletch) Foolishly described neutral ratings as meaning the analyst wants to have some sort of coverage on a stock, but hasn't done any research on it yet. A very amusing interpretation.)

Lisa's new coverage included perennial dogs like CompuServe (Nasdaq: CSRV) and Netcom (Nasdaq: NETC), both of which enjoy prospects so bleak that I have to giggle a bit. (As long-time readers know, Wall Street analysts are not in the habit of ever using ratings like "Sell," though, or "Negative" -- just to avoid spoiling their relationships with the companies, who represent future sources of investment banking business.)

Amazingly, however, America Online was included in this group. The notion that AOL's prospects at the current price are in line with those of CompuServe and Netcom -- both of which are in the process of being annihilated by America Online -- is comic to me. Write it down, my fellow Fools... check these three stocks one year from today and see how they've done. I'd put it at roughly a 98% likelihood that AOL will have outperformed the average return generated by NETC and CSRV. In fact, I'm not even sure you'll find both of the latter around at that point. Anyway, AOL stock ended flat today, presumably held back by the Prudential report.

Now, even more amazing to me is that Quarterdeck Corporation was also among these five rated "Neutral." Quarterdeck? OK, yes, we're short the stock so I'm not speaking disinterestedly. But trying to be as objective as I Foolishly can, have you seen this company's financial statements? Do you know their product lineup? Lisa, do you understand the company's moribund position in an industry that once was? (That industry is called software utilities and memory management, and has been rendered fairly irrelevant by Windows95, and it's only going to get worse.)

QDEK stock touched as low as $3 15/16 early this morning, before suddenly rocketing back up to $5 an hour later, quite obviously coming off of the Prudential report. However, the stock then sold off some more, dropping to an ask of $4 13/16. That was a nice move for the stock, up $3/8 on the day. Reminds me somewhat of another "non-event" news that bounced the stock up $1 a month ago: the restructuring announcement. Anyway, we're still holding. The company announces earnings the Friday after this one.

3M Corp. did it again, hitting another new all-time high. The stock closed at $79 3/4, up $2 3/4. Chevron gained $1, but GM dropped $3/8. While AT&T actually managed to put two days of gains together, up $3/8 today. Those shares have been among the Dow Jones Industrial Average's weakest. Our spinoff of Lucent has managed to undercut those losses a bit (LU was up $1/4 to $50 1/4, back near its all-time high).

Finally, KLA Instruments continued its recovery Wednesday, gaining $5/8. The stock, a Fool purchase in August of '95 at (ooooomph) $44.71, touched as low as $17 1/2 in September. That means in the past two months we've seen a gain of 53% in this quiet, beleaguered stock. We're still down 40%, but we're doing a heck of a lot better here than we were at the end of the summer. Perhaps patience will be rewarded.

Why didn't we ever buy more? We just don't... it's part of our Foolish approach. The Gardner maxim that made the most sense to us growing up (our dad taught Tom and me investing in our teens) was "Don't throw bad money after good." We just don't add to our losers. In many cases, while we might still like our analysis, we recognize that we may have blown it. We may have been wrong, or missed something, or perhaps some new competitive product is about to come out... or some press release we don't know about. Who knows?

In practice, I've found that our Foolish winners tend to just do more of same, while our Foolish losers have also done more of same (KLA Instruments and Sonic Solutions are good examples). In the long term, though, if you've picked a strong company, negative near-term sentiment disappears and your patience can be rewarded. KLA represents a teaching lesson, of sorts, if and when it ever breaks back into the black for us. That'd be nice.

Speaking of "nice" (horrible word), it's also nice to close back over a 50% gain for the year, at precisely 50.01% (up 180.10% since we started this Foolishness in August of '94). That number is way, way ahead of the market indices this year, both showing 18% gains. What matters more is that those 18% gains beat 80% of mutual funds, in which most of the people you and I know have their money mired. Every day we receive enthusiastic notes from readers who've finally decided to forsake the mediocrity of their funds' long-term returns in order to begin investing in stocks directly. In most cases, the notes are enthusiastic mainly because these readers are beating the stock market too.

That's really the whole point. Foolishness is at its best when self-reliance mingles with excellence.

-- David Gardner, November 6, 1996

TODAY'S NUMBERS


Stock Change Bid ------------------- AOL --- 25.25 T + 3/8 34.63 ATCT --- 16.75 CHV +1 65.38 GM - 3/8 55.50 IOMG +1 1/4 24.00 KLAC + 5/8 26.75 LU + 1/4 50.25 MMM +2 3/4 79.75 QDEK + 3/8 4.81 COMS + 7/8 70.00
Day Month Year History FOOL +2.09% 3.38% 50.01% 180.10% S&P 500 +1.46% 2.74% 17.64% 58.07% NASDAQ +1.34% 1.96% 18.38% 72.94% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 24.00 852.77% 8/5/94 680 AmOnline 7.27 25.25 247.18% 8/13/96 250 3Com Corp. 46.86 70.00 49.38% 9/27/96 -890 Quarterdec 7.08 4.81 32.07% 8/11/95 125 Chevron 50.28 65.38 30.01% 8/12/96 110 Minn M&M 65.68 79.75 21.43% 8/12/96 280 Gen'l Moto 51.97 55.50 6.79% 10/1/96 42 LucentTech 47.62 50.25 5.53% 8/12/96 130 AT&T 39.58 34.63 -12.51% 10/22/96 600 ATC Comm. 22.94 16.75 -26.97% 8/24/95 130 KLA Instrm 44.71 26.75 -40.17% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 48240.00 $43176.87 8/5/94 680 AmOnline 4945.56 17170.00 $12224.44 8/13/96 250 3Com Corp. 11714.99 17500.00 $5785.01 9/27/96 -890 Quarterdec -6304.75 -4283.13 $2021.63 8/11/95 125 Chevron 6285.61 8171.88 $1886.27 8/12/96 110 Minn M&M 7224.44 8772.50 $1548.06 8/12/96 280 Gen'l Moto 14552.49 15540.00 $987.51 10/1/96 42 LucentTech 1999.88 2110.50 $110.62 8/12/96 130 AT&T 5145.11 4501.25 -$643.86 8/24/95 130 KLA Instrm 5812.49 3477.50 -$2334.99 10/22/96 600 ATC Comm. 13761.50 10050.00 -$3711.50 CASH $8801.62 TOTAL $140052.12