Fool Portfolio Report
Thursday, November 7, 1996


By Tom Gardner (TomG@fool.com)

ALEXANDRIA, Va., November 7, 1996 -- With California Proposition 211 dead in the water, Intel kick-started the "technology" group with an announcement yesterday evening that its 4th-quarter sales would come in well above 3rd-quarter numbers of $5.14 billion. The Nasdaq rose 0.69%, with Intel up $3 1/4 to $122 1/8 and Microsoft sitting around $145.

Wow. What a two-year run for the technology giants. Microsoft has risen 130%; Intel is up 281% during the same period. The underlying financial might, the quality of management, the strength of their brands, and the bustle of opportunities in an Information Age opening up limitless distribution made investing in Intel and Microsoft two years back a no-brainer.

For Fools on America Online, I recommend dropping back two years in both the Microsoft and Intel stock folders and reading what long-term investors were saying then and now. "Why take the short-term tax hit? Why pay out commissions to a big firm in New York City? Just hold highly-profitable, high-quality businesses."

Contrast this with the tripe that, unabated, floweth out of our nation's big-money financial newspapers and magazines. "Leave the management of your money to the pros." As if the money management that most people need would demand any more than two hours a month! Hogwash, poppycock, flummery and bushwa. Strap that Fool cap onto your head, pick up Intel, Microsoft, General Electric, Oracle, Johnson & Johnson, Pfizer, Coca-Cola, & The Gap, and dance the Highland fling through the next decade. If that's too much, just pick up the index fund and keep adding funds.

What not to do?

a. Let someone else actively trade your account;
b. Buy up IPOs (like General Magic);
c. Mix together fifteen different mutual funds;
d. Be in a hurry to make money;
e. Pay hefty annual short-term taxes;
f. Complain about the capital-gains tax;
g. Have no clue how much your savings are growing;
h. Believe that professional investors serve you before The Firm;

That's a reasonable list of eight no-nos. We could whack your state representation for sponsoring lottery tickets that pilfer participants far worse than the dreariest of casinos. We could emphasize how dangerous it is to recklessly margin your account. We could rail against options trading and the price manipulation that goes with it. We could even warn you against taking stock tips from your Uncle Arthur or Great Aunt Mabel this Thanksgiving, no matter how Foolish they be. We could, but a list of eight no-nos is more than certainly my mind can process in a single evening. So we'll stick with ocho.

While easy-to-spot winners Intel and Microsoft were standing tall, The Fool Portfolio rose another 1.84% today to propel our savings account (and maybe yours) to 52.77% gains for fiscal 1996. America Online stepped up to the microphone after market-close to announce Q1 earnings, and they called them out to a baffled audience. Eyes crossed. A petite scholar fell out of her chair. One old man yelled, "Bingo!" Heads were scratched, calculators tapped, equations dismantled and re-framed, and out of all of it, a stew of sixes and sevens -- confusion.

To use the words of Intel CEO Andrew Grove, we are upon a major inflection point here. Understanding the company, from the inside and out, has been well-nigh impossible. Uncertainty has ruled this roost, from the evening their third quarter earnings were announced until today. Any Fool who has walked through the valley of upheaval knows that the darkness grows darker before it gets light. In their recent corporate restructuring, accounting realignment, and major pricing adjustment, America Online was very forthright about the oncoming haze.

I'm not one to make enemies when it isn't necessary, but I must still take loud issue with the ongoing assault on America Online by the Wise at The Wall Street Journal. Without once mentioning the excellent long-term performance of this stock, nary a word recognizing the near 7 million subscribers to this service, The Journal continues to focus on short-term realities. I think they need to read Mr. Grove's wonderful book, "Only the Paranoid Survive." The valley-of-death inflection point handled properly will reap profitable and superior growth, even if it results in a short-term stumble as well.

Remember, dear Fools, even after this drop, America Online has compounded more than 50% annual growth over the past three years. Dow Jones, parent of The Wall Street Journal, sans dividends, has seen its stock FALL from $50 a share to $32 a share over the last ten years. Had you plunked $50,000 into Dow Jones ten years back, it would be worth $32,000 today. Had you plunked the same $50,000 in America Online three years ago, it would be worth $172,000 today.

Was it not Matthew who wrote, "Why beholdest thou the mote that is in thy brother's eye, but considerest not the beam that is in thine own eye."

I find it interesting that The Wall Street Journal believes it can take the high ground in its pages, that it feels warranted to preach about business, that it has something to teach America about enterprise, while it has rewarded its shareholders with a 36% loss over the past decade?! The irony here is thicker than mayonnaise -- George Lucas's Jabba the Hutt looks thin alongside it. Oh, if it doesn't make it simple to be a Fool, to walk around looking silly, jangling bells, throwing around crooked smiles, and loving every minute on Main Street, what does?

So, what of America Online's earnings report? It just came out, and I confess I have little to offer. I'm certain that the investing community expected much of what was said there; it has been looking past this report for some time now. It is a new AOL, with Bob Pittman's hands on the wooden wheel, with pricing that more Americans can afford, and with a service message that's easier to teach to investors and consumers. I think this holiday season will tell us much more than the company's first quarter report. With technology preparing for a smash-bang end of the year, America Online has a magnificent opportunity to draw its next million subscribers rapidly. The marketing from here will forerun the quarterly performance. Keep your eyes peeled if you're a shareholder or scholar.

3Com kept on coming today, tacking on another $1 1/2 to $71 1/2. In its less than three months cribbing at Fool HQ, COMS has grown 52.6%. The market is feeding him well. 3Com completed its $260 million acquisition of OnStream Networks this week, adding a strong provider of ATM products to its collection. After slumping for most of 1996, 3Com has donned motley and blossomed since August. Consumers are again ready to feast on technology; we haven't changed our six-month target price of $90+ for COMS.

Iomega, primed to leap onto the New York Stock Exchange in the morning, stepped up another $1 3/8 to $25 3/8, on news that it is developing storage devices for hand-held computers. In its ongoing effort to serve all computer devices and to aggressively reduce prices, Iomega has managed its business for long-term business owners, not skeptics. Reducing costs, dropping price points, and actively seeking light and profitable new businesses, these are the challenges great consumer companies try to address. We await the day when IOMG (tomorrow's IOM) puts it all together with positive numbers in operational cash flow.

Our Foolish short, Quarterdeck, crept up $5/16 today, in the wake of that neutral rating from Prudential Securities. Given that QDEK has issued a variety of funding vehicles, it is not too great a conspiracy theory to imagine that the firms that initiate coverage of it might be angling for business in the months ahead. A slice of QDEK's next secondary offering -- that surely must come soon in some form, we can all agree -- wouldn't be bad for business. Does anyone know if there was any compelling fundamental information in the report's coverage? Worth checking into.

What else is there today? Not much. As I said, The Fool Port chugged ahead another 1.84%. These are the dime-a-dozen days. And while we don't expect to grow another 185.26% over the next thirty months, certainly not, we are quite comfortable that America's strongest businesses -- those that focus on quality, service and shareholder value for all shareholders (me and you, employees, management, and institutions) -- have much to offer over the next few decades and beyond. If you're in this for the long haul, then rejoice during the next correction, rejoice even through the next protracted bear market. The Intels, Microsofts, the Johnson & Johnsons -- highly profitable, well-branded, growing businesses -- will be rendered cheap once again.

The challenge is only in doing a bit of research, sticking close to the numbers, and smiling at those who would distract you from those tasks.

Tom Gardner, Fool

TODAY'S NUMBERS


Stock Change Bid ------------------- AOL - 1/2 24.75 T + 1/2 35.13 ATCT + 1/8 16.88 CHV + 3/8 65.75 GM - 5/8 54.88 IOMG +1 3/8 25.38 KLAC + 1/2 27.25 LU - 3/4 49.50 MMM + 1/8 79.88 QDEK + 5/16 5.13 COMS +1 1/2 71.50
Day Month Year History FOOL +1.84% 5.29% 52.77% 185.26% S&P 500 +0.42% 3.17% 18.14% 58.73% NASDAQ +0.69% 2.67% 19.20% 74.14% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 25.38 907.36% 8/5/94 680 AmOnline 7.27 24.75 240.31% 8/13/96 250 3Com Corp. 46.86 71.50 52.58% 8/11/95 125 Chevron 50.28 65.75 30.76% 9/27/96 -890 Quarterdec 7.08 5.13 27.65% 8/12/96 110 Minn M&M 65.68 79.88 21.62% 8/12/96 280 Gen'l Moto 51.97 54.88 5.58% 10/1/96 42 LucentTech 47.62 49.50 3.96% 8/12/96 130 AT&T 39.58 35.13 -11.25% 10/22/96 600 ATC Comm. 22.94 16.88 -26.43% 8/24/95 130 KLA Instrm 44.71 27.25 -39.05% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 51003.75 $45940.62 8/5/94 680 AmOnline 4945.56 16830.00 $11884.44 8/13/96 250 3Com Corp. 11714.99 17875.00 $6160.01 8/11/95 125 Chevron 6285.61 8218.75 $1933.14 9/27/96 -890 Quarterdec -6304.75 -4561.25 $1743.50 8/12/96 110 Minn M&M 7224.44 8786.25 $1561.81 8/12/96 280 Gen'l Moto 14552.49 15365.00 $812.51 10/1/96 42 LucentTech 1999.88 2079.00 $79.12 8/12/96 130 AT&T 5145.11 4566.25 -$578.86 8/24/95 130 KLA Instrm 5812.49 3542.50 -$2269.99 10/22/96 600 ATC Comm. 13761.50 10125.00 -$3636.50 CASH $8801.62 TOTAL $142631.87