Fool Portfolio Report
Monday, November 11, 1996

by David Gardner (MotleyFool)

ALEXANDRIA, VA, November 11, 1996 -- The Fool Portfolio surrendered 1.43% of its value on a cold and unforgiving Veteran's Day. (OK, I know, where you live it was actually sunny and 70 degrees today, I know... but I'm writing from the point of view of a myopic, self-engrossed simpleton who froze on his bike into work today.) Contrastingly, the market averages moved in lockstep forward once again, closing at all-time highs (except for the Nasdaq). A glance at the indices for the year make 1996 out to be yet another fine twelve months to have been an equities investor. Let's look at the tape:

Index 1996 Return S&P 500 18.82% Nasdaq 20.01%

Not bad. Given the indices' historical returns of 10.5%, we're talking about a strong year. Coming off of 1995's returns of 34.37% and 46.09% for the S&P and Nasdaq, respectively, this year should also be considered a pleasant surprise. Many a market gooroo was forecasting doom following the great 1995 runup.

Their thinking, denuded, went something pretty much like this: stocks did so well last year... they'll almost certainly drop in '96. "What goes up must come down," suggested some soothsayers, while others described the market with its supposed "parabolic effect."

Hmph. Anyone who's spent much time looking at a graph of the market's historical return will have a hard time describing what she's seeing as parabolic. How silly. And Foolish that we are, we pointed out earlier this year that following "strong years" (something like -- don't pin me down on this -- years in which the S&P 500 has risen 20% or more), the next year has also historically been up, by an average of about 6%. That's market-underperforming, we grant you, but not exactly the stuff of, "What goes up, must come down."

Let's cut to the quick: The market's psychology does not follow traditional strictures like the force of gravity, or anybody's "Wave" theories. Nope. The market is best perceived, methinks, as a creature with no memory, a VCR that doesn't rewind, a purely forward-looking fellow perched in a crow's nest high above the storm-tossed seas of pundits and market gooroos who are shouting their prognostications as they come up for air.

In other words, Satchel Paige, don't look back because somebody might be forecastin' on ya.

Obviously, the market has continued to like what it sees ahead of us, my fellow Fools. OK, let's now add more data to the previous scenario:

Index 1996 Return S&P 500 18.82% Nasdaq 20.01% Foolish 4 29.54%

Yep, another great year for the Foolish Four, well ahead of the market returns. And to think that some people think the approach is too easy! You know, investing should be complicated, taking up time, confusing poor little individual investors, and mucking things up to the point that actually beating the stock market is -- what? -- like successfully accomplishing dental work on yourself? Yes, the Wise desperately want you to believe this. The establishment typically doesn't like our Foolish message of market-beating returns for 15 minutes of work a year, no further ongoing attention, little expertise needed, and don't even bother applying within -- you can do it yer own darn self, and will find it more fulfilling to do so. The establishment doesn't like that message. For obvious reasons.

Very little news today for the Fool Portfolio, currently up 49.03% for the year. General Motors recalled 49,000 1996 Skylarks and Achievas, "to install a plastic edge protector on an instrument panel bracket that has a rough lower edge." (Gotta have 'em!) Actually, turns out that in some cases, a deployed air bag in these things can hit up behind the dash board, protecting your speedometer instead of you. Ouch.

Somewhat more important, though less amusing, GM announced decent quarterly sales last week, with cars a bit lower and light-growth a bit higher (up 6%) than last year. For October, the company produced 405,000 passenger vehicles, slightly more trucks (208,000) than cars (197,000). That's a bit more in line with trends in the automotive industry, trends that GM has been criticized for being slow to recognize. They always come 'round eventually, though, no? With its $170 billion sales.

How 'bout Ma Bell? AT&T racked up another $1 3/8 of growth today, closing at a last trade of $37 1/8. The stock's up almost four points from its low a week ago of $33 1/4. Still off 6% from our purchase, this "corporately challenged" enterprise will be interesting to continue to watch and learn from. What an amazing upheaval we're all watching in communications, following decades of entrenched (and uncompetitive) regulation... in its thousand different ways.

More Dow follies: 3M Corp. hit another all-time high today. This company and stock are starting to look a lot like our General Electric from last year. GE was a Dow Dividend Approach titan which we caught in a fantastic growth phrase generating robust share-price appreciation. 3M is in the midst of reporting record numbers for its business, and its share price is following suit. Margins are up, products are flyin' off the shelves, so that MMM is looking like the Energizer bunny of blue-chip stocks. (Sheeesh, for all I know, 3M owns Energizer! OK, I'm wrong. It's Ralston-Purina. Whatever.)

Finally today, I want to draw your attention to a great article in the current (11/11) issue of Computer Reseller News. It's on Iomega CEO Kim Edwards. The reason it's so great is that -- mercy... can it be?! -- here we actually have a journalist who's taken the time to study the company's success. Amazing, ain't it? Nothing about "Internet chat rooms." Nothing about "troubled financial statements" or high short interest. Nothing about a stock that's gone from $2 to $55 to $23. None of that dreck the financial media focuses on, to the constant ongoing exclusion of the company's actual story.

Herein, we read a simple analysis of success. In 1994, Edwards had been sent a Bernoulli drive as an overture from IOM when the company first contemplated hiring him away from Gates Energy. The package contained documentation, along with some more documentation. And some documentation. Unfortunately, very little of it was comprehensible, not at all consumer-oriented. As William Terdoslavich writes, "After taking several hours to read all the documentation, Edwards chucked the Bernoulli, boxes and all, into the closet.... It's still in the closet, and there it will stay."

What he's brought to the company is an emphasis on "endless market research and focus groups," which eventually ended up in the Zip drive (then in the Jaz, then in future products we're now hearing about like n.Hand, the company's tiny 20-meg disk for digital cameras, etc.). Rather than create technology products that sounded "cool" or "cutting edge" featuring (gag) "killer aps," Iomega instead concentrated on "useful," "economical," and "satisfying." This accomplishment comes from the neat trick of just finding out what the consumer mass market actually wanted!

For every good article analyzing a company's success, it seems like the financial press would rather have us read 10-15 articles on corporate controversies, misdemeanors, takeovers, short-term price movements, how does OJ fit into this, etc. Sometimes, one must instead turn to the trade magazines (or to Investor's Business Daily, which has always done a great job of celebrating and teaching success, not hacking apart failure) for refreshing thoughts on what makes for good business.

And constructive journalism like this doesn't take itself so seriously, either. It can be Foolishly light, even occasionally frivolous. Where else would I have ever learned Edwards's favorite high-school class (chemistry) or his favorite drink (good answer: water)?

Fool on!

--- David Gardner, November 11, 1996


Stock Change Bid ------------------- AOL -1 25.00 T +1 3/8 37.13 ATCT - 3/8 15.00 CHV - 1/8 66.13 GM - 1/2 55.00 IOMG - 3/4 23.75 KLAC + 1/4 27.25 LU - 3/4 48.13 MMM +1 1/4 81.25 QDEK - 1/8 4.94 COMS + 1/2 72.00
Day Month Year History FOOL -1.43% 2.71% 49.03% 178.28% S&P 500 +0.14% 3.77% 18.82% 59.66% NASDAQ +0.41% 3.37% 20.01% 75.33% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 23.75 842.85% 8/5/94 680 AmOnline 7.27 25.00 243.74% 8/13/96 250 3Com Corp. 46.86 72.00 53.65% 8/11/95 125 Chevron 50.28 66.13 31.50% 9/27/96 -890 Quarterdec 7.08 4.94 30.30% 8/12/96 110 Minn M&M 65.68 81.25 23.71% 8/12/96 280 Gen'l Moto 51.97 55.00 5.82% 10/1/96 42 LucentTech 47.62 48.13 1.07% 8/12/96 130 AT&T 39.58 37.13 -6.20% 10/22/96 600 ATC Comm. 22.94 15.00 -34.60% 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 47737.50 $42674.37 8/5/94 680 AmOnline 4945.56 17000.00 $12054.44 8/13/96 250 3Com Corp. 11714.99 18000.00 $6285.01 8/11/95 125 Chevron 6285.61 8265.63 $1980.02 9/27/96 -890 Quarterdec -6304.75 -4394.38 $1910.38 8/12/96 110 Minn M&M 7224.44 8937.50 $1713.06 8/12/96 280 Gen'l Moto 14552.49 15400.00 $847.51 10/1/96 42 LucentTech 1999.88 2021.25 $21.37 8/12/96 130 AT&T 5145.11 4826.25 -$318.86 8/24/95 130 KLA Instrm 5812.49 3542.50 -$2269.99 10/22/96 600 ATC Comm. 13761.50 9000.00 -$4761.50 CASH $8801.62 TOTAL $139137.87 Transmitted: 11/11/96