Fool Portfolio Report
Monday, December 2, 1996


by David Gardner (MotleyFool)

ALEXANDRIA, VA, December 2, 1996 -- Va-va-voom.

Outstanding day for Fools everywhere, as our three best stocks appreciated in grandiose, splashy, almost eerily well-ordered form. Iomega rose two points, 3Com rose (what else?) three points, and America Online rose four points. Two, three, four. And heck, even our short (still not covered, though we'll be cashing out of Quarterdeck by Thursday market close) lost $5/16.

Stir it all up in a pot, boil then let simmer, serve over rice, and you have a one-day portfolio gain in excess of 6 percentage points. That figure crushed the market averages, with the Nasdaq coming nearest (up 0.56% today) and the S&P 500 slightly down.

Take 'em in order. Start with two!

Two would be Iomega, up $2 1/2 on the day to close at a last trade of $25 1/8. News? No news. So where do I go to get the goods on a newsless day like today? Simple. Our Iomega message folder on The Motley Fool AOL site.

Ultimately what I found there was confirmation that nothing really happened. However, don't mistake that for any lack of information or insight. I learned that Iomega traded the most volume since its move to the New York Stock Exchange several weeks back. Today's 6 million shares in volume included numerous purchases of large share blocks, with a 100,000-share order filled right at the close. Further talk in the folder continued on about short covering and short squeezes, both of which are mere speculation (insofar as that's all guesswork) but still not unlikely given that Iomega has been the most shorted stock on the Nasdaq throughout 1996.

(Quick primer for newcomers: Stocks are "shorted" by people who bet on them to drop in price. When enough people make such a bet, and bad news doesn't show up -- or good news works against them -- they may often panic and buy their way out of the investment. This results in a "short squeeze," often a dramatic and somewhat prolonged rise in a stock.)

Mentions were also made of Iomega's award-winning products (most recently, the Jaz drive received the 1996 Most Valuable Product award for Innovation from PC/Computing magazine). On the downside, the folder did contain some of the inevitable short-term technical analysis that always sounds great when it's right and is always forgotten by everyone (including the analyst) when it's wrong. Bigfootmm@aol.com, who can always be counted upon to put things in the proper perspective, contributed the appropriate satire on this matter.

Anyway, I suppose my feelings most closely align with those of VirafP@aol.com and TokyoMex@aol.com. Viraf just wrote, "Let's not get too excited. I am a firm believer in IOM and its product, but I am a realist and as such... do not want to get toooo excited about the future prospects." And in response to a post entitled "Why Why Why!" TokyoMex (the self-described burrito maker) just led off with, "Because this stock was undervalued, folks," going on to point out the bashing that Iomega and several other growth-stock darlings suffered this summer. The somewhat inevitable recovery, given the company's leadership of its industry, its products, and its management, is occuring. And this inevitability comes as no surprise to long-term shareholders, who are always willing to take our lumps today in order to be around tomorrow.

On a side note, I did come across this posting... notes like these always make me laugh. It read, simply, "I bought 1,000 shares of IOM today @ $23.50. Any advice?" This always sounds to me so much like, "I just bought this new car. Two things: do you think it's a good one, and also, how do you drive?" No mockery intended. Just musing aloud.

But rather than just muse, I suppose I should say that if you're buying a stock, you should be capable of telling people -- educating them -- as to why you made the move and why you have faith that it was the right thing to do. Ah, but I must hasten to add something more, lest we think this phenomenon is confined to "Internet investors on The Motley Fool who listen to chatter and don't know what they're doing, showing that we're in a market top." (Tired line... I've read it from the same quarters ever since the Fool debuted... 65 percentage points ago for the S&P 500.) No, no, you see I suspect that if you asked most mutual fund managers (the typical ones, those who own 80 or more stocks) what each company they own actually does and what are its future prospects, you'd get back a few notes that look like the one in the previous paragraph!

That was Two. OK, time for Three.

Winter is a time for threes, actually, insofar as we're moving back into basketball season. (College basketball is my favorite sport -- I can watch any two teams play -- though I do wish the NCAA would bump the three-point line back a few inches to the international distance. Anyway...) Threes are now tickling the twine of a thousand rims across the United States of America at every level of play. And threes are also in style with Three Com's recent moves. Trois Com hit a new all-time high today, up an even $3 for the Foolfolio to bid $78 1/8. 3Com is also, appropriately enough, our third best stock, now up 67% since purchase some four months ago. (We sold The Gap to buy it: the Gap is down from where we sold it. Nice call, Tom.)

3Com announced a new product, the SuperStack II Port Switch Hub 10. OK, many people are scared to death when they read a phrase like that; they stop reading. Please don't! Why? Because your Fools are here to decipher this technobabble for you. Let's do it in one paragraph.

First off, this sucker's a hub. That means if you have lots of PCs you can plug them all into it to allow them to talk to each other. Now for "SuperStack": that means that you can easily link together more than one of these hubs as your business expands (more employees, more bandwidth). The "stack" just indicates that when you link these multiple hubs together, they'll effectively form one "Super" hub that acts like a monolithic all-powerful machine. (Yes, it sounds terrifying and it is.) As for "Port Switch," don't get dragged down by it. Pretty much all hubs sold today are "switched." That means that the hub is able to evaluate the needs of each computer user on the network at every moment to allocate resources in a most effective manner. Unswitched networks would say, "I've got 30 computers hooked to me, so I'll divide my resources in 30 even amounts." Switched networks are a little more discriminating. "Yeah," they'll jaw on, "so I may have 30 computers hooked to me but only a few of them are actually attached to the Internet at the moment, with a couple of others downloading files off my network. Most of the rest just ain't doin' anything at the moment. So I'll divvy up my resources according to those needs." Switches add intelligence to your network. And each switch has x numbers of "ports," where x is simply the number of workstations that you want to hook up the network.

OK, Mabel, there's your "SuperStack II Port Switch Hub 10." (The 10's the model number.) Trois Com is making this technology faster, stronger, smarter, and (always key) cheaper. This new product brings down the cost per "port" to $55, which is darned cheap I can tell you. I just did the numbers on our Fool HQ hub and the price per port was $150, even (that's $7200 divided by 48 ports)! And ours is a Cisco! (Three Com dominates this market with 35% market share.) Of course, our chief of technology Dwight Gibbs reminds me that we bought ours a year ago... so now you know why the world likes networking stocks. Quite a lot, actually!

To Four.

America Online soared $4 1/2 today, up 13% to $39 7/8. This is a bit reminiscent of the old days a few years back, when America Online typically was jumping up -- and down -- $4 or more dollars a day when investors were excited about the prospects, but not certain how to value the stock. Now, as is natural, the prospects are becoming clearer, and the stock price continues to work to reflect those prospects fairly.

At work in today's price move is the report that CEO of AOL's flagship Consumer Network, Bob Pittman, is encouraging institutional investors about the public's response to AOL's new flat pricing scheme -- which began officially today, and perhaps added more excitement to the stock. Mr. Pittman is reportedly stating November was a blistering month for new subscriber additions. October saw a strong 400,000 new members added to AOL, and November was apparently even much stronger. AOL is expected to make some announcements, possibly including new subcriber numbers, tomorrow at its semi-annual Partners' Conference.

Also at work in today's price move was the reiteration of a BUY rating on the stock by Lehman Brothers. And there's probably some short covering there, too. (America Online's stock happens to be one of the most heavily shorted on the New York Stock Exchange; about 20% of the available shares are sold short.) But perhaps that number is a bit lower after the last few days and the impressive and sharp stock rise.

OK, I'm done. AOL readers should consider joining us tonight at 9 PM for a holiday "virtual booksigning." This nifty idea, first executed by The Motley Fool actually, consists of two authors (us, in this case) sitting down for an hour to answer reader questions about their book. And if you're interested in buying one or more signed copies as gifts (Christmas, Hanukkah, or otherwise), you can do so with a screen that pops up right during that event. Please note: We'll be happy to inscribe them personally with words of your very own choosing. All of this delivered to your doorstep in a week or two. If you can't attend, but are still interested, drop a note to MFFlaim@aol.com and we'll be happy to help you out.

Finally, do consider dropping us a holiday card. We love to hear from our readers, and we put all your cards up on a big wall in Fool HQ. In return, we'll send you back one of our Foolish Christmas cards! Our address: The Motley Fool, 918 Prince St., Alexandria, VA 22314. Please include yours.

Fool on!

--- David Gardner, December 2, 1996

TODAY'S NUMBERS


Stock Change Bid ------------------- AOL +4 1/2 39.88 T - 1/8 39.13 ATCT - 3/8 15.00 CHV --- 67.00 GM + 1/4 57.88 IOM +2 1/2 25.13 KLAC + 3/4 36.25 LU - 3/8 50.88 MMM - 5/8 83.13 QDEK - 5/16 6.31 COMS +3 78.13
Day Month Year History FOOL +6.13% 6.13% 66.01% 209.98% S&P 500 -0.06% -0.06% 22.83% 65.04% NASDAQ +0.56% 0.56% 23.54% 80.49% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 25.13 897.43% 8/5/94 680 AmOnline 7.27 39.88 448.27% 8/13/96 250 3Com Corp. 46.86 78.13 66.72% 8/11/95 125 Chevron 50.28 67.00 33.24% 8/12/96 110 Minn M&M 65.68 83.13 26.57% 8/12/96 280 Gen'l Moto 51.97 57.88 11.36% 9/27/96 -890 Quarterdec 7.08 6.31 10.89% 10/1/96 42 LucentTech 47.62 50.88 6.84% 8/12/96 130 AT&T 39.58 39.13 -1.14% 8/24/95 130 KLA Instrm 44.71 36.25 -18.92% 10/22/96 600 ATC Comm. 22.94 15.00 -34.60% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 50501.25 $45438.12 8/5/94 680 AmOnline 4945.56 27115.00 $22169.44 8/13/96 250 3Com Corp. 11714.99 19531.25 $7816.26 8/11/95 125 Chevron 6285.61 8375.00 $2089.39 8/12/96 110 Minn M&M 7224.44 9143.75 $1919.31 8/12/96 280 Gen'l Moto 14552.49 16205.00 $1652.51 9/27/96 -890 Quarterdec -6304.75 -5618.13 $686.63 10/1/96 42 LucentTech 1999.88 2136.75 $136.87 8/12/96 130 AT&T 5145.11 5086.25 -$58.86 8/24/95 130 KLA Instrm 5812.49 4712.50 -$1099.99 10/22/96 600 ATC Comm. 13761.50 9000.00 -$4761.50 CASH $8801.62 TOTAL $154990.25