Fool Portfolio Report
Tuesday, December 3, 1996
by Jeff Fischer (MF BudFox)
ALEXANDRIA, VA, December 3, 1996 -- What is this volatile madness in the stock markets of late? Up sharply, back down, then up again, then back down...? Let it be said, right here, right now, that perhaps this whole thing is ready to quick tumble. Take the big "Nestea Plunge." If it does fall, you can now say "some Fool predicted it."
Truly, though, I have no feelings about the market either way. No feelings of impending doom or imminent great surges. Stocks move on earnings and interest rates, most arguably, and both currently stand in the favor of stocks. While over the long haul, stocks conquer all other investments for pure returns, year after year. So the only important thought on stocks and the market: buy the best companies you can find, and buy them for the long-term. That alone could get you through a life-time. It worked for Buffett, to name just one.
The Fool's long-term flunkies first did well this morning, with America Online up more than $4 at one point, Iomega breaching $26, and 3Com surging to a new high. But each stock surrendered its gain and a lot more in the afternoon, and actually fell for the day. Such is life in the short-term. In the end, the Fool got clocked for more than 3% -- giving back half of yesterday's gain. The S&P 500 lost over 1%, though the Nasdaq somehow managed a miniscule, tiny, teeny gain, even while most of the big names on that exchange cascaded downward.
The big news for today: the Fool's short Quarterdeck (QDEK) tumbled on the announcement of a class action lawsuit against ye olde beleaguered company. In the morning the stock fell more than 11% and the FoolPort calmly (but thankfully) covered its short position, paying $5.50 per stub for 890 stubs. We quickly gave those repurchased stubs back to their rightful owner. We didn't want them.
The Quarterdeck cover announcement was made last Wednesday, nearly a week ago, and the cover report outlines the reasons for closing the position. We had until tomorrow to cover the shares, but today presented a fine opportunity. After commissions, the Fool earned more than 21% on the short in about two months. We accomplished the Foolish shorting goal of a 20% gain. Quarterdeck was a great short -- a true buzzard of a stock -- as it sunk lower and lower the past two months while the markets soared to new highs. Ah, sweet Carolina!
The Fool shorted the shares on September 27th (for short novices: Quarterdeck stock was borrowed and sold immediately, in hopes that the Fool could replace the shares for less money in due time). We added $6,300 to our savings account with the Quarterdeck short, and today we paid $4,931 to buy the shares back -- a 21.78% gain (sans taxes). Of course, we already miss having a short in the portfolio and are in the pursuit of another buzzard, perhaps, or maybe a high-flier this time. It can't be rushed, but we are looking for another short or two. If Quarterdeck rises again, perhaps we'd be Foolish to short it once again. Today's news certainly supports that argument.
We'll give our formal "adios" to Quarterdeck by looking at that news. Lawyers filed a lawsuit for investors who claimed that Quarterdeck made misleading statements about its financial results and certain products. The suit alleges that Quarterdeck used false statements to help sell "tens of thousands" of shares of stock during the first two quarters of this year, while the stock was priced around $19 per share. After the sale of the stock, Quarterdeck announced that it expected "sharply lower sales" and a substantial loss for the third quarter. Importantly, the suit also claims that many of Quarterdeck's products are not useful. This is a claim that the Fool (most often David) has made right here over the past two months, and this was very much part of the impetus for the Fool's shorting of the stock. The press release is ugly, and in part reads:
"The defendants issued materially false and misleading statements including statements about (1) Quarterdeck's utilities products, including its memory-management products; (2) Quarterdeck's Internet and data communications products; (3) Quarterdeck's revenues and profits; and (4) otherwise about Quarterdeck's business. Furthermore, Quarterdeck's financial statements for its first and second quarters of fiscal 1996 (ended December 31, 1995 and March 31, 1996) were materially false and misleading in violation of Generally Accepted Accounting Principles ("GAAP"). These materially false and misleading statements artificially inflated the price of Quarterdeck stock during the Class Period, enabling it to sell tens of thousands of shares of Quarterdeck stock...."
Of course, this would be bad news for any company, but this is extra, extra bad news for Quarterdeck, a firm bleeding cash and lacking a CEO, as well as any very significant, viable product to speak of. (I better stop writing about this, or I'll ache for want of the Fool shorting it once more). This news is an appropriate way to wrap up the position, though. The Fool shorted the stock, pointing and exclaiming, "Look at this buzzard!," and the buzzard showed its true form in the end, actually falling flat to the ground for closer examination. Fools circled round and looked at the broken beast, saying, "Yep, it's a buzzard."
Taking a quick look at the Foolish Four today, General Motors (GM) rose to a new intra-day high above $59, before closing at $58 and change. General Motors, Chevron (CHV) , and 3M (MMM) have looked like momentum stocks of late, rather than the big old dividend paying behemoths that they are. Especially 3M. The stock has been on a tear since August, rising from $65 to $83. But General Motors and Chevron have been very pretty, too. Are these large outperforming rises mere coincidence, or when buying the Foolish Four are you truly buying beaten down giants that are quite possibly due for a healthy rise? Well, then what about AT&T (T)? Ouch. Though the Fool did pick up the shares following the steep drop -- as the Foolish Four approach can lend itself to -- and after adding Lucent Tech (LU) to the mix, even this holding is about in the black for the Fool. Still, even if the recent quick and strong out-performances of these stocks is more coincidence than anything else, the Foolish Four results over the last 25 years can't be coincidence.
To close today, the Fool has put together an Iomega Corp (IOM) retrospective. I wrote the dang thing, Keith Pelczarski (MF Czar) edited it, and Jonathan Wilder (DomePiedro) created the graphic "support." Hopefully it makes for very interesting reading. You can learn of the Iomega story over the past few years if you don't already know it, or you can re-live it (as joyful or painful as that may be) if you know it well. After tonight, the special will be in the Fool Portfolio, behind the Iomega link, as we do with each Fool stock Special and earnings report. Keith wrote the most Foolish description about the retrospective:
"In the tradition of "Winds of War," "North and South" and "Lonesome Dove," the Fool presents an epic look at Iomega over the past two years. The Iomega Retrospective examines the life and times of the stock, from the early days of the board, through the heady days of May, to the end of November. Miniseries are often broken up into four or five parts -- but we were feeling a little nutty here at the Fool -- all five segments of this saga are included in this one mondo collection. This gripping miniseries is now showing in out Fool Wire area on both AOL and on the Web, at ."
The Iomega retrospective "talks" some with ChirosPark (MF Chiros), David, Tom, Bigfootmm, and MF Jeanie and others, about both their early thoughts and current thoughts on the subject, and of course tracks the biggest stories that have surrounded Iomega -- the stock, the company, and the media and online world around it.
Have a Foolish evening!
TODAY'S NUMBERS
Stock Change Bid ------------------- AOL -2 1/4 37.63 T - 5/8 38.50 ATCT - 1/8 14.88 CHV -1 3/8 65.63 GM + 3/8 58.25 IOM -1 1/2 23.63 KLAC --- 36.25 LU -2 1/4 48.63 MMM --- 83.13 COMS -2 1/4 75.88
Day Month Year History FOOL -3.06% 2.89% 60.93% 200.50% S&P 500 -1.09% -1.15% 21.49% 63.24% NASDAQ +0.04% 0.60% 23.59% 80.56% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 23.63 837.88% 8/5/94 680 AmOnline 7.27 37.63 417.33% 8/13/96 250 3Com Corp. 46.86 75.88 61.92% 8/11/95 125 Chevron 50.28 65.63 30.51% 8/12/96 110 Minn M&M 65.68 83.13 26.57% 8/12/96 280 Gen'l Moto 51.97 58.25 12.08% 10/1/96 42 LucentTech 47.62 48.63 2.12% 8/12/96 130 AT&T 39.58 38.50 -2.72% 8/24/95 130 KLA Instrm 44.71 36.25 -18.92% 10/22/96 600 ATC Comm. 22.94 14.88 -35.15% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 47486.25 $42423.12 8/5/94 680 AmOnline 4945.56 25585.00 $20639.44 8/13/96 250 3Com Corp. 11714.99 18968.75 $7253.76 8/12/96 110 Minn M&M 7224.44 9143.75 $1919.31 8/11/95 125 Chevron 6285.61 8203.13 $1917.52 8/12/96 280 Gen'l Moto 14552.49 16310.00 $1757.51 10/1/96 42 LucentTech 1999.88 2042.25 $42.37 8/12/96 130 AT&T 5145.11 5005.00 -$140.11 8/24/95 130 KLA Instrm 5812.49 4712.50 -$1099.99 10/22/96 600 ATC Comm. 13761.50 8925.00 -$4836.50 CASH $3870.12 TOTAL $150251.75 Transmitted: 12/3/96
