Fool Portfolio Report
Friday, December 6, 1996
by Selena Maranjian (MF Selena)
ALEXANDRIA, VA., December 6, 1996 -- Some of you might have noticed that the market took a bit of a beating today. The Nasdaq, for example, was down some 41 points early in the day -- over 3%. What was going on? Well, it could have been that most Wall Streeters opened their mail and found another reminder from market psychic Elaine Garzarelli that the market was unavoidably and immediately due for another crash. (Thanks, Elaine!). Or maybe they pondered the words of Federal Reserve Chairman Alan Greenspan, who voiced some thoughts that perhaps the market has become a little exuberant.
I suspect that it was Greenspan, and not Garzarelli, affecting the market today, as Japan's Nikkei Index also dropped (some 3.2%) and London's FT-SE 100 closed down 2.2% following his remarks. Of course, perhaps Elaine's helpful reminders were also mailed to our international colleagues, as well.
We should remember, though, that no market rises in a straight line. There are always ups and downs of varying sizes. And downs are usually followed by ups. Nevertheless, there are always people trying to warn us that a big drop is coming. Well, duh. Of course a big drop is coming. These people remind me of a favorite story from my childhood -- the saga of Chicken Little. Given today's developments, I wonder... what if Chicken Little was really a very small bear in a chicken suit? If we were to see him skitter or lumber by, proclaiming, "The sky is falling! A market crash is coming!" what should we do?
Well, of course the obvious answer is: Ignore him. He's just a chicken, after all. Or a bear. And barnyard or forest animals have not predicted market moves any better than most technical analysts.
But there are other appropriate reactions, too. You could think about what this chicken was saying. What if a market crash really *was* around the corner?? Just in case, should you sell now to lock in your profits? Move all your money into the First Mattress Savings Bank?
Well, if you're truly Foolish, you'd leave your money right where it is. You're probably invested in some Dow Dividend Approach stocks. And when they boast a 20% return on average, that *includes* crash years. So some years you'll make 40%, and other years, you might lose 10%. But on average, through crashes and rallies, you'll do very well.
You would also leave your money in your other stocks. Why? Because, as a Fool, you only bought the companies after thoroughly researching them, and after becoming convinced of their outstanding potential. Unless something fundamental has changed about one or more of them, you should hang on.
Now we all know that chickens have very small brains, so probably poor Chicken Little has never learned that the history of the stock market, over the past 100 some years, is very positive. Even after dramatic crashes like the one in 1987, the market has rebounded, returning an average of 10% per year. Peter Lynch has also argued for staying in the market. By trying to guess and time crashes, you're likely to miss out on rallies and end up further behind than if you had just stayed in.
In other words, it's ultimately much more important to be in the market at the right time than to try to be out of the market at any time.
And finally, if you've put together a healthy Foolish portfolio, and have enjoyed returns above 60% so far this year, as the Fool has, think about some worst-case scenarios. If the market were to drop by a whopping 50% tomorrow, and all our stocks dropped by 50% as well, the Fool would still have a 50% return for the past two years! Not bad! And we'd of course still be invested for the certain rebound to come.
So if a chicken skitters past you clucking about the end of the market as we know it (perhaps a chicken with big, permed hair, or one with little hair at all) -- just turn away and let the little bells in your cap jingle. You're a Fool -- and if the sky is falling, let it fall! It'll be back up again soon enough.
Notable in the news was the fact that General Motors announced North American production estimates for the first quarter of fiscal 1997. The company estimates a 16% increase from last year. GM also announced it expects to build 5.2 million cars and trucks this year, total, in North America. That's a 7.7% decrease from 1995, and is likely the news that caused the stock to fall today.
This giant Foolish Four holding, though, is not going away, and the labor problems are mostly behind GM now. 1997 should be a brighter year.
To close: In the end, the only certain way to successfully invest in the market is to be in the market at all times, and for a long time.
Have a Foolish weekend!
Stock Change Bid ------------------- AOL -1 1/8 38.88 T + 1/8 38.63 ATCT - 3/8 14.50 CHV -1 5/8 64.38 GM -2 3/8 56.50 IOM - 3/8 23.38 KLAC - 7/8 34.88 LU + 1/8 49.13 MMM - 7/8 81.63 COMS - 7/8 78.88
Day Month Year History FOOL -1.97% 2.83% 60.85% 200.34% S&P 500 -0.64% -2.30% 20.08% 61.34% NASDAQ -0.96% -0.38% 22.39% 78.80% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 23.38 827.96% 8/5/94 680 AmOnline 7.27 38.88 434.52% 8/13/96 250 3Com Corp. 46.86 78.88 68.32% 8/11/95 125 Chevron 50.28 64.38 28.02% 8/12/96 110 Minn M&M 65.68 81.63 24.28% 8/12/96 280 Gen'l Moto 51.97 56.50 8.71% 10/1/96 42 LucentTech 47.62 49.13 3.17% 8/12/96 130 AT&T 39.58 38.63 -2.41% 8/24/95 130 KLA Instrm 44.71 34.88 -22.00% 10/22/96 600 ATC Comm. 22.94 14.50 -36.78% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 46983.75 $41920.62 8/5/94 680 AmOnline 4945.56 26435.00 $21489.44 8/13/96 250 3Com Corp. 11714.99 19718.75 $8003.76 8/11/95 125 Chevron 6285.61 8046.88 $1761.27 8/12/96 110 Minn M&M 7224.44 8978.75 $1754.31 8/12/96 280 Gen'l Moto 14552.49 15820.00 $1267.51 10/1/96 42 LucentTech 1999.88 2063.25 $63.37 8/12/96 130 AT&T 5145.11 5021.25 -$123.86 8/24/95 130 KLA Instrm 5812.49 4533.75 -$1278.74 10/22/96 600 ATC Comm. 13761.50 8700.00 -$5061.50 CASH $3870.12 TOTAL $150171.50 Transmitted: 12/6/96