Fool Portfolio Report
Tuesday, August 19, 1997
by David Gardner (DavidG@fool.com)
ALEXANDRIA, VA (August 19, 1997) -- The Fool Portfolio continued a second day of underperformance in the face of another strong market comeback. It seems any time that stocks take a big hit on a Friday, people stew about it over the weekend, the media report lots about it ("Will the market finally crash? We interview the experts..."), and we all come back the next week and buy the heck out of most everything.
In our weekend Washington Post, the headline read "Stock Market Falls 247 Points," which was actually dispassionate compared to some others I read. With the advantage of passing time, we can now see that it took exactly two days to gain it all back. That's right... at its close today, the S&P 500 had risen another 1.48%, following its rise of 1.30% yesterday. That more than wipes out the Friday decline... today's close was back up over the S&P 500 close last Thursday.
Will the front-page editors of your favorite daily paper (or financial news program) run a front-page headline tomorrow, letting everyone know? Perhaps... pick the thing off your sun-drenched morning doorstep and see. Kudos to them if they do. But if, having printed the "big drop" front-page weekend story, your paper does NOT print a front-pager tomorrow pointing out that the market is ahead of where it opened last Friday, you'll have learned a very good investment lesson. That's an investment lesson and a life lesson worth well more than the time you spent reading this!
To reiterate, the Fool Portfolio could not keep pace for a second torrid day, rising 1.06% vs. gains of 1.48% and 1.99% for the S&P and Nasdaq, respectively. Uninteresting moves in our top two stocks (AOL up just $5/16, and Iomega down $1/16) were the primary reasons we lost on Tuesday, alongside a half-point gainer for our short sale of The Donald.
One of the pleasures of working at Fool HQ every day are the fantastic e-mails we receive from Foolish investors around the world. Anyone appreciates praise, of course, and we're most gratified by our extremely kind and thoughtful readership; so frequently you make clicking open the latest e-mail such a pleasure! But as important, and as relished by me, are the swift and intelligent corrections that come to us from some very savvy readers out there. You see, true Fools LOVE to be told that they're wrong... it's a great way to learn. So take my use of "decimated" in a recap I wrote last week.
It was a harmless enough reference. Of KLA-Tencor, I wrote that it had been "absolutely decimated by the market" in 1996, when it dropped from the mid-$40's to $17.
In comes the mail, pronto. Colin Wiggins wrote, "Dear David, while you deserve to enjoy the winning ways of KLAC, please accept a mild cavil at your comment that, earlier, the stock was 'absolutely decimated by the market.' Decimate means to remove, despatch, wipe-out or otherwise dispose of, 1-in-10." Sounding a similar tune was Hal Grossman. "This may be too nitpicking for your taste, but KLAC got decimated about 6 times. 'Decimation' means reduction by ten percent. One of the definitions in the Oxford English Dictionary is 'the selection by lot of every tenth man to be put to death, as a punishment in cases of mutiny or other offence by a body of soldiers, etc.' I think the Romans used to do this."
Hal let on that he was a librarian at Teachers College in NYC, describing himself as "a natural pedant." As regards the latter, so am I... the painful thing has been learning over the past three years now that I'm not as good a pedant as so many others!
(A friend of mine in the office, of a similar pedantic bent, offered that KLAC had in fact been "sesquidecimated." I like it; that word's gotta be a keeper. I'll certainly need it the next time a KLA Instruments or ATC Communications decides to enter our portfolio. Sounds so much better than saying, "Our stock got killed.")
Dipping further into the mail bag, last week's recap on Wade Cook -- he of the "You can double your money every 4 months!" books and seminars, blaring everywhere on local radio -- drew a flurry of mail. Some of it had similar sentiments to this one, from Rtedhead@aol.com: "David, I appreciate your insight on Wade Cook, but I think you've missed a very important point. Mr. Cook recommends investing only 5% of your portfolio in his 'money machine' formulas of options, rolling stocks, etc. They are risky and he makes that clear.... Your misunderstanding of turning $500 into a trillion in a few decades is based on the assumption that all profits from trades are compounded and reinvested again. Although Wade has millions in his brokerage account [Ed. note: One would expect not from investing, then, but selling!], he still only make several small 'plays,' never big ones, and a portion of the profits are then moved into less risky vehicles. If you have a $100,000 portfolio, no more than $5,000 is used on these techniques, not the whole $100,000. I get the impression from you that you have never actually read any of his books, or heard his tapes [Ed. note: Yep]. Speaking out so strongly on something you have read so little about seems awfully unFoolish to me."
Fair enough, though I'm not speaking out against his books but against his marketing pitches, which never mention that "5%" clause as they encourage you to read his books and attend his seminars so that you can double your money several times a year. And these things ain't cheap for just 5% of your money, eh?
Indeed, most of the notes were more in this vein:
One reader wrote, "Sorry to be blunt, but I have been through his seminars and paid lots of money for these and his books. His slick info is always laced with a sales pitch to get you to become more involved (read: dependent) on Wade Cook. He barely gives you a clear thought on when to buy, what to buy, and when to sell. One whole day was spent explaining options to the attendees. After hours of explaining the concept of how to know what option to buy, he asked if everyone understood. Out of about 300 people present (each paying about $2000 to be there) only 6 people raised their hands. I am very adept with math (I have 3 college degrees -- one of them in computer science), but even I couldn't follow his quick explanations.
"Since virtually no one got it, he said that for only $1200 he would let us dial in (long distance) to his bulletin board and every market move he made would be posted. Since he basically promotes short-term investing (time-sensitive), and his messages are only posted once or twice a day (whenever he gets around to it), I believe that no one could possibly duplicate his results....
"I could continue to belabor all this, but you already know this, I guess. My money is gone and I had to spend 2 more years floundering around trying to figure out investing. Finally I found MF and started an IRA and have moved into long-term investing. Thanks for listening to my story, and thank you for playing a role in educating wise guys like myself."
Another Fool, Paul Ryburn (a math instructor at the University of Memphis), took a slightly less expensive path to similar findings. His lovely note is so compactly chock-full of Foolishness that it makes a perfect ending to tonight's report:
"Last Thanksgiving I was driving back from my mom's house, when I heard one of Wade Cook's infomercials on the radio. I had always found the stock market intriguing, although I knew little about it. I wasn't ready to plunk down a few thousand on his seminar, but I decided to investigate further. Fortunately, I did have enough sense to create an imaginary portfolio and try out his methods before risking real money. I set this up on my computer. While I was online, I decided to look around the Web and see what investing resources were out there. And who did I find? The Motley Fool!
"I went to the Fool's School and learned the steps to proper investing. They seemed to contradict Wade Cook's advice, so I set up a second imaginary portfolio featuring growth stocks meeting Foolish criteria. The Cook portfolio is down 4% since its creation Dec. 31; the Foolish portfolio is up 34% since its creation Feb. 24. The results speak for themselves. I look forward to creating a real Foolish portfolio one day, but I'm still paying off my student loans, so it will have to wait for now. Anyway, my point is that I never would have found you guys if Wade hadn't got me thinking about investing! So maybe he isn't all bad."
-- David Gardner, August 19, 1997
Drip Portfolio --
Working towards 20 year buys.
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Fool Four Portfolio -- 23% annually, historically.
Evening News -- All the news, early.
Port Tracker -- Update your portfolio daily.
Daily Double -- Woah... it's flyin'!
Daily Trouble -- Cut in half! A deal?
Fribble -- A fun lesson from readers.
Stock Change Bid ---------------- AOL + 5/16 66.69 T - 1/8 40.38 ATCT + 1/16 4.63 CHV +1 5/16 78.94 DJT + 1/2 10.25 GM +2 1/8 63.13 INVX +2 3/16 33.50 IOM - 1/16 22.94 KLAC +2 69.25 LU +2 11/16 84.94 MMM +1 3/16 92.94 COMS + 3/4 54.50Day Month Year History FOOL +1.06% 2.23% 18.15% 215.31% S&P: +1.48% -2.97% 25.01% 102.01% NASDAQ: +1.99% 0.43% 23.99% 122.27% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 66.69 817.30% 5/17/95 980 Iomega Cor 2.52 22.94 810.22% 10/1/96 42 LucentTech 47.62 84.94 78.38% 8/11/95 125 Chevron 50.28 78.94 56.98% 8/24/95 130 KLA-Tencor 44.71 69.25 54.88% 8/12/96 110 Minn M&M 65.68 92.94 41.51% 8/12/96 280 Gen'l Moto 51.97 63.13 21.46% 6/26/97 325 Innovex 27.71 33.50 20.90% 8/13/96 250 3Com Corp. 46.86 54.50 16.30% 8/12/96 130 AT&T 39.58 40.38 2.01% 4/30/97 -1170 *Trump* 8.47 10.25 -21.03% 10/22/96 600 ATC Comm. 22.94 4.63 -79.84% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 23674.06 $21092.19 5/17/95 980 Iomega Cor 2594.53 22478.75 $19884.22 8/11/95 125 Chevron 6285.61 9867.19 $3581.58 8/24/95 130 KLA-Tencor 5812.49 9002.50 $3190.01 8/12/96 280 Gen'l Moto 14552.49 17675.00 $3122.51 8/12/96 110 Minn M&M 7224.44 10223.13 $2998.69 8/13/96 250 3Com Corp. 11714.99 13625.00 $1910.01 6/26/97 325 Innovex 9005.62 10887.50 $1881.88 10/1/96 42 LucentTech 1999.88 3567.38 $1567.50 8/12/96 130 AT&T 5145.11 5248.75 $103.64 4/30/97 -1170*Trump* -9908.50 -11992.50 -$2084.00 10/22/96 600 ATC Comm. 13761.50 2775.00-$10986.50 CASH $40625.59 TOTAL $157657.34