Fool Portfolio Report
Wednesday, September 3, 1997
by David Gardner (DavidG@fool.com)
ALEXANDRIA, VA (Sept. 3, 1997) -- Following yesterday's stratospheric move (S&P up 3.1% -- best day of the year), the market just kinda lay around and twiddled its fingers on Wednesday. The S&P 500 whittled away at a 0.03% gain. If you can believe it, the Nasdaq was even somewhat less positively exciting: up 0.01%. The two continue to run neck-and-neck for 1997, with annual returns of 25.26% and 25.34%, respectively. (There was a time this year when you'd have thought no way could the Naz pass its big-company peer.)
For its own part, the Fool Portfolio still remains down to both indices by 4+ percentage points for the year, though the Foolfolio did score a nice, Iomega-driven gain of 0.58% today.
Yes, that's right... on 7.2 million more shares traded, and no news, IOMEGA (NYSE:IOM) (N) (S) bolted $2 1/8 to a new 52-week high of $27 3/4. This new high was a long time in coming, but it did finally come for this dynamic technology company... one of the crown gems of American high-tech. Do I wax too poetical on new-high days, or should we in fact be more frequently celebrating a company like Iomega? Probably both. I'll say one thing, it's a fairytale story.
Once upon a time there was a happy kingdom of lush meadows, cobbled streets, and glittering parapets. In addition to its modestly appointed castles, its rich foods, and its booming iron ore industry, this kingdom had a ton of 3.5" disks. One day, a plainly dressed foreigner came along (does the perceptive observer detect a motley kerchief poking out of his pocket?) and pointed out the increasing speed of the kingdom's computers, the ballooning size of its files, and the growing need for portability among the kingdom's workers, from the merchants to the farmers to the blacksmiths to the Exchequer herself. The stranger suggested he might have a solution, which he called "a 100-megabyte removable storage medium." The existing merchants scoffed at the notion that the average stable hand would want such a thing, supposing it could ever be created. But they grew uneasy at the twinkle in the strange man's eye, and convinced the King to banish him. Doffing his unusual cap, the foreigner bowed, took up his things, and went back to his own home (OK yeah, it was Utah).
There he conducted a thoroughgoing and not inexpensive market research campaign to find out how many of the kingdom's good people might actually want such a disk. Pleasantly surprised by the results, he set to work with a passel of ace magicians working alongside him in his laboratory. Within a year, their product suddenly and quietly appeared, sold out at all the bazaars, eventually got installed in most of the new computers sold across the kingdom, and began doing almost $2 billion a year in annual sales. He created riches for those who had believed in him, made the competing merchants look like buffoons, and shocked the conventionally Wise with their dull expectations and their rigid skepticisms. He was... a Fool! (The End.)
This fairytale presents quite a contrast with the existing "story" some people have been peddling about Iomega. Between statements made by the company's competitors, institutional short-sellers, and the financial media that parrots them both, you'd think the guys in Roy, Utah were a plague on the financial world. Instead, the company has been a plague o' both their houses (competitors and short sellers). For shareholders, and for the company's customers the world over, Iomega and its Zip drive have been a very convenient blessing at just the right price point. And from an American point of view, it's certainly a lot better to have this technology and marketing machine operating on our shores, rather than undercutting our economy from somebody else's. $1.5 billion in sales, and still counting.
It's perhaps ironic and useful to note that our two best holdings both announced milestone marks of a similar nature. Iomega announced in July that all told, it had sold 7 million Zip drives. America Online, yesterday, announced it breached the 9 million mark for subscribers. Both of these companies have gigantically ramped up to those customer totals from virtually or literally nothing, just within the few years we've owned them in our portfolio. And in the face of the obvious growth we've written about all the way along, we continually read about how America Online is going out of business because of _______ (you fill in the blank). Or Iomega is going to get put out of business thanks to _______ (fill that one in too, and keep in mind that both blanks have been filled with a dozen different answers in the past -- all, of course, wrong).
Is it useful to conjecture this from time to time? Absolutely, particularly if you're an investor in them. But is this the message that should predominate, as it has in the mainstream media? I think not! Even just this week, a message was posted to our Web boards entitled, "Will IOM go bankrupt soon?" Unfortunately, this is all too often the question asked by too many people who don't even really understand the products or the business. I guess that's what makes a market, eh? Meanwhile (after another several million shares bought by institutions today), we few (we happy few) are making money.
What the future holds is anybody's guess, and I certainly don't claim to be the best informed Fool on this topic. Thanks to the outstanding discussion and contributions from investors across the nation showcased on our Fool message boards, I do feel confident I'll be one of the first to know if Iomega is getting put into a bad competitive position by some new competing technology.
But today is a day for reflection, and so for now I've finished. Today was a day like any other, one of tens of thousands most of us will spend on this green earth. It was also unusually sweet.
I opened a fortune cookie this afternoon, and what should I find on the back of my message ("You are always welcome in any gathering" -- really?!) but a lottery lucky number! Is Messages Incorporated (featured in The Motley Fool Investment Guide) alive and well, or what? There it is, right on page 127, in the purportedly fictional company's business description: "InfoCookies, whose predecessors focused entirely on conveying 'fortunes' of little redeeming value, now feature stock tips, LUCKY LOTTERY NUMBERS [bold and caps mine], winning picks for NFL games, and revenue-generating suggestions for entrepreneurs." Ah yes, literature becomes life. Coming soon: TastiScroll technology in airline snackpacks, compact discs, and pinatas....
Say, I'm told by a fellow Fool reader that Mark Hulbert's newsletter is now featuring The Fool Portfolio among the public portfolios that it tracks. We're flattered, as well as being perhaps the first non-newsletter (certainly the only "online" portfolio) included. Hulbert's fine newsletter, created to account for the performance of financial newsletters, has indeed brought accountability to an industry that completely lacked it. On the other hand, given that we account for our real-money returns every day of the year here, compare our returns to market averages, take all our expenses out, and announce our trades before we make them, you may wonder what's the point? Anyway, we continue to hope, as I'm sure Mark does, that others will step up and adhere to this highest Foolish standard... the irony is, when that glorious day dawns, it renders his work largely unnecessary.
Finally, GM put out 10 press releases today. Can you believe it? I had time to read only a couple, which reminds me (and you too, I assume) of just how little time most of us have to dedicate to following our Dow companies. In this daily recap, you'll certainly notice a tendency to study and track our growth companies and small-caps more frequently than our Dow heavies. That's in concert with the dividend-based approach that we teach for Dow companies, which has you focusing more on long-term returns and less on daily news... especially when your doggone companies give PR Newswire its biggest business day of the year!
Fool away thy evening.
-- David Gardner, September 3, 1997
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Stock Change Bid ---------------- AOL - 1/8 68.75 T - 5/8 39.81 ATCT - 1/4 4.13 CHV - 3/16 80.19 DJT - 3/16 11.19 GM - 1/16 65.19 INVX -2 7/16 32.81 IOM +2 1/8 27.75 KLAC + 5/16 71.63 LU + 5/16 80.44 MMM + 13/16 92.38 COMS -1 5/8 48.63Day Month Year History FOOL +0.58% 3.21% 20.45% 221.47% S&P: +0.03% 3.16% 25.26% 102.41% Nasdaq: +0.01% 1.95% 25.34% 124.70% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 27.75 1001.19% 8/5/94 355 AmOnline 7.27 68.75 845.67% 10/1/96 42 LucentTech 47.62 80.44 68.93% 8/24/95 130 KLA-Tencor 44.71 71.63 60.19% 8/11/95 125 Chevron 50.28 80.19 59.47% 8/12/96 110 Minn M&M 65.68 92.38 40.65% 8/12/96 280 Gen'l Moto 51.97 65.19 25.43% 6/26/97 325 Innovex 27.71 32.81 18.42% 8/13/96 250 3Com Corp. 46.86 48.63 3.77% 8/12/96 130 AT&T 39.58 39.81 0.59% 4/30/97 -1170 *Trump* 8.47 11.19 -32.10% 10/22/96 600 ATC Comm. 22.94 4.13 -82.02% Rec'd # Security In At Value Change 5/17/95 980 Iomega Cor 2594.53 27195.00 $24600.47 8/5/94 355 AmOnline 2581.87 24406.25 $21824.38 8/11/95 125 Chevron 6285.61 10023.44 $3737.83 8/12/96 280 Gen'l Moto 14552.49 18252.50 $3700.01 8/24/95 130 KLA-Tencor 5812.49 9311.25 $3498.76 8/12/96 110 Minn M&M 7224.44 10161.25 $2936.81 6/26/97 325 Innovex 9005.62 10664.06 $1658.44 10/1/96 42 LucentTech 1999.88 3378.38 $1378.50 8/13/96 250 3Com Corp. 11714.99 12156.25 $441.26 8/12/96 130 AT&T 5145.11 5175.63 $30.52 4/30/97 -1170*Trump* -9908.50 -13089.38 -$3180.88 10/22/96 600 ATC Comm. 13761.50 2475.00-$11286.50 CASH $40625.59 TOTAL $160735.22