Fool Portfolio Report
Monday, September 15, 1997
by David Gardner (DavidG@fool.com)


ALEXANDRIA, VA (Sept. 15, 1997) -- The Fool Portfolio got THWACKED today, with six of its top growth stocks declining $1 or more. In fact, with three of these stocks off more than $4 (Amazon.com down $7, America Online down $4 5/8, and Lucent Technologies down $4 1/16), we suffered one of our worst days of the year.

Misery loves company, of course -- it wasn't just that misery loved our companies today. Amazon's Internet peer YAHOO! (Nasdaq:YHOO), down $5 3/4 to $48 3/16 dropped significantly, as did AOL's peer MICROSOFT (Nasdaq:MSFT), off $7 1/4 to $130 11/16. It was a day unkind to technology growth stocks in general, setting the Nasdaq off 0.87% while the S&P 500 dropped only 0.45%. The Fool Portfolio was actually buoyed by its Foolish Four stocks, which reduced our overall losses to 3.38%. Yes, dear Fools, it coulda been worse!

Coming just one day after we'd eclipsed the S&P 500 for the first time since January, this is obviously a disappointment. That said, we weren't too excited Friday, and we're not too disappointed Monday. Nothing fundamental changed over the weekend as relates to any of our businesses. What we saw today was a fall in short-term market pricing that devalued our portfolio. It's happened several hundred times in the past, and it'll happen another few tens of thousands before we retire from this particular planet. The disappointment we feel is quite ephemeral.

While nothing fundamental changed about AMERICA ONLINE (NYSE: AOL) over the weekend, the company was featured in two different publications with very different messages. We'll call it "A Tale of Two Cities," except that we're not talking about London and Paris here, but Time magazine and Barron's. We can learn much from a brief examination.

Time put AOL on its cover this week (the 9/22 edition), and the feature is largely a celebration of where AOL is right now, and somewhat about where it's going. If you're a shareholder, take the time to read it. Even if you're just interested in following the online revolution, it makes a good read.

By contrast, Barron's Alan Abelson, who pens that publication's "Up and Down Wall Street" column, openly questioned the accuracy of AOL's subscribership numbers in one of the most pathetically incorrect pieces we've seen in some time. Quoting numbers from a business school prof at the University of Kansas, Abelson got it wrong from the get-go, and we'll be very interested to see whether any sort of correction shows up next week. It'll tell us a lot about Barron's intellectual honesty.

Now, whether this column was at all responsible for AOL's drop of $4 5/8 today is anybody's guess. What is certain, however, is that Barron's best known columnist in its lead column drew all sorts of incorrect conclusions drawing off someone else's wrongheaded thinking. Abelson's trademark "mightier than thou" tone looks sillier than usual as he trots off one inaccurate number after another, quoting a professor who has appeared to have botched his homework assignment.

Particularly interesting is that this professor has been contributing to our AOL folder here on our web site, where his statements have been challenged by a host of informed readers and staff members, most notably Nico Detourn (our own TMF Nico). The irony is of course that a highly paid Wise journalist has missed the boat listening to a business school prof, while average readers and AOL shareholders working together as a group tear their numbers to shreds. While this is ironic, it is not at all surprising... we're well used, by now, to seeing the Fool community at large challenge, rebut, and ultimately correct incorrect statements made in the media.

To begin with, Mr. Hirschey (the KU prof) expresses some reservations about America Online's claim of nine million members. He points out that the company charges $19.95 a month for 'unlimited service' and that every quarter has three months. "The company's latest quarterly revenues were $385.6 million, which implies AOL had 6.44 million paying customers (divide $385.6 million by the product of three times $19.95)," Abelson writes.

Um... Al? America Online announced its 9 million members a few weeks ago, while the most recent quarter closed in June. When you divide September subscribership by June revenues, you'll come to the wrong conclusion ten times out of ten.

Um... Al? America Online has more than one pricing plan... in fact, it has a bunch of plans ranging from $4.95 a month to "bring your own ISP" at $9.95 to the flat-rate monthly $19.95. Because we expect that you may never have used online services in the past, it'd probably make sense to fact-check columns written on subjects you're unfamiliar with. That's our Foolish tip of the day, kiddo.

OK, sarcasm -- even though it is the wit of Fools -- is not a pleasant tone to strike. I adopted it temporarily merely for the fun of using sarcasm against a journalist who's built much of his career off using it. Truth be told, we at Fool HQ prefer straight talk, self-effacing humor, and hard work, always aiming for the truth... not spin.

The same is true of Time magazine, in my experience, a publication that (last we checked) also uses fact-checkers. Which leads me to the overall point of this piece.

As Fools who treasure irony, we find that one of the very best out there is how wrong so many financial publications "get" their subjects, when you can open up non-financial publications (culture mags, technology rags, and trade 'zines of all kinds) and get it right. Iomega was the classic example, the company that received five-star ratings from every PC magazine you could find, but if you ever opened up your favorite Wall Street financial daily, you read about "hype" and "Internet chatter" and constant skepticism brought to bear on the company's financial statements, its products, and its competitive position. Iomega has of course risen 900%+ over the past few years, having grown its revenues from $150 million to $1.5 billion... $1.5 profitable billions.

Who was right?

History continues to demonstrate who was right, and in our experience (we expect yours, too) it ain't the guys with stuff like "Wall" and "Money" in their publication titles.

So while AOL had a rather meaninglessly bad day for the short term, we expect you'll find in the long term that AOL will continue to grow its business and provide shareholders returns far superior to the Nasdaq, the S&P 500, and (of course) the Dow Jones corporation.

Given that DOW JONES (NYSE:DJ) was $53 a share ten years ago this month, and $43 per share today... well, that ain't too difficult is it... right, Al?

-- David Gardner, September 15, 1997

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TODAY'S NUMBERS
Stock Change Bid ---------------- AMZN -7 37.00 AOL -4 5/8 75.31 T +1 3/8 44.19 ATCT + 3/32 4.91 CHV + 3/16 82.56 DJT + 1/4 11.69 GM +1 1/2 68.00 INVX -1 3/8 30.75 IOM - 3/4 25.81 KLAC -3 1/4 71.81 LU -4 1/16 74.63 MMM -2 1/2 89.25 COMS -1 3/16 48.94
Day Month Year History FOOL -3.38% 3.50% 20.80% 222.39% S&P: -0.45% 2.26% 24.17% 100.65% NASDAQ: -0.87% 3.00% 26.64% 127.02% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 75.31 935.53% 5/17/95 980 Iomega Cor 2.52 25.81 924.31% 8/11/95 125 Chevron 50.28 82.56 64.19% 8/24/95 130 KLA-Tencor 44.71 71.81 60.61% 10/1/96 42 LucentTech 47.62 74.63 56.72% 8/12/96 110 Minn M&M 65.68 89.25 35.89% 8/12/96 280 Gen'l Moto 51.97 68.00 30.84% 8/12/96 130 AT&T 39.58 44.19 11.65% 6/26/97 325 Innovex 27.71 30.75 10.97% 8/13/96 250 3Com Corp. 46.86 48.94 4.43% 9/9/97 290 Amazon.com 38.22 37.00 -3.20% 4/30/97 -1170 *Trump* 8.47 11.69 -38.01% 10/22/96 600 ATC Comm. 22.94 4.91 -78.61% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 26735.94 $24154.07 5/17/95 980 Iomega Cor 2594.53 25296.25 $22701.72 8/12/96 280 Gen'l Moto 14552.49 19040.00 $4487.51 8/11/95 125 Chevron 6285.61 10320.31 $4034.70 8/24/95 130 KLA-Tencor 5812.49 9335.63 $3523.14 8/12/96 110 Minn M&M 7224.44 9817.50 $2593.06 10/1/96 42 LucentTech 1999.88 3134.25 $1134.37 6/26/97 325 Innovex 9005.62 9993.75 $988.13 8/12/96 130 AT&T 5145.11 5744.38 $599.27 8/13/96 250 3Com Corp. 11714.99 12234.38 $519.39 9/9/97 290 Amazon.com 11084.24 10730.00 -$354.24 4/30/97 -1170*Trump* -9908.50 -13674.38 -$3765.88 10/22/96 600 ATC Comm. 13761.50 2943.75-$10817.75 CASH $29541.35 TOTAL $161193.10

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