Fool Portfolio Report
Monday, September 22, 1997
by David Gardner (DavidG@fool.com)


ALEXANDRIA, VA (Sept. 22, 1997) -- The Fool Portfolio scored a forgettable gain, Monday, underperforming the general market's half-a-percent score. Despite the tiny fractional change for our portfolio, today featured notable volatility, including four Fool stocks that fluctuated $2 or more. Let's get right down to it.

First off, today's big winner, AMAZON.COM (Nasdaq:AMZN). In the midst, no doubt, of an ongoing short squeeze, little AMZN tallied another gain of $6 13/16, closing at a bid of $54 1/16 (another new high). Amazon is now up 41% from our purchase of two Tuesdays ago.

"Forty-one percent in less than two weeks?!" you ask, jaw dropping. Well, heck, our jaws are dropping too. The Fool Portfolio's growth-stock approach involves buying market leaders in dynamically growing industries and holding them for as long as that remains the case. We do not set "target prices" and jump out of the market when we hit them. We focus not on market pricing but on the underlying business, with a real bias toward consumer-friendly companies with strong name-brands. Amazon.com appears to be one such company which almost perfectly fits that bill, and that's why we Fools bought the darned thing.

What appears to have happened in the past week is that an ongoing short squeeze, coupled with Morgan Stanley initiating coverage with bullish comments Friday, has caused this stock to spiral dramatically upwards. As long-term investors, we couldn't care less. Certainly, few people have bigger smiles on their faces than we, when Amazon rises another $7 after having risen $7 on Friday. It's always great to see the market bid up one's stocks. At the same time, the present action is almost completely irrelevant to us because we have no wish to exit this position anytime soon.

We received one or another e-mail today saying, "Great pick, guys!" Others read, "Sell now, before the short squeeze ends and the price collapses." And we read many messages that fall in between these two positions. Whatever is to be said of the merits of these opinions, they're all examples of short-term thinking. In that regard, they have utterly no bearing on our intentions to buy and hold for the long term the biggest of Internet book retailers (with 65% of the market). We're at the top of the second inning in this company's history, and they scored several runs in the first.

The reasons we bought Amazon were all laid out in our purchase report, and as you might imagine, little has changed operationally in the past two weeks. I've now read any number of posts to our Amazon.com message folder about how this company is absurdly valued relative to its larger offline competitors. Making no presumption to have the be-all-end-all valuation tool for AMZN, I will point out that these posts spend lots of energy evaluating the past, forgetting of course that the stock market puts its present price on the future. With Amazon trading at over 20 times sales, that's a steep price right now. At the same time (and as we've pointed out in the past), companies like AOL (early on) and Yahoo! (in the present) have traded at sales multiples upwards of 50 times.

From our Foolish point of view, this stock could fall $15 tomorrow and we wouldn't care; we're not selling tomorrow. It could rise another $15 tomorrow and you'd see us still stand pat. If this irks you, dear reader, you are more likely a trader. That's OK with us, but please remember the investor's different mentality.

Our growth-stock approach may look both good and bad when you look at Iomega, during its 1995-96 market climb. We received notes saying sell at (a split-adjusted) $2, sell at $5, sell at $10, sell(!) at $20, sell(!!) at $30, sell(!!!) at $40, and sell(!!!!) at $50 (and every price in between then and now ever since!). Had we acted when we first received those notes, we'd have given away tremendous gains. Had we acted at the top, we've have exited at a tidy profit compared to where we stand today, but paid substantial cap-gains taxes. When the stock went back as low as $12 (largely based on negative and misleading articles in the print press), we remained patient because there's been no fundamental change in the story: IOM remains one of those "market leaders in dynamically growing industries" that we'll hold "as long as that remains the case."

One day, we expect that potential sale at the 1996 high (which would've been pure luck) to look like a mistake. We could be wrong; you know where our money is, regardless.

Amazon is in the Fool Portfolio to stay, barring unforeseen and dramatically different circumstances. Let the market price the stock where it will. One thing you can be sure... you'll see a ton of volatility over the near term. This stock is not for the faint of heart!

Speaking of  IOMEGA (NYSE: IOM), the company was the target (I think that's the proper term) of short-seller Charles Biderman, a newsletter writer. As Biderman worked for almost a decade as an assistant for Alan Abelson at Barron's, perhaps it wasn't difficult for Mr. Biderman to get Al to do the negative thing on Iomega this week. The stock opened down and stayed there all day, dropping $1 5/8 to $27.

Last week, Abelson wrote about Fool Portfolio holding America Online, using inaccurate and extremely misleading numbers to make the blatant implication that AOL is over-reporting its subscribership by more than two million people. For more on that, just read last Monday's report. We mentioned that Abelson's column this Sunday would provide an excellent indicator of his publication's intellectual honesty, if it included any sort of retraction or correction.

Error undetected. No mention of AOL. No correction. Nothing.

This works, of course, in the offline world. When you're working within an interactive medium, you don't have the luxury of being sloppy or intellectually dishonest.

This week, Abelson wrote about (lo and behold) Iomega. JoeDeeMe pointed out, "The last time Abelson wrote about Iomega and its technology [early 1996], he thought it was a joke and it would succumb to the competition," despite being among those (as EBLUESTONE wrote), who appeared to lack "an understanding of exactly what a Zip did... or for that matter, the very basic understanding of the difference between memory and storage." Now it's new competition from a small French company called Nomai.

Nomai is aiming to sell its own Zip disks for much cheaper than Iomega does. Given that IOM derives most of its profits from sales of the disks, this could be an important competitive challenge. The issue is currently tied up with the patent lawyers in the European courts, while Nomai would not be doing any US sales for months. So it's very hard to evaluate whether this is of any material impact. What is funny is that where once Abelson and his ilk were trying to "shoot down" Iomega by claiming the Zip drive was a dud, their new angle acknowledges (without stating this overtly) that the company's product is becoming such a dominant standard that foreign knock-offs and copycats are worth paying attention to.

Perhaps it takes a Fool to make this "sleight-of-mind" apparent.

Anyway, I tend to side with Fool readers KenMarcus ("If it were easy to clone Iomega's Zip disks legally, a larger player than Nomai would have done it") and MBAspeak ("The knee-jerkers might drop the stock, but when people that use their analytical skills to make money see that Nomai's potential impact on Iomega's Zip disk sales is minimal, the stock will move back in favor of the longs"). Indeed, as long-time Fool (and knowledgeable techie) Waverunner writes, "I don't believe Fuji, Maxell, and Sony would want to jeopardize their relationship with the source for 'genuine ZIP (TM) DISKS,' and I don't believe Nomai could ramp significantly to make more than a minor dent in Iomega-sourced disk sales.... It takes a billion-dollar company to crank out hundreds of millions of disks."

Had such opinions actually been included in Barron's one-way slant job, they would've been complete fish out of water. Anything that actually challenges or deepens Abelson's thinking is, of course, verboten.

And please don't think we don't like anything about Barron's. Howard Gold is head of Barron's Interactive, and one of the more knowledgeable financial journalists out there. Howard understands technology, and is NOT the one who's called a bear market all the way up from Dow 4000. Perhaps there's a good contrarian lesson in here, somewhere. GURU56 writes, "Abelson has long been viewed as a contrarian indicator." SailHo3 concurs, "I have often found that he is a buying opportunity in disguise."

Note to Barron's: It's 1997.

Note to Al: Next week, write about "online Internet chatter and hype stock" Amazon.com.

Lest I begin to sound too much like I care about that article (a short-term irrelevance), I'll point out the best perspective on all this, which comes from WASM MAN: "Alan Abelson, although blessed with a good sense of humor, is nothing more than a financial journalist. He is not an analyst, or fund manager; he is not mentioned in the same breath as Buffett, Lynch, Templeton etc. He, like other financial writers, relies on an outside source for information. These outside sources are rarely unbiased -- they are either long or short. In this case, a short has his ear. That's OK... that's what makes a market and unless you were planning on selling Monday to buy a house or something, any damage done will be short lived."

Precisely. Let financial writers fool (small "f") the general public with slants based on half-truths. In the long term, value outs. That's why we preach long-term investing. Stay Foolish!

-- David Gardner, September 22, 1997

Drip Portfolio -- KSU, Part 2.
Fool Message Boards -- Speak your mind!
Boring Portfolio -- Boring holds Cisco, Oracle.
Fool Four Portfolio -- 23% annually, historically.
Market News -- All the News.
Port Tracker -- Update your portfolio daily.
Daily Double -- Iomega.
Daily Trouble -- Cut in half! A good deal?
Fribble -- A fun lesson from readers.


TODAY'S NUMBERS
Stock Change Bid ---------------- AMZN +613/16 54.06 AOL + 9/16 75.38 T +2 46.00 ATCT + 3/8 5.44 CHV -2 5/32 85.16 DJT + 3/4 12.13 GM -131/32 67.59 INVX + 3/8 32.75 IOM -1 5/8 27.00 KLAC + 5/16 70.13 LU + 1/16 82.50 MMM + 1/4 86.94 COMS +2 1/2 50.31
Day Month Year History FOOL +0.11% 8.15% 26.22% 236.86% S&P: +0.52% 6.22% 28.98% 108.43% NASDAQ: +0.54% 6.43% 30.86% 134.59% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 27.00 971.43% 8/5/94 355 AmOnline 7.27 75.38 936.39% 10/1/96 42 LucentTech 47.62 82.50 73.26% 8/11/95 125 Chevron 50.28 85.16 69.35% 8/24/95 130 KLA-Tencor 44.71 70.13 56.84% 9/9/97 290 Amazon.com 38.22 54.06 41.45% 8/12/96 110 Minn M&M 65.68 86.94 32.37% 8/12/96 280 Gen'l Moto 51.97 67.59 30.06% 6/26/97 325 Innovex 27.71 32.75 18.19% 8/12/96 130 AT&T 39.58 46.00 16.23% 8/13/96 250 3Com Corp. 46.86 50.31 7.37% 4/30/97 -1170 *Trump* 8.47 12.13 -43.17% 10/22/96 600 ATC Comm. 22.94 5.44 -76.29% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 26758.13 $24176.26 5/17/95 980 Iomega Cor 2594.53 26460.00 $23865.47 9/9/97 290 Amazon.com 11084.24 15678.13 $4593.89 8/12/96 280 Gen'l Moto 14552.49 18926.25 $4373.76 8/11/95 125 Chevron 6285.61 10644.53 $4358.92 8/24/95 130 KLA-Tencor 5812.49 9116.25 $3303.76 8/12/96 110 Minn M&M 7224.44 9563.13 $2338.69 6/26/97 325 Innovex 9005.62 10643.75 $1638.13 10/1/96 42 LucentTech 1999.88 3465.00 $1465.12 8/13/96 250 3Com Corp. 11714.99 12578.13 $863.14 8/12/96 130 AT&T 5145.11 5980.00 $834.89 4/30/97 -1170*Trump* -9908.50 -14186.25 -$4277.75 10/22/96 600 ATC Comm. 13761.50 3262.50-$10499.00 CASH $29541.35 TOTAL $168430.88

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