Fool Portfolio Report
Thursday, October 9, 1997
by Tom Gardner (TomG@fool.com)
ALEXANDRIA, VA (Oct. 9, 1997) -- After pushing up so near to the S&P 500 that we could've shaken its hand yesterday (beating the market by more than 3%), today we gave up ground, falling back into the pack of anxious contenders in 1997. On this day, The Fool Portfolio fell 0.76%, as the S&P 500 slipped back 0.33%. We are now 2.90% behind the market for the year.
Amazon.com was almost single-handedly responsible for our decline, falling $3 and losing Fools $900 today. Among the many things that we will not guarantee on this site (including, but not limited to, 40% monthly returns, free checking for life, and 83% growth this year when using KwoTrek), we will not promise anyone that Internet stocks won't be volatile. In fact, we can guarantee the reverse. Check out the Amazon.com's stock graph over the past year.
Elsewhere in Foolie Town, the portfolio waved farewell to ATC Communications Group, the stock which lost us more than 85% of our investment, or over $11,500, in less than a year. (Strangely, though perhaps fittingly, ATC's chief executive officer, Arthur Chavoya, resigned this morning.) I turned to Gary Hill, our CFO, and asked him to name five spectacular things a Fool could buy with $11,500:
1. A new Dell Computer for every bedroom in your house.
2. A four-year lease on two twenty-yard-line seats at Redskins Stadium.
3. Thirteen months rent for Gary Hill.
4. Four thousand boxes of Krispy Kreme doughnuts.
5. 1/4 shares of Berkshire Hathaway.
Equities investing engenders a little bit of pain. In healthy portfolios, the stronger and more enduring gains will far surpass the often concise and heart-rending losses. Making a few jokes is small consolation, but some consolation.
Loud drums sound
Today, I'd like to take a stab at a puzzling question that's been put to me a handful of times in the last year. It landed in my e-mail box again this past week and, by now, is deserving of a public response. The query reads something like this:
"You Fools champion compounding growth
in high-quality companies for decades,
juking brokerage commissions, and avoiding
capital-gains taxes. But taken to its logical
extreme, that approach will -- seven decades
from now -- leave you with a lot of money, a
lordly gravestone and stylish graveclothes,
but what else? What benefit is there for you
or society in keeping capital locked away for
seventy years? I love your stuff, but help me
out with this one."
(I confess, I edited in the compliment.)
Conventional Foolishness certainly holds that when all growth is compounded to the grave, it has been taken to an illogical extreme. If The Fool Portfolio -- which has grown from $50,000 to $172,000 in just over three years -- expands at a rate of 12% annually for the next seventy years, it'll house $479.5 million in the year 2067. (You figure the taxes.) At that point, we'll be embroiled in an immortal legal battle. Dave will be 100 years old with a trick knee. I'll be ninety-eight, with a semiconductor cerebellum. And what will all that money be worth to us or the world we lived in, then?
That's the same question that has been put repeatedly to Anne Scheiber, in her absence. Scheiber is the New Yorker who, refusing to sell stocks, died in 1995 with over $20 million in her brokerage account. Conventional Wisdom has it that she was ruled by her money -- never engaging Manhattan's people, missing an opportunity to assist others, as she watched her savings swell the vault. Conventional Wisdom holds that she was an unhappy woman because she was obsessed with her savings account, compounding it right into eternal rest.
Enter Fool stage left, with tonight's contrary
take -- which should eventually lead to a reply
(not an answer) to our reader's question.
Consider two of the circumstances which led Ms. Scheiber to religiously save money and eschew capital-gains taxes. In 1932, earning $3,000 per year, she entrusted the lion's share of her savings to her brother -- a full-service broker on Wall Street. When his firm went bankrupt in 1935, she lost everything.
Further, as an employee of the Internal Revenue Service in the 1930s, she learned that a law degree from George Washington University and a rigorous approach to her work wouldn't elevate her on the job. Being Jewish and being a woman threw a ceiling overhead. Though ranked as one of the top auditors in the agency, she was never promoted. So she had to save.
From these, she was determined to manage her own money and to avoid paying her former employer, the IRS, a lick of taxes. Armed in 1944 with $5,000 in savings and a $690-per-year pension, she began purchasing stock in highly profitable, brand-name businesses: Schering-Plough, Pepsi, Coca-Cola, Bristol-Myers Squibb. When she died, she'd parlayed that into the equivalent of:
1. A new Dell Computer in every bedroom of 1,740 houses.
2. 1,885 years of rent for Gary Hill.
3. A four-year lease on 3,480 twenty-yard-line seats at Redskins Stadium.
4. 6.96 million boxes of Krispy Kreme doughnuts.
5. 435 shares of Berkshire Hathaway.
Conventional Wisdom holds that it was this saving money, and investing that capital herself, and refusing to pay taxes that made Anne Scheiber an unhappy woman in her later years. But instead, it was a society with grim and artificial constraints that drove her to fanatically disciplined investment. And, certainly, to unhappiness.
But in that regard there's a reasonable comparison to a number of great American poets, who found solace to mundane and mammoth woes, not in investment accounts but in careful lines on the printed page. About ten years ago, I had an opportunity to sit down near Rye Beach, New Hampshire with the ninety-year-old, blind poet William Plumer Fowler (author's bias: A genius). He said, "If you ever write an article about me, please don't mention the specifics I've just told you about my marriages. I never had any luck there. From those failures came much of my work."
Given that Anne Scheiber willed all $20 million of her savings to Yeshiva University, she wasn't saving for gravestones. Instead, she might have been writing poems for all America to see one day, the ultimate financial instruction and a message for society.
So my answer to the question about eternally compounded Foolish investment growth is: Sell the stocks of great companies when you have a productive use for the money. But never sell them if you'd like your portfolio to read like Petrarch when you're done.
Drip Portfolio --
An investment lesson on hot KSU.
Fool Message Boards -- Speak your mind!
Boring Portfolio -- Boring has a great day.
Fool Four Portfolio -- 23% annually, historically.
Market News -- All the News, early.
Port Tracker -- Update your portfolio daily.
Daily Double -- Good business?
Daily Trouble -- Cut in half! A good deal?
Fribble -- A fun lesson from readers.
Stock Change Bid ---------------- AMZN -3 44.88 AOL + 3/4 83.75 T - 5/16 46.19 CHV - 5/8 86.94 DJT - 3/16 9.81 GM +1 1/16 69.38 INVX + 1/8 30.19 IOM - 3/4 24.38 KLAC + 5/16 70.38 LU +1 1/4 88.31 MMM -1 1/2 96.50 COMS - 7/16 55.25Day Month Year History FOOL -0.76% 1.79% 28.13% 241.97% S&P: -0.33% 2.46% 31.03% 111.74% NASDAQ: +0.23% 3.57% 35.23% 142.42% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 83.75 1051.54% 5/17/95 980 Iomega Cor 2.52 24.38 867.26% 10/1/96 42 LucentTech 47.62 88.31 85.47% 8/11/95 125 Chevron 50.28 86.94 72.89% 8/24/95 130 KLA-Tencor 44.71 70.38 57.40% 8/12/96 110 Minn M&M 65.68 96.50 46.93% 8/12/96 280 Gen'l Moto 51.97 69.38 33.48% 8/13/96 250 3Com Corp. 46.86 55.25 17.90% 9/9/97 290 Amazon.com 38.22 44.88 17.41% 8/12/96 130 AT&T 39.58 46.19 16.70% 6/26/97 325 Innovex 27.71 30.19 8.94% 4/30/97 -1170 *Trump* 8.47 9.81 -15.87% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 29731.25 $27149.38 5/17/95 980 Iomega Cor 2509.60 23887.50 $21377.90 8/12/96 280 Gen'l Moto 14552.49 19425.00 $4872.51 8/11/95 125 Chevron 6285.61 10867.19 $4581.58 8/12/96 110 Minn M&M 7224.44 10615.00 $3390.56 8/24/95 130 KLA-Tencor 5812.49 9148.75 $3336.26 9/9/97 290 Amazon.com 11084.24 13013.75 $1929.51 10/1/96 42 LucentTech 1999.88 3709.13 $1709.25 8/12/96 130 AT&T 5145.11 6004.38 $859.27 6/26/97 325 Innovex 9005.62 9810.94 $805.32 4/30/97 -1170*Trump* -9908.50 -11480.63 -$1572.13 8/13/96 250 3Com Corp. 11714.99 13812.50 $2097.51 CASH $32438.81 TOTAL $170983.56