Fool Portfolio Report
Friday, October 17, 1997
by Jeff Fischer (JeffF@fool.com)


ALEXANDRIA, VA (October 17, 1997) -- There are airborne viruses going around, and they're infecting our stocks. KLA-Tencor, Innovex, 3Com -- they've all recently fallen due to bad news from peers. Now the market itself has come down with a cold. Strong productivity numbers announced on Friday increased inflation fears and sent stocks lower.

Inflation fears: deja vu.

Earnings related concerns also felled stocks. Intel's third quarter results lit the fire, which was then fanned by lower than expected results at Sun Microsystems and Seagate.

Earnings fears: deja vu.

And finally this story, reprinted in its brief entirety:

"NEW YORK (Reuters) - The Dow Jones
industrial average lost more than 150
points in mid-afternoon trading Friday
following further weakness in technology
stocks and jitters ahead of the 10th
anniversary of the 1987 stock market
crash."

Let's get this over with:

Ten years ago on October 19th, the Dow Jones industrial average fell 508 points, or 22.6%. Within seventeen months stocks had recovered the loss. What more need be said?

If you pay attention to that which everyone else is paying attention to, you also miss what everyone else is missing. Ten years ago those that saw value in the fallen stocks benefited. It wasn't easy to see that value, though, because the majority of the media and many investors were feeding the selling frenzy. The Fool is about common sense. Common sense tells us that manias or panics do not last. In the end, underlying value is the umpire, and so Fools learn how to value stocks.

I don't care to write about the stock market crash that happened ten years ago. It's very Wise to focus on the one worst day in the Dow's history of 36,789 days, just as it's Wise to think that once the market begins to fall, it will never stop. If you take a "whole life" approach and a long-term viewpoint in all the ventures of your life, then investing becomes as natural as the progression of time. Over the long term, investing becomes logical, somewhat simple, oddly comforting -- and even predictable. On the flipside, then, it isn't too surprising that all the writing done by market timers and traders ends up looking incredibly stupid just months after being written, 95% of the time, and even more idiotic a few years after being written, 99.8% of the time. In trying to time the market, they're fighting something that is as natural as aging: namely, progress. Natural progress in this world builds value, which builds a strong stock market over the years.

Much like a book that is still read one hundred years after being published, the only investing approaches that can last and succeed for decades are those that are long-term -- and timeless. This kind of investing approach doesn't care about market fluctuations. This kind of investing approach finds value in great businesses and in good management, in industry leadership and innovation, and it then invests in that for the long term. To do so, though, this investment approach often needs to ignore or go against the widespread messages of the media, and the industry professionals.

Let's consider the media, keeping in mind the frenzied treatment it gives almost any stock market decline.

Media driven news is an evil of sorts, because it sends the same opinion to millions of people at once, and knowing that everyone is receiving that same message is, subconsciously, a powerful thing to an individual. Opinion received in a vacuum is an easy thing to question and even ignore. But opinion that is sent out to millions at once, and shared by millions, can have the quality of becoming truth or holding value before a person even questions it. That's dangerous.

Any mass public statement that a person can't openly discuss and debate, on the same platform from which the statement is given, is Wise -- especially when it involves something as many-sided as investments and the world that they operate in. Yet, mass media statements can't be questioned by the public in the same medium from which the statements are given 99% of the time -- until now, until the Internet.

The Fool has message boards for discussion about the stock market, alongside -- this weekend -- a collection of articles about the infamous crash of 1987. Personally, I was 17 when the stock market fell 23% in one day in 1987. The day after the crash I bought my first stock. If I'd instead listened to the panic from the media, I wouldn't have slipped out of high school the next day, Foolishly, to buy stock. Foolishness charts its own course.

Sure, one of my first two stocks ended up bankrupt and worthless. But I think the most important lesson learned was that of being contrarian, and that of common sense. Common sense -- even to an average seventeen-year-old moron -- said that stocks would rebound from that giant fall. Common sense says that all moments must pass. And contrarian is being able to see value where others see disaster. A contrarian nature keeps a person believing in the networking industry during the slashing of the leading stocks this spring, and in AOL at $22, and in the fact that, heck, if the market fell 23% it would be a great chance to buy, again.

That said, though, history never repeats itself, which brings up another point related to the media. In 1929 a person could buy $5,000 worth of stock with only $500. (Now that's margin!) The economy was actually miserable, and though productivity had risen steeply for years, wages hadn't at all. The market was a hyped-up disaster in the making. While in 1987, a whole slew of factors conspired that led to the decline from August 25th, 1987, to the eventual crash on October 19th. Those factors (offered in a timeline from the Fool) will not happen again. Other factors may, but still --- to lay the graph of the 1987 stock market over the graph of the 1997 market and say that they look "dangerously similar" (as a national newspaper did last week) is the most idiotic comparison I've seen published in a long time.

Each day is new. Each year is new. Nobody knows what the market will do next. Thus, you need a long-term strategy that has worked for decades in the past and that will work in the future. That strategy, in a nutshell, is to find growing value, buy it -- and then hold it, and let it grow. And let all the external factors be exhausted by the inevitable passing of time.

THE MARKET: For the week, the S&P lost 2.36%, and the Fool fell 2.29%. Nasdaq was the real goat, though, dropping 4.15% due much to INTEL (Nasdaq: INTC). Intel fell following earnings and a cautious outlook. Next, the semiconductor equipment industry book-to-bill news toppled KLA-TENCOR (Nasdaq: KLAC), which had a miserable week, falling $13. Friday Randy Befumo (TMF Templr) and Dale Wettlaufer (TMF Ralegh) of the Evening News spoke with industry analyst Carl Johnson about the book-to-bill ratio. This conversation is available in the Fool's weekly RealAudio interview, "Stock Talk."

IOMEGA (NYSE: IOM) rose nearly two dollars on the week after announcing strong earnings of $0.22 per share on Thursday. Since operations have moved overseas, margins have consistently improved. Third quarter revenue climbed 39% to a record $432 million. Iomega's earnings were covered by the Fool. TRUMP (NYSE: DJT) also announced earnings. No great shakes. The company made $0.13 per share during the strongest period of the year, and now nothing but losses are expected until the strong season of next year.

INNOVEX (Nasdaq: INVX) fell over $2 this week along with tech stocks in general and after SEAGATE (NYSE: SEG) announced weak earnings. Seagate is one of Innovex's largest customers, but Innovex very recently stated that it's comfortable with current estimates of $0.50 per share, and had told shareholders that this quarter would be weak all the way back in June. 3COM (Nasdaq: COMS) fell $6 with the tech slide, too.

Perhaps MICROSOFT (Nasdaq: MSFT) will help tech stocks next week as the company announces earnings on Monday. Seventy-cents per share is expected, a 49% increase over last year. The Nasdaq, down about 3% on Friday before recovering to a less than 2% loss, could use some help.

A slew of Fool companies announce earnings next week as well, as is listed below. It'll be interesting. Have a Foolish weekend!

Coming Earnings Date Estimate AT&T 10/20 $0.65 LU 10/21 $0.51 KLAC 10/21 $0.52 CHV 10/22 $1.05 MMM 10/22 $1.04 AMZN 10/23 ($0.41) INVX 11/04 $0.50 AOL 11/06 $0.12


TODAY'S NUMBERS
Stock Change Bid ---------------- AMZN - 5/16 43.13 AOL + 1/2 85.00 T +1 11/16 45.19 CHV -2 84.00 DJT - 3/16 9.88 GM - 1/2 69.50 INVX - 11/16 28.75 IOM +1 15/16 26.44 KLAC -4 3/8 57.88 LU -2 11/16 85.00 MMM -1 3/16 94.38 COMS -1 1/4 49.75
Day Month Year History FOOL +0.41% 0.35% 26.32% 237.13% S&P: -1.16% -0.33% 27.46% 105.97% NASDAQ: -1.93% -1.12% 29.11% 131.45% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 85.00 1068.73% 5/17/95 980 Iomega Cor 2.52 26.44 949.11% 10/1/96 42 LucentTech 47.62 85.00 78.51% 8/11/95 125 Chevron 50.28 84.00 67.05% 8/12/96 110 Minn M&M 65.68 94.38 43.70% 8/12/96 280 Gen'l Moto 51.97 69.50 33.72% 8/24/95 130 KLA-Tencor 44.71 57.88 29.44% 8/12/96 130 AT&T 39.58 45.19 14.17% 9/9/97 290 Amazon.com 38.22 43.13 12.83% 8/13/96 250 3Com Corp. 46.86 49.75 6.17% 6/26/97 325 Innovex 27.71 28.75 3.75% 4/30/97 -1170 *Trump* 8.47 9.88 -16.60% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 30175.00 $27593.13 5/17/95 980 Iomega Cor 2509.60 25908.75 $23399.15 8/12/96 280 Gen'l Moto 14552.49 19460.00 $4907.51 8/11/95 125 Chevron 6285.61 10500.00 $4214.39 8/12/96 110 Minn M&M 7224.44 10381.25 $3156.81 8/24/95 130 KLA-Tencor 5812.49 7523.75 $1711.26 10/1/96 42 LucentTech 1999.88 3570.00 $1570.12 9/9/97 290 Amazon.com 11084.24 12506.25 $1422.01 8/12/96 130 AT&T 5145.11 5874.38 $729.27 6/26/97 325 Innovex 9005.62 9343.75 $338.13 4/30/97 -1170*Trump* -9908.50 -11553.75 -$1645.25 8/13/96 250 3Com Corp. 11714.99 12437.50 $722.51 CASH $32438.81 TOTAL $168565.69

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