Fool Portfolio Report
Thursday, October 23, 1997
by David Forrest ([email protected])

ALEXANDRIA, VA (Oct. 23, 1997) -- The market crashed today! Not ours of course, but Hong Kong's. The Hang Seng index fell more than 10% overnight as interest rates in Hong Kong rose 0.75% to 9.50% on fears of an economic slowdown and increased currency turmoil.

Currencies are derivatives. A currency's value is not an immutable reality but is derived from what people believe it can be traded for or how well it will retain its value related to what it can traded for in the future. In one of the most extreme examples of a currency losing its value, the German government printed so many reichsmarks that a wheelbarrow full of money in early 1919 wouldn't get you a loaf of bread one year later. In the 1970s, few in this country believed that the dollar could be trusted as a store of value, and thus put their cash into real estate, coins, and other hard goods. Although the dollar came roaring back in the 1980s and eventually became a problem because it was so strong against other currencies, for a while there no one believed the value of the dollar would hold up, so it didn't.

That was the problem with the Hong Kong dollar yesterday. Those who believed the Thai government's claims that a certain number of bhat was worth a certain number of dollars were burned, and those who believed the Malaysian government's claims that a certain number of ringgit was worth a certain number of dollars were also burned. It's been a replay of late 1994, when anyone who believed that each Mexican peso was worth one dollar was burned. If you had left Mexico in late 1994 to go on a remote vacation and returned in March of 1995, you would have found that each of your pesos would not buy one dollar, but instead would buy about $0.12. Not fun.

That's essentially the problem with Hong Kong. There's a crisis of confidence going on. People believe that the central bank cannot defend the value of the Hong Kong dollar, which is linked to the value of the appreciating U.S. dollar. When all of a sudden some big investors want to get their currency -- their stored value -- out of Hong Kong, worries start to develop that the central bank won't be able to buy each Hong Kong dollar at the promised rate of 7.75 HK$ to each U.S. dollar. When that happens or even when people fear that will happen, a selling panic ensues and the central bank has to jack up interest rates to entice holders of U.S. dollars back into the Hong Kong money market.

OK, got it? It's not that easy to understand -- the metaphysical aspects of money have baffled the greatest thinkers of all time. In the end, currencies are still derivatives because they're based on what you can trade them for and how well they can retain their values against other things.

Is this a buying opportunity? Should you be calling your broker and asking about Hong Kong funds? We have no idea. That's why we invest in domestic stocks. The information available to us about foreign stocks is limited and we prefer to stick to investing in things that we can find out an awful lot about. Some may think this is shortsighted, and that's fine. I think it's smart. Don't invest your money in something you know nothing about. For more on the debacle in Asia, check out a very Foolish report from the gents at Fool UK. They have some unique insight on the Hang Seng crash.

In more Foolish news....

Amazon.com (Nasdaq: AMZN) reported earnings after the close today. The world's biggest bookstore reported sales of $37.9 million in the third quarter. This compares to the $4.2 million in sales it had last year at this time, or a 900% rise. This is also a sequential rise of 36% over the sales it had just in June. In this quarter, the company lost $0.36 per share. This is $0.05 better than analysts' estimates of a loss of $0.41.

Note -- When comparing something "sequentially," you are simply looking at the last time the company reported earnings. In this case, we're comparing the September quarter's results to the June quarter's results. We do this to get an indication of how fast the company is growing. It grew 36% in just three months and that's pretty darn good.

Amazon.com also reported that it now has an existing customer base of 940,000 versus 610,000 in June. It will be adding storage capacity in Delaware and Seattle to handle the increased sales volume. Finally, Amazon has inked partnerships with AltaVista, Netscape, AOL, Excite, and Yahoo! Pretty impressive lot. We'll have to see what happens, but it looks like Amazon had a strong earnings report. Check in to the Amazon message board to see what other Fools are thinking about these numbers.

As for the rest of the portfolio, there was a little bit of news here and there, but nothing terribly noteworthy. The portfolio was sandwiched between beating the Nasdaq and losing to the S&P 500. Regardless it wasn't a great day for anyone. So, let's go out, slog down a few root beers and watch the Indians and Marlins battle it our for the World Series ring. After all, there's more to life than all this money junk :)

Take care Fools,

David

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TODAY'S NUMBERS
Stock  Change    Bid
----------------
AMZN  -  1/2   53.50
AOL   -1 1/8   89.25
T     -  7/16  49.06
CHV   -2 15/16 83.50
DJT   -  3/16  9.75
GM    -1 5/16  70.25
INVX  -  13/16 28.25
IOM   -  15/16 28.63
KLAC  -3 15/16 58.25
LU    -2 1/16  84.00
MMM   -1 1/4   99.38
COMS  -1 13/16 46.94




      
    
    
                  Day   Month    Year  History
        FOOL     -1.95%   4.61%  31.68% 251.43%
        S&P:     -1.84%   0.36%  28.34% 107.39%
        NASDAQ:  -2.16%  -0.86%  29.45% 132.06%


    Rec'd    #  Security     In At       Now    Change
   8/5/94   355 AmOnline       7.27     89.25  1127.16%
  5/17/95   980 Iomega Cor     2.52     28.63  1035.91%
  10/1/96    42 LucentTech    47.62     84.00    76.41%
  8/11/95   125 Chevron       50.28     83.50    66.05%
  8/12/96   110 Minn M&M      65.68     99.38    51.31%
   9/9/97   290 Amazon.com    38.22     53.50    39.97%
  8/12/96   280 Gen'l Moto    51.97     70.25    35.17%
  8/24/95   130 KLA-Tencor    44.71     58.25    30.28%
  8/12/96   130 AT&T          39.58     49.06    23.96%
  6/26/97   325 Innovex       27.71     28.25     1.95%
  8/13/96   250 3Com Corp.    46.86     46.94     0.17%
  4/30/97 -1170 *Trump*        8.47      9.75   -15.13%


    Rec'd    #  Security     In At     Value    Change
   8/5/94   355 AmOnline    2581.87  31683.75 $29101.88
  5/17/95   980 Iomega Cor  2509.60  28052.50 $25542.90
  8/12/96   280 Gen'l Moto 14552.49  19670.00  $5117.51
   9/9/97   290 Amazon.com 11084.24  15515.00  $4430.76
  8/11/95   125 Chevron     6285.61  10437.50  $4151.89
  8/12/96   110 Minn M&M    7224.44  10931.25  $3706.81
  8/24/95   130 KLA-Tencor  5812.49   7572.50  $1760.01
  10/1/96    42 LucentTech  1999.88   3528.00  $1528.12
  8/12/96   130 AT&T        5145.11   6378.13  $1233.02
  6/26/97   325 Innovex     9005.62   9181.25   $175.63
  4/30/97 -1170*Trump*     -9908.50 -11407.50 -$1499.00
  8/13/96   250 3Com Corp. 11714.99  11734.38    $19.39


                              CASH  $32438.81
                             TOTAL $175715.56