Fool Portfolio Report
Monday, October 27, 1997
by David Gardner (DavidG@fool.com)


The oracles are dumb.
--John Milton

ALEXANDRIA, VA (October 27, 1997) -- The market hath dropped
(7 percent).

Our own real-money portfolio hath dropped (9 percent).

We'll feel safe in guessing that your net worth declined at least a smidgeon today, as well.

Aaaaaaaaaaaaa! We're all gonna die, right?

Right... eventually. (Mortality is still something ya just can't get around.) That said, we believe that days like today breathe more life into our markets, invigorating long-term values and long-term possibilities. Yes, it hurts to see six months' worth of gains wiped out in one day. But the S&P 500's still up 18% for the year (with the Fool still winning that race -- phew!)...

... so are we all just getting terribly spoiled?!

Let me lead off by stating that if you have come to this space tonight seeking market guidance and direction, we don't have it for you. Those who've spent any time at all in The Motley Fool have read two messages here over and over again. Allow me thus to bore us all to tears again by structuring tonight's report reintroducing these two premises.

PREMISE #1

No one can predict the course of the stock market in the short term ("the oracles are dumb"), and so YOU SHOULD INVEST ACCORDINGLY.

That means not gambling on dips and rises, not "playing" with stocks, not borrowing much if any cash on margin, and not trying to score in the options game. In other words, no speculating... with any real cash that matters to you, anyway. At any point the market could lose a sudden 25% or more -- makes a measly 7% drop look like dottle.

Don't be misled by pundits who make predictions. This is the great ignis fatuus of our financial time, the gooroos' holy grail, the idea that someone, anyone, can actually state specifically and consistently and accurately what the market will do over any time period. It's helped on by the financial media, unfortunately, which quotes the same prediction-makers again and again with no accountability, creating the perception in the general public's mind that the market is predictable, predictable by Wisemen in Cardin suits and pinkie rings. You can expect to see the quotes from Wall Street tomorrow bristling, "It had to come down. It was inevitable." These will of course be the very same people who were saying last week, "The Hong Kong-induced selloff has consolidated our recent domestic gains, paving the way for a bullish environment over the next 3-6 months."

Yeah, OK.

This Foolish oracle is dumb, too, dumb as usual. This oracle never opens its mouth about short-term market direction. We have absolutely no idea, for example, whether tomorrow's market will open down another 200 points, or flat, or rage back up to retrace more than half of today's losses. History contains numerous examples of ALL of these occurring.

Which leads us to...

PREMISE #2

Over the next six decades, you can expect an average annualized stock market return in the neighborhood of 11%, which has been the return over the past six decades.

I won't elaborate on that, except to say that we're quite serious about that point. Oh, and also, if you agree with us about the premise, you simply shouldn't sweat the small stuff. Even though today's market drop was the 13th worst in U.S. stock market history, I'm here telling you that to the long-term investor it's SMALL STUFF. The title of today's report is "Insouciance." We hope you can see where we're coming from, in direct contrast to news organizations like Reuters which lead off stories like this (verbatim, no kidding): "Investors are on the edge of their seats after world stock and bond markets were thrown into turmoil...."

It's certainly interesting to watch, dear Fools, but we at Fool HQ are NOT on the edge of our collective seat. We'll expect you ain't either.

You'll also hear all over the place from the media this phrase: "The worst single-day point loss of all time." They're ignoring percentages as usual, for the sake of a catchy headline. I loved this one today, also from Reuters: "Based on early and unofficial results, the Dow ended down 554.26 points, or 7.1 percent, at 7,161.15, beating the 508-point drop of the Oct. 19, 1987 crash." (Italics mine.)

The average person walks away from that story thinking that this was the biggest stock market crash ever. How silly. In percentage terms, 554 points represents 7%; the 1987 market crash lost 508 points, 22.6%... the equivalent of 1744 points in today's terms, no measly 554. "The worst single-day point loss of all time!!!" they say. If you must.

Have that new check to deposit into your direct purchase plan? Socking away some of your salary in your 401(k) at the end of the week? Keep on keeping on.

The Fool Portfolio got pummeled today, losing 9.28%. It actually wasn't our worst day ever, coming in a few percentage points ahead of June 18, 1996. All of our stocks dropped at least $3 1/2, with the exception of low-priced loser Trump Hotel & Casino Resorts, which gave up $13/16 to close at $8 7/8, its lowest price since May. (We're actually only losing 4.8% on shorting the Donald, at this point. Unbelievable.)

AOL down $13? Amazon down $9? Lucent down $6? T $5? You kiddin' me?

Your "crash-proof Foolish investment strategies" come down to shorting stocks, which we've taught at length to thousands of people, and the Foolish Four approach, which has proven resilient in past bear markets. That's if you think we're headed for a bear. I'm not sure, as usual, whether things will go bovine or ursine over the next few months. This oracle is dumb, because this oracle will simply never try to make any money that way.

The Reverend Maurice Boyd of the City Church in New York City has written, "William Temple once remarked that the world is like a shop window full of articles. But someone has slipped in and mischievously mixed up the price-tags, so that some valuable goods are priced cheaply, and some shoddy merchandise has a high price-tag."

That's exactly what happens out on the stock market every day... the price tags are constantly changing, never for completely rational reasons. Just as you wouldn't want to follow the value of your house on a daily basis ("Honey, our two-story just crashed 7% in value today!"), we also suggest that you not get too caught up as the invisible clerks change the price tags, and the media reports feverishly on it.

Our markets are still up 18% for the year, dear reader. Foolish best wishes.

-- David Gardner, October 27, 1997

Drip Portfolio-- Intel's Earnings, part 3. And a good market.
Boring Portfolio-- Oxford crunched $40.
Foolish Four Portfolio-- 23% historically.
Fool Message Boards-- Speak your mind!
Latest News-- All the news, early.
Daily Double-- A good stock?
Daily Trouble-- Might be many of these now.
Fribble-- A fun short story from readers.


TODAY'S NUMBERS
Stock Change Bid ---------------- AMZN -9 1/8 50.75 AOL -13 3/16 74.00 T -5 1/16 45.25 CHV -3 1/2 80.00 DJT - 13/16 8.88 GM -4 1/16 64.00 INVX -3 1/2 24.00 IOM -3 15/16 24.56 KLAC -5 7/8 46.50 LU -6 5/16 75.31 MMM -3 1/2 92.25 COMS -4 11/16 41.13
Day Month Year History FOOL -9.28% -5.73% 18.67% 216.71% S&P: -6.86% -7.42% 18.39% 91.32% NASDAQ: -6.99% -8.91% 18.94% 113.21% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 74.00 917.48% 5/17/95 980 Iomega Cor 2.52 24.56 874.70% 8/11/95 125 Chevron 50.28 80.00 59.09% 10/1/96 42 LucentTech 47.62 75.31 58.17% 8/12/96 110 Minn M&M 65.68 92.25 40.46% 9/9/97 290 Amazon.com 38.22 50.75 32.78% 8/12/96 280 Gen'l Moto 51.97 64.00 23.14% 8/12/96 130 AT&T 39.58 45.25 14.33% 8/24/95 130 KLA-Tencor 44.71 46.50 4.00% 4/30/97 -1170 *Trump* 8.47 8.88 -4.80% 8/13/96 250 3Com Corp. 46.86 41.13 -12.24% 6/26/97 325 Innovex 27.71 24.00 -13.39% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 26270.00 $23688.13 5/17/95 980 Iomega Cor 2509.60 24071.25 $21561.65 8/11/95 125 Chevron 6285.61 10000.00 $3714.39 9/9/97 290 Amazon.com 11084.24 14717.50 $3633.26 8/12/96 280 Gen'l Moto 14552.49 17920.00 $3367.51 8/12/96 110 Minn M&M 7224.44 10147.50 $2923.06 10/1/96 42 LucentTech 1999.88 3163.13 $1163.25 8/12/96 130 AT&T 5145.11 5882.50 $737.39 8/24/95 130 KLA-Tencor 5812.49 6045.00 $232.51 4/30/97 -1170*Trump* -9908.50 -10383.75 -$475.25 6/26/97 325 Innovex 9005.62 7800.00 -$1205.62 8/13/96 250 3Com Corp. 11714.99 10281.25 -$1433.74 CASH $32438.81 TOTAL $158353.19

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