Fool Portfolio Report
Tuesday, October 28, 1997
by Jeff Fischer ([email protected])

ALEXANDRIA, VA (October 28, 1997) -- Akin to receiving your report card when you already know your grades, a falling stock market shouldn't be too surprising to anyone that understands investing on the very basic levels. Just as the economy, inflation, bank rates, and your buying power fluctuate for many reasons, so too does the stock market. The reasons behind stock swings are always many, just as the reasons behind this long bull market are several. Years from now, though, the fluctuation in stock prices over the past few days will represent little more than a lot of balderdash bold print wasted on the front pages of newspapers and a lot of rolling tapes from the media looking for a story. The truth to the story is:

1. Economies and markets don't only constantly rise.
2. World Markets: Many are new and shaky.
3. Stock Markets: What rises for years declines at times, too.

So where is the story here? There really isn't one.

Following yesterday's 7% decline, the Dow was still up 20% from exactly one year ago. The Dow closed at 7165 yesterday. Last year the Dow was at 5900. Six months ago on April 29, the Dow was at 7300 -- below where it is now, and only 1.8% above where it was yesterday. Could newspapers have hit your doormat this morning reading, "Dow Down 1.8% since April"? Nope. The "Biggest Point Drop" or "Stock Market Plummet" that papers did print isn't nearly so daunting when you actually provide some context along with the headlines. But you can't blame the papers or the media for trying to sell a story, and yesterday wasn't a non-event, that's for certain.

Monday was the 13th largest single day percentage drop in the Dow's 101-year history. That said, there isn't much difference between the 13th worst decline and the 60th. The stock market has fallen 6% to 7% in a single day twenty-one times in the past ten decades, or about once every five years. Until yesterday, such a decline hadn't happened for ten years. Also, the Dow has fallen 5% in a single day thirty-four times in the last 100 years, meaning that the Dow has fallen 5% or more in a single day sixty-four times since 1896 -- or once every 1.5 years. On average, every 1.5 years a decline much like yesterday's has taken place.

Does that make a decline predictable? Hell no. But any stock market decline shouldn't be nearly as shocking as the media makes it. A quick glance at the stock market's history shows fluctuations as -- surprise! -- a very consistent given. This will never change.

The following list shows the thirty largest percentage declines in the history of the Dow. The 11% annualized returns that the stock market has generated for much of this century makes the declines timid and insignificant to anyone that is investing for the long term. 

             Dow 
Year/Mo/Day    Close   %-loss
1914/12/12 54 -24.39
1987/10/19 1738.7 -22.61
1929/10/28 260.64 -12.82
1929/10/29 230.07 -11.73
1929/11/06 232.13 -9.92
1899/12/18 58.27 -8.72
1932/08/12 63.11 -8.40
1907/03/14  76.23 -8.29
1987/10/26 1793.9  -8.04
1933/07/21  88.71 -7.84
1937/10/18 125.73 -7.75
1917/02/01  88.52 -7.24
YESTERDAY              -7.18%
1932/10/05 66.07 -7.15
1931/09/24 107.79 -7.07
1933/07/20 96.26 -7.07
1914/07/30 71.42 -6.91
1989/10/13 2569.2  -6.91
1988/01/08 1911.3  -6.85
1929/11/11 220.39 -6.82
1940/05/14 128.27 -6.80
1931/10/05 86.48 -6.78
1940/05/21 114.13 -6.78
1934/07/26 85.51 -6.62
1955/09/26 455.56 -6.54
1929/10/23 305.85 -6.33
1932/05/31 44.74 -6.21
1933/09/21 97.56 -6.18
1904/12/12 65.77 -6.06
1901/05/09 67.38 -6.05


    

    Even the 1987 decline of 22% means little when you consider that the market
    returned 25% that year. Sure, the market falls, and fairly frequently and
    sometimes for extended periods of time, but Fools that invest in stocks for
    a Foolish time horizon -- which is decades -- have yet to be disappointed
    by the market.
    

    Today the Nasdaq and S&P gained 4% and 5% as the fickle folks who pull
    their hair out to make a living decided first to sell in the early morning,
    then to begin buying, then to buy more in the afternoon, and then to
    really buy before the market closed -- as if tomorrow would be too
    late. Yesterday they couldn't sell fast enough, today they couldn't
    buy quickly enough. How Wise is that? Yikes.
    

    The Fool gained 5.15% today, beating the market and maintaining a lead for
    the year over the S&P. This morning at the open Le Fool wasn't poised
    for such greatness. INNOVEX (Nasdaq: INVX) was down to $21 7/8, or
    9 times earnings estimates that are announced next week. 3COM (Nasdaq:    COMS) was down to $37, or 16 times
    estimates announced
    in May, and 12 times estimates for May of 1999; KLA-TENCOR (Nasdaq:    KLAC) hit $42, or 17 times
    estimates for next
    June, and $30 below where the stock traded just a few weeks ago. Finally,
    AMAZON.COM (Nasdaq: AMZN) touched $46 before turning to close at $59,
    just shy of a new 52-week high. At $46 the stock traded at 7 times the revenue
    run-rate for a moment, before a $310 million swing in market cap took the
    stock back to 9.3 times the run-rate.
    

    The Fool has plenty to offer about the market, beginning with today's
    Lunchtime
    News and Tonight's
    Evening
    News. The Fool also offers a special collection on the
    Asian
    stock markets -- those of Korea, Hong Kong, Malaysia, and Thailand --
    so Fools can understand what caused the sharp decline in Hong Kong and why
    it impacted all the world's markets, at least initially.
    

    If you're long term, if you don't use too much margin, if you understand
    what you're invested in, and if you know your objectives... well, you're
    probably already tired of hearing about the market's 1.8% decline since April.
    (Well, actually, the market is up since April following today.) Keep to your
    long-term philosophy. Stay Foolish. Don't take unnecessary risks, don't use
    a great deal of margin, and don't let investing consume your every minute.
    As Ralph Waldo Emerson wrote:
    

    Money often costs too much.
    

    Fool on...
    

    --Jeff Fischer
    

    

      

    

    
TODAY'S
    NUMBERS

    
      

Stock  Change    Bid
----------------
AMZN  +8 5/8   59.38
AOL   +3 15/16 77.94
T     +3 3/8   48.63
CHV   +2 3/8   82.38
DJT   +  1/2   9.38
GM    +2 7/8   66.88
INVX  +2 7/8   26.88
IOM   +  15/16 25.50
KLAC  +1 1/8   47.63
LU    +3 3/4   79.06
MMM   +1 11/16 93.94
COMS  +3 13/16 44.94



      
    
    
                  Day   Month    Year  History
        FOOL     +5.15%  -0.87%  24.78% 233.01%
        S&P:     +5.05%  -2.75%  24.37% 100.97%
        NASDAQ:  +4.22%  -5.06%  23.96% 122.21%


     Rec'd    #  Security     In At       Now    Change
   8/5/94   355 AmOnline       7.27     77.94   971.62%
  5/17/95   980 Iomega Cor     2.52     25.50   911.90%
  10/1/96    42 LucentTech    47.62     79.06    66.04%
  8/11/95   125 Chevron       50.28     82.38    63.82%
   9/9/97   290 Amazon.com    38.22     59.38    55.34%
  8/12/96   110 Minn M&M      65.68     93.94    43.03%
  8/12/96   280 Gen'l Moto    51.97     66.88    28.67%
  8/12/96   130 AT&T          39.58     48.63    22.86%
  8/24/95   130 KLA-Tencor    44.71     47.63     6.52%
  6/26/97   325 Innovex       27.71     26.88    -3.01%
  8/13/96   250 3Com Corp.    46.86     44.94    -4.10%
  4/30/97 -1170 *Trump*        8.47      9.38   -10.70%


     Rec'd    #  Security     In At     Value    Change
   8/5/94   355 AmOnline    2581.87  27667.81 $25085.94
  5/17/95   980 Iomega Cor  2509.60  24990.00 $22480.40
   9/9/97   290 Amazon.com 11084.24  17218.75  $6134.51
  8/12/96   280 Gen'l Moto 14552.49  18725.00  $4172.51
  8/11/95   125 Chevron     6285.61  10296.88  $4011.27
  8/12/96   110 Minn M&M    7224.44  10333.13  $3108.69
  10/1/96    42 LucentTech  1999.88   3320.63  $1320.75
  8/12/96   130 AT&T        5145.11   6321.25  $1176.14
  8/24/95   130 KLA-Tencor  5812.49   6191.25   $378.76
  6/26/97   325 Innovex     9005.62   8734.38  -$271.25
  4/30/97 -1170*Trump*     -9908.50 -10968.75 -$1060.25
  8/13/96   250 3Com Corp. 11714.99  11234.38  -$480.62


                              CASH  $32438.81
                             TOTAL $166503.50