Fool Portfolio Report
Tuesday, October 28, 1997
by Jeff Fischer (JeffF@fool.com)


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

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