FOOL PORTFOLIO REPORT
(FOOL GLOBAL WIRE -- Wednesday, October 29, 1997)
by David Gardner (DavidG@fool.com)


ALEXANDRIA, VA (October 29, 1997) -- Amazon.com's gain of $5 5/16 to a new all-time high helped propel Folly forward Wednesday, scoring a 1.27% tally to extend its new lead over the 1997 market return.

The markets, following a hurly-burly Monday and Tuesday, closed flat.

AMAZON.COM (Nasdaq: AMZN) was the beneficiary of a reiterated STRONG BUY rating from Alex, Brown, the mid-Atlantic firm stepping up strong and saying GO GET IT to its legion of brokers (and, by extension, account holders). Insofar as we purchased this stock 69 percentage points lower on September 9th, we're obviously grateful to AB for its support. And the skeptics and bears may at this point be throwing up their arms in extreme paranoia, sensing some sort of ongoing plot, some unholy alliance, among Wall Street brokerage firms to juice up the stocks of all "Internet plays."

STRONG BUY on Amazon at $60? At a market cap beginning to approach that of massive offline competitor Borders Group?! Certainly, I'll admit that Amazon has zoomed into the black more quickly than we were counting on after our initial buy.

Alex, Brown may have some reasons for why this is so. But because such reports are not made available to the general reading public -- not everyone as Foolish as we -- we can only speculate. Actually, rather than speculate, I think it's helpful to return to some initial consideration given in our buy report.

A primary bearish argument involves stating that the company's average-looking gross margins (the gross profits as a percentage of sales) are going to drop as price wars set in and Amazon's business becomes commoditized. But we believe strongly, and state emphatically, that Amazon will incorporate advertising revenues into its future business model. This will increase margins beyond what you'd expect in the traditional bookselling business. Because it's not yet "visible," this expectation cannot be gleaned from any reference to past numbers, for those investing using a rear-view mirror. But driving forward using the rear-view mirror -- or should I say, shorting forward using the rear-view mirror -- seems a hazardous modus operandi.

Indeed, Amazon should earn HIGHLY TARGETED, high "CPM" advertising rates. It presently earns zero dollars this way, now. But as the guys in Seattle continue to gather more information about repeat customers like me, and continue to make their site THE place to buy books (as they clearly have -- and then eventually, I think, other stuff), you'll find a higher-margin new-world business model evolving out of what many skeptics seem to regard as a dull, low-margin, commodity business.

We therefore expect that even if this stock is ahead of itself in the near term (short covering continues to help, as well as brokerage recs), at the present price it should offer superior appreciation for investors looking -- as we are -- 10 years and more ahead.

3COM (Nasdaq: COMS) and INNOVEX (Nasdaq: INVX) dropped to the bottom slots of The Fool Portfolio today, displacing Trump for the first time in ages, it seems. Both stocks dropped over a buck on no news. 3Com is now off 8% for us, over 14 months. Innovex has wilted in recent weeks... probably in reaction to revised downward earnings estimates by analysts for this quarter, which is slated to be revealed November 6th. Those numbers should clear the air, anyway, wherever that leaves Innovex. The company is expected now to have earned 50 cents in its fiscal fourth quarter.

Fools by now know that you're going to have a few bad eggs among the dozen you find in just about any portfolio carton you open.

To close, Tom and I shot hoops on "CBS This Morning" to determine whether the market would rise or fall today. Insofar as we believe it's impossible to call the market's move on any given day, we figure shooting hoops in Fool HQ is as good a way as any to make the call. Tom hit the bucket, meaning the market was supposed to go up. We really failed to inform the general public that we were referring to the Fool Portfolio this morning, and not the market at large.

Please forgive us for our lack of specificity. (Swish!)

Fool on!

-- David Gardner, October 29, 1997

Correction: Please note that yesterday's Fool recap stated that the stock market ended with a 25% gain in 1987. That was meant to read as 0.25%. The point is the same. The market was still up for the year, depsite the cult-like horror that people attribute to 1987's single-day 22% fall. Only short-termers or those using heavy margin should remember that market year with horror, perhaps. Foolish apologies for the error.

Drip Portfolio-- Coca-Cola's earnings, part 2.
Boring Portfolio-- Boring set to trade Ox.
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 +5 5/16 64.69 AOL + 5/16 78.25 T - 3/8 48.25 CHV -1 5/8 80.75 DJT - 5/16 9.06 GM +1 1/8 68.00 INVX -1 1/8 25.75 IOM + 15/16 26.44 KLAC -1 3/8 46.25 LU +3 7/16 82.50 MMM - 1/2 93.44 COMS -1 11/16 43.25
Day Month Year History FOOL +1.27% 0.39% 26.37% 237.25% S&P: -0.29% -2.97% 24.09% 100.52% NASDAQ: -0.02% -4.92% 24.15% 122.55% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 78.25 975.92% 5/17/95 980 Iomega Cor 2.52 26.44 949.11% 10/1/96 42 LucentTech 47.62 82.50 73.26% 9/9/97 290 Amazon.com 38.22 64.69 69.24% 8/11/95 125 Chevron 50.28 80.75 60.59% 8/12/96 110 Minn M&M 65.68 93.44 42.27% 8/12/96 280 Gen'l Moto 51.97 68.00 30.84% 8/12/96 130 AT&T 39.58 48.25 21.91% 8/24/95 130 KLA-Tencor 44.71 46.25 3.44% 4/30/97 -1170 *Trump* 8.47 9.06 -7.01% 6/26/97 325 Innovex 27.71 25.75 -7.07% 8/13/96 250 3Com Corp. 46.86 43.25 -7.70% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 27778.75 $25196.88 5/17/95 980 Iomega Cor 2509.60 25908.75 $23399.15 9/9/97 290 Amazon.com 11084.24 18759.38 $7675.14 8/12/96 280 Gen'l Moto 14552.49 19040.00 $4487.51 8/11/95 125 Chevron 6285.61 10093.75 $3808.14 8/12/96 110 Minn M&M 7224.44 10278.13 $3053.69 10/1/96 42 LucentTech 1999.88 3465.00 $1465.12 8/12/96 130 AT&T 5145.11 6272.50 $1127.39 8/24/95 130 KLA-Tencor 5812.49 6012.50 $200.01 6/26/97 325 Innovex 9005.62 8368.75 -$636.87 4/30/97 -1170*Trump* -9908.50 -10603.13 -$694.63 8/13/96 250 3Com Corp. 11714.99 10812.50 -$902.49 CASH $32438.81 TOTAL $168625.69

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