Fool Portfolio Report
Friday, April 4, 1997
by Jeff Fischer (MF BudFox)

ALEXANDRIA, VA, (April 4, 1997) -- Stocks rose sharply Friday, recovering lost ground even though employment data did little to calm interest rate fears. The beaten-up Nasdaq jumped nearly two percent, and the S&P one percent. Will newspapers run front page headlines about Friday's recovery?

Various media have covered the recent falling stock market by running front page headlines which cater to fright: "Stocks Tumble Sharply -- A New Bear Market?"

Beneath the headlines numerous articles have been written about the "individual investor" and how these millions (you and me) will fare -- or react -- in a down market. Four times I've seen major national media state, "This bull market has lasted more than six years, and many individual investors are new, so they've never seen stocks decline. It's expected many will panic as prices finally drop, and they'll sell, exacerbating the situation."

USA Today supported this statement on Thursday's front page by stating that the market hasn't declined even 10% in nearly seven years. This is the same argument that others state. It's entirely misleading.

There have been corrections of well over 10%, of course. The Nasdaq corrected close to 20% just last summer, while the S&P fell around 10%. Also, in 1994 stocks corrected as much as 10% at one point, while for the year a majority of stocks lost a fourth of their value. This year, in the last two months, the Nasdaq fell 15% from its high, and the S&P and Dow nearly 10%.

The media jumps all over market swoons as they happen, as with last summer, but then later ignore these same declines in order to stir up new fear regarding current declines. It's flat out wrong to state that the market hasn't corrected 10% for nearly seven years. It has "corrected" three or four such times. The media ignores this fact by citing only annual market returns, though, and then belittles all the "inexperienced investors whom have never seen stocks fall." The fact is, if you've been invested even a mere nine months, you've already seen stocks fall sharply, twice.

We've heard so many older, more experienced money managers state: "There are millions of individuals and fund managers who haven't been involved in a crash the likes of 1987, or 1973 to 1974. They may be in for quite a surprise if such a correction takes place again."

The following argument turns the spotlight around, to shine directly upon these more experienced investors and their statements of warning:

Question: On the base level, what caused the infamous market corrections of the past? What perpetuated them?

Answer: The people and investors involved at the time.

So many fund managers are quick to share that they were involved in historical crashes. If they sold, they're partly to blame. Did they sell? Consider why many of them are so quick to warn us now. It's likely that most "seasoned investors" lost large amounts of money by selling stock during corrections, otherwise they wouldn't have much concern about another such correction taking place -- and they wouldn't incessantly warn everyone of this so-called "dangerous possibility."

Pain is difficult to forget, so it hasn't been. But if these well-seasoned investors had held or bought more stock in 1974, or in 1987, they'd currently be quite fearless about any coming corrections. In fact, they'd probably long for one.

Meanwhile, new investors have already seen substantial corrections over the past six years, and that the corrections never melted down further may say something about the long-term mentality of many new investors. Having seen the Nasdaq tumble about 18% last summer, already the recent 14% decline hasn't seemed very difficult to stomach for many long-term Fools.

For those who stay invested and invest throughout market declines, Friday was another day of vindication -- the type of sharp ascent which, in effect, serves to reminds us that stocks make most their gains over a very short time period -- usually only a few weeks comprise each major move upward. Being invested full-time is the only certain way to catch the big advances year after year.

The Fool gained 3.79% Friday, and 2.69% for the week, while the S&P lost two percent this week, and the Nasdaq, down about four percent at one point, closed the week down only one percent. The Fool crushed the market this week, in other words! For the year, the Fool is beating the Nasdaq and has its sights on the S&P, of course!

America Online was most helpful this week, rising nearly six dollars. On the week, AMERICA ONLINE (NYSE: AOL) announced a content deal with Disney, and so with ABC, which in part serves to combat Microsoft's MSNBC. Friday the company announced a preliminary settlement on the class-action lawsuit filed earlier this year. Details weren't yet available, but the $24 million second quarter charge the company took should cover costs.

David Gardner pointed out that AOL hasn't seen the current $48 price per share since last June -- nearly ten months ago -- after the stock fell from $71 to $45 in a mere five weeks. The stock reached as low as $22 late last year.

IOMEGA (NYSE: IOM) also rose while announcing a production deal with NEC, and Friday announcing that certain Power Macintosh models would have Zip drives as standard equipment. The company also lowered prices on Zips to $149, from $199.

The Foolish Four stocks didn't fare so well, and are down more than seven percent for the year. While the Dow sold off sharply, AT&T (NYSE: T), the struggling giant, hovered around $34, GENERAL MOTORS (NYSE: GM) fell to prices not seen since January, and CHEVRON (NYSE: CHV) fell on falling oil prices and bad press from Merrill Lynch. We make our Fool Four switch in the beginning of August. The strategy only works over the long-term. The past twenty-five years the Fool Four have returned about 25% annually, now, but not without several weak years inbetween.

The Fool itself had a busy week, unrolling the new Web site thanks to a tremendous team effort from several Fools, and from readers who sent in their suggestions over the past months. The new message boards on the Web will certainly become one of the most popular aspects of the site. Check 'em out! Keep in mind, as with any large, new program, there are bound to be a few bugs that are being ironed out as we find them. While trying the boards, if you find any bugs, please let us know. Click the link to the Fool Webmaster and write away! Also, the boards are best with a Netscape or Microsoft browser, rather than AOL's. We tried to please all three!

Another addition at that I already find extremely useful is the "company snapshot," at the top of the left "page bar." Providing trailing twelve-month earnings, sales, and net profit margins, as well as cash on hand, debt, earnings estimates, and more, the snapshots are simply great. In a nut-shell, snapshots provide all the information required to get an excellent overview of any public company.

COMING EARNINGS. With the new spring that comes with April, so arrives the first quarter earnings announcements from most public companies. Yes, earnings season is upon us once again!

The following Fool stocks will announce earnings before long:

Company Near Date Est. KLA (Nasdaq: KLAC) 4/15 $0.43 Iomega (NYSE: IOM) 4/17 $0.14 GM (NYSE: GM) 4/22 $2.07 Chevron(NYSE: CHV) 4/22 $1.08 ATC (Nasdaq: ATCT) 4/28 $0.07 MMM (NYSE: MMM) 5/2 $0.99 AOL (NYSE: AOL) 5/8 ($0.07)

Other notable, "mood-setting" earnings:

Intel (Nasdaq: INTC) 4/14 $2.06 Microsoft (Nasdaq:MSFT) 4/18 $0.64 Coca-Cola (NYSE: KO) 4/18 $0.37 IBM (NYSE: IBM) 4/23 $2.31

The Fool will, with glee, cover many of these announcements and conference calls.

Have an exceedingly Foolish weekend!

Weekend Reading:
As for weekend reading this time around, check out the many corners of the new Fool Web site, get snapshots of all your stocks, and, of course, register and add your thoughts to the boards of your favorite companies within the Fool's new Message Boards! If you wish to have a folder opened for a certain stock, please email Fool onward!

Stock Change Bid -------------------- AOL +2 7/8 48.38 T + 1/4 34.00 ATCT + 1/8 5.75 CHV + 5/8 65.00 GM - 1/4 54.00 IOM + 3/4 17.25 KLAC +4 7/8 41.38 LU +2 3/8 54.38 MMM - 1/2 83.25 COMS +1 7/8 34.25
Day Month Year History FOOL +3.79% 4.42% -3.10% 158.61% S&P: +1.01% 0.10% 2.32% 65.34% NASDAQ: +1.89% 1.23% -4.21% 71.73% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 17.25 584.80% 8/5/94 680 AmOnline 7.27 48.38 565.14% 8/11/95 125 Chevron 50.28 65.00 29.26% 8/12/96 110 Minn M&M 65.68 83.25 26.76% 10/1/96 42 LucentTech 47.62 54.38 14.19% 8/12/96 280 Gen'l Moto 51.97 54.00 3.90% 8/24/95 130 KLA Instrm 44.71 41.38 -7.46% 8/12/96 130 AT&T 39.58 34.00 -14.09% 8/13/96 250 3Com Corp. 46.86 34.25 -26.91% 10/22/96 600 ATC Comm. 22.94 5.75 -74.93% Rec'd # Security In At Value Change 8/5/94 680 AmOnline 4945.56 32895.00 $27949.44 5/17/95 2010 Iomega Cor 5063.13 34672.50 $29609.37 8/12/96 110 Minn M&M 7224.44 9157.50 $1933.06 8/11/95 125 Chevron 6285.61 8125.00 $1839.39 8/12/96 280 Gen'l Moto 14552.49 15120.00 $567.51 10/1/96 42 LucentTech 1999.88 2283.75 $283.87 8/24/95 130 KLA Instrm 5812.49 5378.75 -$433.74 8/12/96 130 AT&T 5145.11 4420.00 -$725.11 8/13/96 250 3Com Corp. 11714.99 8562.50 -$3152.49 10/22/96 600 ATC Comm. 13761.50 3450.00-$10311.50 CASH $5240.09 TOTAL $129305.09