Fool Portfolio Report
Thursday, April 17, 1997
by Tom Gardner (TomGardner)

ALEXANDRIA, VA., (April 17, 1997) -- The Fool Portfolio tiptoed forward 0.47% today, losing to the Nasdaq's 0.56% gain, but gliding past the S&P 500 on the day, which gave back 0.23%.

Today marked the formal sale of half-positions of our largest holdings, America Online and Iomega. Around 1 PM Eastern, our orders were filled and confirmed shortly thereafter. The sale prices are:

325 shares of America Online sold at $46 1/8

1030 shares of Iomega sold at $18 3/8

Both stocks finished the day lower and so, once again, The Fool has proven that we can outperform the market and perfectly time our entry and exit points. It's funny, had you read our Iomega folder over the past twenty-four hours, you might have gotten the sense that the managers of this portfolio can actually make mistakes.

Tongue coming out of cheek.

Of course we make mistakes. Heck, these sales may be another one of them. But now isn't it wacky that two bell-capped brothers and a band of hard-working Fools can make so many mistakes -- mistakes that The Wise happily and vociferously attend to -- and yet, our portfolio is consistently walloping the non-index and index mutual funds that are sold out of the most prominent financial houses in the land.

If, as The Wise tell us, The Motley Fool is run by a bunch of opportunistic amateurs who don't even know when to trade or (heaven forbid) how to trade, jeeez, who's managing these mutual funds and brokerage-house portfolios? A simple look at the performance numbers would indicate that, okay sure, while The Motley Fool will eventually go out of business from bad portfolio management, at least 95% of Wall Street will file their Chapter 11 forms years in advance of us. Addition, subtraction, division, and basic multiplication support that chronology.

One of the concerns expressed in our Iomega folder last night was that our announcement would "screw up" Iomega's earnings report and materially harm their business going forward. So I took the time after my birthday dinner last night to respond, closing a note in the IOM folder with the following one liner: "I don't expect either stock will see consequential pricing moves tomorrow."

America Online closed the day off $1/8. Iomega ended up flat, after rising $3/4 before noon-time, as the market clearly and rightly ignored our transaction. For a portfolio that has no desire to affect short-term pricing, for a portfolio that is driven toward enduring long-term benefit and wealth building, the sale of half positions, in my mind, couldn't have been more appropriately timed. We have raised cash for minor, additional diversification. And the sale of half our position equaled four times our initial investment two years ago.

Then today, after market close, Iomega announced really fine earnings, posting $360 million in sales, $23 million in earnings, an increase in profit margins to 6.3%, earnings per share of 17 cents (3 cents above estimates), cashflows from operations up to $15 million, and a tight control over debt. And fully 20% of Iomega's sales for the quarter came from OEM agreements. The business is plowing forward, as it continues to totally disregard the hype, the rumor, the whisper numbers, the whole circus of events that would serve to pull management eyes from the business at hand.

And that, of course, is exactly what publicly-owned business is all about. Public companies do not have a responsibility to counter every accusation, to hunt down every misrepresentation so as to protect the positions of short-term traders or options players in their stock. To that end, as I stated last night, Iomega most probably neither knows nor cares that we've sold half of our position. They have a business to run, a business which they are obliged to manage for the maximal benefit of their long-term owners and partners.

I'm sorry to have to be so blunt but, To that end, Iomega rightly has no interest in you if you're trying to hit a strike price before the next witching hour or are hoping to turn a quick profit off a strong earnings report. No responsible, world-beating company would ever concern itself with that constituency. If you talk to the management of our nation's greatest companies, I reckon they'd call the options and short-term traders totally inconsequential, absolutely out of view when they look down into their business model.

A fine example is Microsoft, whose founder Bill Gates confessed in 1996 that he could see his stock doubling just as easily as he could see it being halved. Bang! And the company's CFO Mike Brown has made a practice of downplaying Microsoft's financial position and prospects in their quarterly conference call. Bang!

These are the procedures and philosophies of America's greatest corporation over the past decade. It's an approach that prizes performance, not chatter. It champions patience and persistence, not impatience, not a rapid, indefensible earnings growth designed to heat up a stock. Microsoft blew away earnings estimates today. Their stock has appreciated at a rate of 60% annually since their IPO. That sort of enduring growth comes from companies that are focused on serving their long-term business partners and shareholders.

And these are just the ideas that plenty of good brokers support. A few weeks back, I spoke at a conference of broker-dealers in Napa Valley. During the luncheon afterward, a career full-service broker sat down next to me and said:

"I've spent my life turning away people who
use the stock market in exactly the way you
outlined in your talk. The ones who treat it as
a big money machine. I tell them if they want
to play the market, they should just take the
money down to the Garden State Racetrack
and put it all on number seven. That's not what
investing is. Our brokerage business simply
will not be involved with those people, and in
turning them away, we've lost out on numerous
opportunities for profit -- and I mean stunningly
large profit. We've turned it away because we
want to be involved with people trying to build
something, not win something. People trying to
grow and have a full life beyond their money, not
people pathetically obsessed with it. If you're like
us, you're going to take criticism on all sides for
saying what you're saying, for championing
building over winning, investing over trading. But
if you're like us, you don't mind taking that criticism."

If that thinking seems flawed, if that approach is distasteful to you, you're probably clicking into the wrong personal finance and investing forum.


Tom Gardner

Stock Change Bid -------------------- AOL - 1/8 45.50 T --- 33.63 ATCT - 3/8 5.63 CHV -1 3/8 63.63 GM - 1/8 56.38 IOM --- 17.75 KLAC +2 3/4 42.38 LU - 3/8 54.13 MMM -1 1/4 82.63 COMS + 1/2 30.25
Day Month Year History FOOL +0.47% 3.81% -3.66% 157.12% S&P: -0.23% 0.61% 2.84% 66.18% NASDAQ: +0.56% -0.38% -5.73% 68.99% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 17.75 604.65% 8/5/94 355 AmOnline 7.27 45.50 525.61% 8/11/95 125 Chevron 50.28 63.63 26.53% 8/12/96 110 Minn M&M 65.68 82.63 25.81% 10/1/96 42 LucentTech 47.62 54.13 13.67% 8/12/96 280 Gen'l Moto 51.97 56.38 8.47% 8/24/95 130 KLA Instrm 44.71 42.38 -5.23% 8/12/96 130 AT&T 39.58 33.63 -15.04% 8/13/96 250 3Com Corp. 46.86 30.25 -35.45% 10/22/96 600 ATC Comm. 22.94 5.63 -75.48% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 4945.56 16152.50 $11206.94 5/17/95 980 Iomega Cor 5063.13 17395.00 $12331.87 8/12/96 110 Minn M&M 7224.44 9088.75 $1864.31 8/11/95 125 Chevron 6285.61 7953.13 $1667.52 8/12/96 280 Gen'l Moto 14552.49 15785.00 $1232.51 10/1/96 42 LucentTech 1999.88 2273.25 $273.37 8/24/95 130 KLA Instrm 5812.49 5508.75 -$303.74 8/12/96 130 AT&T 5145.11 4371.25 -$773.86 8/13/96 250 3Com Corp. 11714.99 7562.50 -$4152.49 10/22/96 600 ATC Comm. 13761.50 3375.00-$10386.50 CASH $39092.98 TOTAL $128558.10