Fool Portfolio Report
Monday, April 21, 1997
by David Gardner (MotleyFool)

ALEXANDRIA, VA, April 21, 1997 -- I turned over the shampoo bottle in the shower the other day and was greeted by a fairly pleasing sight. In place of the "WARNING" that we're all so mindlessly used to passing over these days was this phrase: "Common Sense Caution."

Oh sure, coming after the phrase were the typical few sentences about how if you misuse this product it could easily KILL you in one of several different ways. That's the sad result of a society seriously short on its acknowledgement of personal responsibility, something I believe will come back with time.

But apart from that lunacy, you just have to like the phrase (and the company that scripted it, Aveda). Common Sense Caution. None of this all-caps WARNING stuff, as if sirens and flashing lights should go off in your head whenever you pick up that bottle of shampoo. No.

Common sense. And caution. With particular emphasis on that first phrase.

If you've read The Death of Common Sense: How Law is Suffocating America, the delightful 1995 book by Philip Howard, then you'll agree that any return to common sense -- even just some few words on the back of a shampoo bottle -- brings warmth to the heart. And so long as I'm mentioning them, it's also worth mentioning that these words have a great deal of meaning for stock market investors in 1997.

Some of our financial world's Wisemen make two distinctly opposite, equally incorrect errors in their sales pitches. On the one hand you have the conservative Wise, those who often shout WARNING about anything that has to do with stocks. Those include many financial writers, the creators of mutual fund advertisements, and the ever-present goldbug gooroos. They post their WARNING signs all around the door labeled "Stock Market," and cause many people never to invest in it. Their loss.

The second Wise group includes those who would have you enter the stock market to GET RICH QUICK. Their signs, posted around the Stock Market door, read ENTER HERE, NOW NOW NOW!!! That's the opposite of the WARNING crowd, and include other sorts of financial writers (about "Money Machines" and all the rest), and various companies and products that advertise all over the place in our financial dailies. This very much includes, but is not limited to, the options and futures crowd. "Did you make 130% last year?!" goes the typical jingle. As if you did. As if THEY did. As if anyone who ACTUALLY DID (oh sure, there would have been a few, no doubt) could actually repeat the performance.

In between these two very opposed, very Wise camps, lies Foolishness. And if our legal team forced us to put signs around the Stock Market door, I can think of few better phrases to include than:

Common Sense Caution

... followed by an ISBN reference number for The Motley Fool Investment Guide, or one of a few others that we have coming out next year from Simon & Schuster. "Nothing astonishes men so much as common sense and plain dealing," wrote the always quotable Emerson. Our goal is astonishment, then, through the use of cogent language and simple thinking.

The market's poor performance once again today reminds us long-term investors that every year is not a winner, that you must always bring common sense and a healthy caution to your investing. For now, the Nasdaq shows losses for 1997, and the S&P is near flat. To be frank, that even feels a bit healthy and good, following the powerful gains we've seen throughout the 1990's.

Monday Nasdaq shed another 1.52% of its value, while the S&P 500 declined 0.78%. The Fool Portfolio, presently 30% in cash, got whacked worse. A $3 loss for 3Com led us lower, while bad days for our two biggest holdings (America Online down $1 5/8 and Iomega losing $3/4) didn't help matters. Throw in another tanker from the ever volatile KLA Instruments, and you have an exceedingly bad day. Off 1.91%. Oomph.

It's been sickening to see our 80% gain in 3COM (Nasdaq:COMS) wiped out, then become a 44% loss. One primary reason behind the decline is INTEL (Nasdaq: INTC). The company has moved more fiercly into the networking market. First, it dropped prices 40% on its Fast Ethernet adapters (a Trois Com staple). That hurt. Then over this past weekend, it announced the addition of new 10/100 Mbps (megabits per second) stackable hubs at quite competitive prices... another Trois Com staple. Intel also announced its 82558 chip, the first single chip Fast Ethernet product to support 10/100 networking. It just goes right directly on a computer's motherboard (its "brain"). Yikes. It's as if Andrew Grove had Eric Benhamou's face on his dart board at the turn of the New Year.

Granted, 3Com retains market-share leadership in these markets, but Wall Street looks at future expectations, primarily, and has never been proof against FEAR, unfortunately.

For those of us holding 3Com shares, it hasn't been pretty. We along with the rest of the market have been taken by surprise, and Trois Com has shed more than 2/3rd of its value (from the peak), in short order. Those who ventured into this space last Wednesday may have read my short piece on whether Intel and Microsoft will just go ahead and take over the whole world. Well, whether or not that ultimately happens, Intel took another step in that direction over the weekend. It's forcing us to take a hard look at fallen 3Com.

Currently flush with cash, we're looking at filling out the short side of our portfolio in the next few weeks. It seems we're living in a "flight to quality" market environment that's hurting most companies not included among the S&P 500. It behooves us to recognize that. As small, individual investors, perhaps you and I can use that recognition to take advantage of the situation. Cautiously, using common sense.

David Gardner, April 21, 1997

Stock Change Bid -------------------- AOL -1 5/8 43.38 T - 5/8 33.00 ATCT - 1/4 5.19 CHV + 1/8 64.75 GM + 1/4 56.50 IOM - 3/4 16.75 KLAC -1 3/4 39.63 LU - 1/8 53.88 MMM --- 83.25 COMS -3 26.25
Day Month Year History FOOL -1.91% 1.23% -6.06% 150.71% S&P: -0.78% 0.43% 2.65% 65.87% NASDAQ: -1.50% -1.43% -6.72% 67.21% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 16.75 564.95% 8/5/94 355 AmOnline 7.27 43.38 496.39% 8/11/95 125 Chevron 50.28 64.75 28.77% 8/12/96 110 Minn M&M 65.68 83.25 26.76% 10/1/96 42 LucentTech 47.62 53.88 13.14% 8/12/96 280 Gen'l Moto 51.97 56.50 8.71% 8/24/95 130 KLA Instrm 44.71 39.63 -11.38% 8/12/96 130 AT&T 39.58 33.00 -16.62% 8/13/96 250 3Com Corp. 46.86 26.25 -43.98% 10/22/96 600 ATC Comm. 22.94 5.19 -77.38% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 4945.56 15398.13 $10452.57 5/17/95 980 Iomega Cor 5063.13 16415.00 $11351.87 8/12/96 110 Minn M&M 7224.44 9157.50 $1933.06 8/11/95 125 Chevron 6285.61 8093.75 $1808.14 8/12/96 280 Gen'l Moto 14552.49 15820.00 $1267.51 10/1/96 42 LucentTech 1999.88 2262.75 $262.87 8/24/95 130 KLA Instrm 5812.49 5151.25 -$661.24 8/12/96 130 AT&T 5145.11 4290.00 -$855.11 8/13/96 250 3Com Corp. 11714.99 6562.50 -$5152.49 10/22/96 600 ATC Comm. 13761.50 3112.50-$10649.00 CASH $39092.98 TOTAL $125356.35