Fool Portfolio Report
Tuesday, May 6, 1997
by Jeff Fischer (TMFJeff@aol.com)


ALEXANDRIA, VA, (May 6, 1997) -- If investors could have foreseen the recent surge in the market, it would have happened earlier.

In the six days before today the S&P gained over seven percent and the Nasdaq over ten percent. Today national newspapers ran articles explaining inflation, interest rates, and the possible reasons behind the quick market rise. Some called it "panic buying," and one quoted trader said he was "buying Monday purely to stop mounting losses on bets he had made earlier that stocks would go down."

"Bets" is the operative word in that sentence.

As for panic buying: were investors suddenly worried that they might miss the next five to thirty years of market gains?

More likely, of course, the "panic buying" came from the same "investors" that sold shares over the past months during the decline. Now -- the train having turned around on them without them noticing -- they're racing down the tracks and trying to jump back on like madmen and women. The gravel around the tracks is heavy and they're running... the train is moving...

Some leap and grab onto the train by their fingertips, snagging shares of Coke at $67, shares which they had sold at $56 a few weeks ago... others leap and fall to the gravel... they don't have enough money to buy back the same amount of shares that they had recently sold... the train keeps moving.

They get up from the gravel. Look at each other for comfort. Then round the bend they run... jump in a car... a car in the shape of an option..."We can catch that train at the pass!" an options trader shouts.

Key in the ignition: car started. Vroooom! Racing off they go. Down a winding road. They need to be at the track at a precise time. Not too early, not too late... the road is volatile, curvy, unpredictable: the side of a cliff. Suddenly the track is there. They stop. They look around. Silence.

Breathing hard... options trader asks, looking one way, "Where the hell is the train?"

BAM!

Round the corner, giant and heavy, the train demolishes them... keeps moving.

How much of the recent market volatility is generated from indecisive "investors" who go from one side of the market to the next, who buy and sell in bouts of emotion and "market analysis?"

Luckily, Fools aren't involved. Fools buy a first class boarding pass and are comfortable staying on the train for the long run. Others buy space in the luggage bin -- cheap stocks -- and then starve over long rides. Some don't buy tickets at all, but ride while clinging onto the side of the train... many fall or leap off, only to try to jump back on later.

We have a window seat. A cold drink. A stack of good books to read. We don't even think much about the fact that we're on the train.

(That little analogy went on longer than I expected.)

Anyway, what the newspapers don't often state in their "Markets Up!" or "Markets Down!" headlines is that, underneath all their boring "what will happen next?" articles is the screaming fact that only long-term investors in the right stocks win out no matter what the market does, over the right amount of time. If you're investing for five to ten years, minimum, you don't need to read the newspaper.

Foolishness:

Less work.
Market beating returns.
Few Worries.
Success in the long run.

Wise:

Follow market closely.
Try to beat it through activity,
hence lose to the effort of their own fight.
Don't realize that less effort equals greater
results if you begin with the right premise.

Buffett:

Which one is he?
1) Mr. Quote Machine at his Desk
    or
2) Mr. Out Eating Burgers and Hasn't seen Stock
Prices Lately?

=================

Today Foolishness reversed direction and lost 1.72% after rising about 9% in the past six days. (Imagine the loud clang! as a train reverses direction in a switch-yard, only to take on more cars and soon continue forward.) (A promise: that's all -- no more trains.)

AMERICA ONLINE (NYSE: AOL) sold lower after announcing positive earnings. The company's lower marketing expenses helped AOL to a surprise profit last quarter. (As it couldn't handle more customers, it didn't need to advertise.) The Tele-Save contract helped as well. Alas, the stock sold lower on the earnings news, which isn't unusual.

AOL trades at about 3.7 times trailing sales and 3.1 times its revenue run-rate. Six cents in earnings are expected next quarter, and $0.81 for the year ended June of 1998, five quarters away. We ran an earnings special yesterday, and the conference call synopsis will be available on the Fool soon. Our conference call summaries give excellent Foolish insight into where a company stands and is going each quarter.

ATC COMMUNICATIONS (Nasdaq: ATCT) fell 12% today after recent gains following earnings. The company has its work cut out for it, as a few large clients decreased their business last quarter, and the industry is facing ongoing changes. The stocks of most the tele-services outsourcing companies have imploded. ATCT's conference call synopsis is now available on the Fool, in -- appropriately enough -- our Conference Calls section.

TRUMP HOTELS (NYSE: DJT) has done nothing but rise since the Fool's short went through last week. On May First, the day after we shorted it, the company put out a strange press release. Strange in that -- well, it's as if RAINFOREST CAFE (Nasdaq: RAIN) reported that it made a killing on drink sales alone last quarter, while ignoring its overall business.

The Trump release reads: "Developer Donald Trump said Thursday his Trump Castle Casino Resort posted a first quarter operating profit of about $9 million, its best quarterly financial performance ever. Trump, speaking at a Rutgers University gaming symposium, also said the planned conversion of the Castle into Trump Marina will be completed by June 15. Trump's organization owns four of Atlantic City's 12 casinos."

That's the entire press release.

The company announced a loss of $0.59 per share two weeks ago for all of its combined subsidiaries, so the fact -- already noted in the earnings report -- that one part of Trump's business had an operating profit, while positive by itself, is also misleading by itself. The company lost $13.9 million last quarter, and shareholders are still buying a stake in 1.7 billion dollars of debt when they buy Trump stock. The $9 million operating profit for one quarter at one location doesn't present much value in the face of the overall losses and the $50 million that the company pays each quarter in interest on its debt.

When you buy stock, you want to buy a piece of a company that is more valuable than the dollar you're presenting for it. With Trump, investors are buying more debt with their invested dollars than anything else. Do you want to pay to own debt?

Trump Castle being changed to Trump Marina means the place will look different after June 15th. The redecorating cost Trump money.

IOMEGA (NYSE: IOM) was flat after Needham and Associates initiated coverage of the company with a Buy rating. Needham said Iomega has a "leading position in a rapidly growing market." True. But Iomega was growing much more rapidly two years ago. Still, it's good to see the company get more coverage, and in the spirit of long-term investing, the 600% the stock has gained since April of 1995 may not mean much if the company continues to lead its industry for the next ten years. Needham estimates that Iomega will earn $0.84 this year, which is in line with other estimates.

The stock trades at 1.8 times sales and 21 times the $0.84 estimate. For fiscal 1998 two analysts now expect $1.13 per share, putting the stock at 15.4 times those estimates.

Iomega also announced that HEWLETT-PACKARD (NYSE: HWP) is now shipping the Zip drive as an optional feature on many of its computer models aimed at small businesses. Also, smart thinking by someone, which was announced a few weeks ago: Zip drives are now available for customer use in all "Kinko's Copies" locations.

KLA INSTRUMENTS (Nasdaq: KLAC) rose to a new high above $51 before closing at $50 even. The KLA-Tencor closed April 30th. Also, LUCENT TECH (NYSE: LU) released a slew of progressive news today, which is available on the Fool's Web site.

To close: I had the pleasure of reading one the most "true-to-life" Fribbles yet last week, written by George Runkle (TMF Runkle). George writes many of the more amusing Fribbles. If you haven't yet read "I Sold Coke for 3Com," you're missing a fun three minutes of very Foolish writing. Also, today's Fribble is a fine look at wine stocks written by long-time Fool "Grape Wiz," who is in the wine biz. Enjoyable reading!

Finally, a little context for reading Runkle Fribbles. When George visited Old Town Alexandria, we had a ten minute walk from the hotel to Fool HQ, but we decided to drive to keep the car near-by. UnFoolish? That day -- blistering hot -- there was a parade in Old Town, and there was no parking to be found anywhere. We drove around the same blocks for about forty-minutes before finally, windows down, driving round and round in circles, George said, "Maybe we should have walked." We ended up parking, an hour later, about ten minutes from Fool HQ.

But in that hour I heard more good stories, more good humor, and more investment tales than I've heard since. In this case, as with investing, taking the time and being patient throughout was well worth it.

Fool on!

----May 6, 1997

--Today's Daily Double. Best for learning why stocks doubled.
--Tonight's Boring Recap will look at Cisco System's earnings report.

And a note of clarification: we usually run the Fool Portfolio numbers forty minutes after the market closes, to make certain we get the final closing prices. But sometimes a quote we get ends up being incorrect by a marginal amount for various reasons. Last night the AOL quote we ran was off by $1 3/8 from the actual last trade -- a substantial amount. So while the Fool took a $3 7/8 loss on AOL today, the stock truly only fell $2 1/2. Likewise, yesterday we were given a slight advantage by the higher close. In the end it's all even, but of course each day we aim to be entirely accurate, and will continue to do so going forward.


TODAY'S NUMBERS
Stock Change Bid -------------------- AOL -3 7/8 49.00 T - 1/2 33.38 ATCT - 1/2 4.69 CHV - 3/4 69.50 DJT + 5/8 10.25 GM + 5/8 58.63 IOM + 1/8 17.50 KLAC + 3/4 50.00 LU - 1/8 62.00 MMM - 1/8 90.25 COMS --- 35.63
Day Month Year History FOOL -1.72% 3.02% -1.26% 163.53% S&P: -0.29% 3.30% 11.75% 80.58% NASDAQ: -0.82% 5.36% 2.89% 84.44% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 17.50 594.44% 8/5/94 355 AmOnline 7.27 49.00 574.00% 8/11/95 125 Chevron 50.28 69.50 38.21% 8/12/96 110 Minn M&M 65.68 90.25 37.42% 10/1/96 42 LucentTech 47.62 62.00 30.21% 8/12/96 280 Gen'l Moto 51.97 58.63 12.80% 8/24/95 130 KLA Instrm 44.71 50.00 11.83% 8/12/96 130 AT&T 39.58 33.38 -15.67% 4/30/97 -1170*Trump* 8.47 10.25 -21.03% 8/13/96 250 3Com Corp. 46.86 35.63 -23.98% 10/22/96 600 ATC Comm. 22.94 4.69 -79.56% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 17395.00 $14813.13 5/17/95 980 Iomega Cor 2594.53 17150.00 $14555.47 8/12/96 110 Minn M&M 7224.44 9927.50 $2703.06 8/11/95 125 Chevron 6285.61 8687.50 $2401.89 8/12/96 280 Gen'l Moto 14552.49 16415.00 $1862.51 8/24/95 130 KLA Instrm 5812.49 6500.00 $687.51 10/1/96 42 LucentTech 1999.88 2604.00 $604.12 8/12/96 130 AT&T 5145.11 4338.75 -$806.36 4/30/97 -1170*Trump* -9908.50 -11992.50 -$2084.00 8/13/96 250 3Com Corp. 11714.99 8906.25 -$2808.74 10/22/96 600 ATC Comm. 13761.50 2812.50-$10949.00 CASH $49020.02 TOTAL $131764.02