Fool Portfolio Report
Thursday, May 22, 1997
by Tom Gardner (TomGardner)
ALEXANDRIA, VA, (May 22, 1997) -- Foolishness sparkled like the Potomac River today, lit up on one of the most beautiful days of the year here. Our stocks rose 0.71% versus an S&P decline of 0.44% -- as we inched back into profitability.
AT&T (NYSE: T) pitched in today. The stock rose $7/8 to $35 3/8 on no news. I need to adjust my thinking on AT&T. Whenever this Fool Portfolio holding casually crosses my mind, I often think, "Looooooooo-ser!" After all, the Company is seeing its long-distance business beaten apart by multi-level marketers across the country.
But, Fools, the reality here is that our AT&T investment has made us money since our purchase in August.
So, while our AT&T investment has lost to the market, and has not rewarded its shareholders with a single dollar of value over the past eight years -- the Company is out there making money for us now. Don't expect to see me smirking at photos of Robert Allen or viewing skeptically their great new ads (I do think they're great), no chance. AT&T is making us money!
But AT&T's gain of $7/8 today was hardly responsible for floating us across the river safely. America Online did that, rising $2 1/8 to $51 7/8 on their announcement of instant messaging for the web (available at www.aol.com). Folks have been clicking around that new technology here in our office and the consensus is: It's another winner for AOL.
The market agreed.
What so many larger media and technology companies have misunderstood about the Internet since its popularization is that this new medium is about communication, first, and information, second. Our nation hasn't invested billions upon billions of dollars into this network so that media companies can recycle their content here.
The digital world is being nailed together hour after hour because, regardless of our Meyers-Briggs test results, most of us love to learn and to be entertained through communication. Video and audio broadcasting almost make us feel like we're chatting -- in a bizarre, occasionally troubling way. But Americans are taking to this medium like Trump to the local lender. . . why?
For example, it's the intelligent debate and playful banter that sit like bells in our Foolish caps here. Upon those two, our entire service is built. And thus, America Online's development of messaging tools for the Internet makes great sense - just the sort of action you expect from the public company that has been immersed in this new medium more entirely and more enduringly than any other. The market liked this - I think this may be an example of short-term market rationality. Whoa!
Look out, segue coming. . .
The value of a good public debate, of the Internet as communications tool, has been very evident here in Fooldom during the discussion of Philip Morris and the Ethics of Investing. If you have the time, click through there. From professors at the Davis School of Medicine and the Fuller Theological Seminary to EPA employees and Fool staffers, the debate has been enlightening. There's no question that the flow of ideas has changed people's minds. And when we send this collection over to Philip Morris' investor relations department, I expect they'll proffer a response. They should.
Is Flip Mo a worthy investment?
When I look at all the financials and at the business model, it's clearly evident to me that Philip Morris is notably undervalued. Once the lawsuits are settled and the regulations are tightened, you still have a product that tens of millions of consumers make use of every day. It is a high-margin, daily repeat-purchase, global business. It takes no large investment upfront. And it's all about spirited marketing.
Fools, Flip Mo's business sounds an awful lot like that of your local lottery: low-cost tickets, purchased daily, sold right to the consumer. Both demand the very best in promotions and post the very strongest returns on invested capital.
Before you spit twice to the left of your computer monitor and cry "The Fools have sold out!" at least consider nodding in agreement that these are powerful business models. When we look at the financial statements, glory be... there's hardly a blemish. And these statements come from the same sort of financial model that churns out Coca-Cola and Pepsi cans, Gillette razors, and Johnson & Johnson's products for your medicine-cabinet. They're all operating off the same financial model.
When we consider business superiority alongside our hopes to maximize savings growth -- both potentially noble -- this approach to service is awfully, awfully attractive. In that regard, TMF Templr (Randy Befumo) made some excellent points. Essentially, he said that we invest to make money and Philip Morris makes a lot of it for its shareholders.
But I do disagree with Randy. I don't think we invest -- nor that we should invest -- exclusively to make money. When Warren Buffett says that selling his investments is so difficult because it's like trading away friends, that resonates with me. As a few of our contributors noted, if investing is a business partnership, then investors should study the people, the products and the vision of the companies they own.
If Philip Morris amends its marketing program away from young adults (and possibly younger!), opens their product up to FDA review and regulation, supports legislation to protect non-smokers from secondhand smoke, and effectively warns buyers about the long-term negative effects of smoking... then an ownership position in Flip Mo makes more sense to me. Not for me, but to me. Because then it will be like any number of things that are sold to consumers and are detrimental to their well-being (liquor, lottery tickets, slot machines, credit cards (often), Vancouver penny stocks, and a host of others).
We struggle against these at The Fool because they don't make sense for people. I don't believe that you'll ever hear us, as a company, championing that these things should not be available to the public. In an open, democratic, capitalist society, they must be purchasable if they don't immediately endanger other people.
A cigarette smoked alone in a room by an adult who is aware of the effects of the product and yet enjoys them... this person might well want to invest in tobacco stocks. In our country, they must be able to do so.
Unfortunately, that is not the present state of this industry. Thus, I come down on the side that says, at present, investors should not buy shares of Flip Mo, regardless of whether they smoke responsibly. As one of our contributors asked: "Would you want to be involved as a partner in this business? Would you happily sit on the board of directors?"
Because I don't smoke, I probably wouldn't ever be. But if I did, I'd still resist right now because of that childlike, grinning smoker passed off as a mature adult in advertising... and that board of executives that doesn't believe nicotine is addictive.
I'm proud that we ran this debate. Once again, I think our most able contributors were our readers. And I think something will come of all this Foolishness. Yes, I do.
Tom Gardner, Fool
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Stock Change Bid -------------------- AOL +2 1/8 51.88 T + 7/8 35.38 ATCT - 1/8 3.88 CHV - 5/8 69.50 DJT - 1/8 9.63 GM + 1/8 56.63 IOM + 1/8 17.25 KLAC - 1/8 48.75 LU - 3/8 62.25 MMM - 5/8 90.25 COMS + 1/8 41.63Day Month Year History FOOL +0.71% 4.64% 0.29% 167.66% S&P: -0.44% 4.28% 12.81% 82.30% NASDAQ: -0.08% 8.87% 6.32% 90.59% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 51.88 613.55% 5/17/95 980 Iomega Cor 2.52 17.25 584.52% 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 62.25 30.73% 8/24/95 130 KLA Tencor 44.71 48.75 9.03% 8/12/96 280 Gen'l Moto 51.97 56.63 8.95% 8/12/96 130 AT&T 39.58 35.38 -10.62% 8/13/96 250 3Com Corp. 46.86 41.63 -11.17% 4/30/97 -1170 *Trump* 8.47 9.63 -13.65% 10/22/96 600 ATC Comm. 22.94 3.88 -83.11% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 18415.63 $15833.76 5/17/95 980 Iomega Cor 2594.53 16905.00 $14310.47 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 15855.00 $1302.51 10/1/96 42 LucentTech 1999.88 2614.50 $614.62 8/24/95 130 KLA Tencor 5812.49 6337.50 $525.01 8/12/96 130 AT&T 5145.11 4598.75 -$546.36 8/13/96 250 3Com Corp. 11714.99 10406.25 -$1308.74 4/30/97 -1170*Trump* -9908.50 -11261.25 -$1352.75 10/22/96 600 ATC Comm. 13761.50 2325.00-$11436.50 CASH $49020.02 TOTAL $133831.40