Fool Portfolio Report
Monday, July 7, 1997
David Gardner (DavidG@fool.com)


ALEXANDRIA, VA, (July 7, 1997) -- Back from family beach week, the first thing I did upon returning to the "real world" today was to attack my e-mail. (OK, I confess, I took a quick midday peek at the Fool Portfolio on our new Market Watch feature even before that -- what a fine investing day! But then I went to work.)

I began by deleting the customary 25+ junk e-mails sitting in my e-mailbox like somebody else's oversized luggage. Hey, am I getting sick of these things or what? In fact, I feel dirty after clicking into thirty different come-ons from strangers telling me how to make money quick (so many ways to do it, eh?), list my Web site with their search engine, or visit their hot site. Somebody at some point is going to do something about junk mail. Though it doesn't kill any trees, it's actually more troublesome than the "real" junk mail that comes to your doorstep. I hate both of course. But like so many others, I use e-mail to communicate in a timely manner for business purposes. To have constant barrages of ridiculous commercial teases hurts my productivity -- yours too, I expect.

If somebody doesn't do something quick, these helpful people sending the mail (often beginning "Dear Friend," cough cough) could lead to a measurable decline in national productivity!

(Stepping down from the pulpit... in this Fool's case, a cheap inflatable plastic orange crate.)

Back to the market. I have a friend who's convinced the market has now topped. Upon further questioning, I discovered his reasons were actually much better than the typical ones you hear. Typical ones you hear: (1) it's gone so high it has to come down, (2) some guy on TV said it's overvalued, (3) the market's dividend yield is at all-time lows, (4) individuals are now investing in the market, and (5) Barron's is bearish (cough cough cough).

My friend's reason: Read our local paper over the weekend.

Sure enough, The Washington Post was looking a wee bit decidedly bullish and celebratory. This is not a jab at the Post at all... just happens to be our local paper and just happened to have printed a Sunday article celebrating individual investing, entitled "Taking the Stock Picks Back From the Managers: Investors Disenchanted With Mutual Funds Strike Out On Their Own; Here's How They Do It." You see, some of us, my friend among them -- call us Fools -- have tended to use media headlines in the past as reverse indicators.

In the case of this article, its message was our own message, one we've been scribbling in this space for several years now. It runs this way, none of it at all original for our regular readership: The market's the place to be, but mutual funds can't keep up, so individuals should consider investing on their own so that they can actually beat the market.

Nice message. And quite true! It's good to see some more traditional journalistic enterprises recognizing this. Problem is, when even traditional older papers are throwing their conservative takes on money aside and celebrating individual investors, you have to start scratching your belled cap a little bit. (Scratch, scratch.) These are traditionally the scornful media types who view any attempt by the individual to make money on the market as risky at best, more likely hazardous, and a sure sign the market has topped. We've been reading this stuff for years.

Suddenly, the media's high-fiving with us.

I want to make one thing clear: The fault, dear Horatio, lies not in the fact that average people are turned on to the market. It's that the journalistic establishment is beginning to celebrate this.

Take a similar incident last summer. Iomega, our best stock (purchased at a split-adjusted two bucks), was on a roll. A particular West Coast journalist was bearish on the stock all the way up, self-admittedly drawing from "bearish sources" (read: people with open short positions) to compose his articles. Everything Iomega did was called into scrutiny. "Why didn't the company punctuate that sentence properly in the 10-K?" was the sort of criticism you'd read, the implication being that something disastrous or nefarious lay behind it all.

Meanwhile, Iomega just kept executing its business plan, and the stock rose from $2 to $10 to $20. More bearishness. This is wrong, that's wrong. Individuals like it, a clear sign of overvaluation. Smart hedge fund managers say it's hot air, so get out now. The articles continue all the way up to when Iomega hits $28. At that point, mid-April, the journalist wrote a column waving the white flag, entitled "It's Capitulation Time -- I Wish I'd Never Heard of Iomega: At Some Point You Can't Ignore The Reality" -- saying he'd been wrong on the stock all the way.

A year later, it's 25% lower than that price despite a year of strong market gains.

We liked Iomega at $2, we liked it at $28, we liked it when it hit $55 shortly thereafter, and we like it as much today at $21. WE like the company, and little has changed regarding our long-term viewpoint on management, products, industry dominance, etc. The market has been crazy in between, but the market will be crazy. Foolish individual investors have always been taught to look at company fundamentals, not the latest uptick.

This is why I'm scratching my belled cap just a little bit, following this latest article in our dear Washington Post. The 20% of our assets we currently have sitting out of the market have hurt us recently. But if we take a few more weeks to get fully invested, maybe that will benefit us.

Who knows?

As usual with our portfolio, our money is exactly where our mouths are. You can watch it with 20/20 vision, even 20/20 hindsight (as some do!). And -- I've typed this so many times my fingers creak -- we invest for the long term. So you won't see us ever actively sitting on the sidelines, even when we read headlines that trouble us. Since we buy great companies, and often short poor ones, we expect to continue to be rewarded over the long term, whatever the short-term market conditions that take us there. That's been the case for almost three years now, and it will continue to be.

Oh, and to close: Fine day for Foolishness, as our stocks rose in excess of one percent while the Nasdaq sat flat and the hallowed, unsinkable S&P 500 actually lost half a percent. No news of consequence, but a fine way to begin my first day back on the job. Fool on!

-- David Gardner, July 7, 1997

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TODAY'S NUMBERS
Stock Change Bid ---------------- AOL + 13/16 63.31 T + 3/4 36.63 ATCT - 3/16 4.81 CHV - 3/8 75.50 DJT - 1/8 10.00 GM - 7/16 56.50 INVX +1 1/8 28.75 IOM + 11/16 21.13 KLAC - 1/16 54.19 LU -1 1/4 74.25 MMM - 1/2 101.31 COMS +1 9/16 49.44
Day Month Year History FOOL +1.07% 5.18% 10.93% 196.04% S&P: -0.51% 3.06% 23.15% 99.00% NASDAQ: +0.21% 1.99% 13.92% 104.22% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 63.31 770.87% 5/17/95 980 Iomega Cor 2.52 21.13 738.29% 10/1/96 42 LucentTech 47.62 74.25 55.93% 8/12/96 110 Minn M&M 65.68 101.31 54.26% 8/11/95 125 Chevron 50.28 75.50 50.14% 8/24/95 130 KLA Tencor 44.71 54.19 21.19% 8/12/96 280 Gen'l Moto 51.97 56.50 8.71% 8/13/96 250 3Com Corp. 46.86 49.44 5.50% 6/26/97 325 Innovex 27.71 28.75 3.75% 8/12/96 130 AT&T 39.58 36.63 -7.46% 4/30/97 -1170 *Trump* 8.47 10.00 -18.08% 10/22/96 600 ATC Comm. 22.94 4.81 -79.02% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 22475.94 $19894.07 5/17/95 980 Iomega Cor 2594.53 20702.50 $18107.97 8/12/96 110 Minn M&M 7224.44 11144.38 $3919.94 8/11/95 125 Chevron 6285.61 9437.50 $3151.89 8/12/96 280 Gen'l Moto 14552.49 15820.00 $1267.51 8/24/95 130 KLA Tencor 5812.49 7044.38 $1231.89 10/1/96 42 LucentTech 1999.88 3118.50 $1118.62 8/13/96 250 3Com Corp. 11714.99 12359.38 $644.39 6/26/97 325 Innovex 9005.62 9343.75 $338.13 8/12/96 130 AT&T 5145.11 4761.25 -$383.86 4/30/97 -1170*Trump* -9908.50 -11700.00 -$1791.50 10/22/96 600 ATC Comm. 13761.50 2887.50-$10874.00 CASH $40625.59 TOTAL $148020.65