Fool Portfolio Report
Friday, July 18, 1997
by Jeff Fischer
([email protected])
ALEXANDRIA, VA, (July 18, 1997) -- In trying to draw a conclusion about the volatile week on Wall Street, it was decided that a conclusion wasn't needed.
You and I are not going to look back twenty years from now and think, "I should have sold everything that one week in 1997." Come the year 2017, or even the year 2007, stocks will be higher than they are now. In that sense, I'm turning Wise. I'm making a prediction.
This is my first market prediction, and in fact it's my only and my last prediction.
Here it is, in Foolish totality:
Stocks will move higher, always, over any interval of at least one decade. In the year 2007, stocks will be higher than they are now. From 2007, they'll be higher in 2017. And so on.
Every ten years.
Would you feel comfortable telling your kids, jester caps on their heads, that they can expect stocks to be higher ten years from now? If not, then don't. Just tell them that some Fool predicts it.
This gives me hopefully six decades on which to be accountable -- with only the one prediction to answer to each decade. That's all. The prediction is simple enough to be Foolish -- and probably Foolish enough to work well, while erasing any daily, weekly, even monthly concern.
There should be no extra "work" or worry in regards to this prediction and the resulting investment approach. The wheels on this wagon are already turning -- climbing up a steady path that is as long as life itself. Along the way, the distractions are ignored, the occasional thunderstorm or hurricane, the difficult years for the market -- heck, those are hardly paid notice. Invest steadily in leaders. This wagon will keep rolling and soon more horses will come out of the woods, and offer to keep pulling the wagon up as it becomes heavier over time. More and more horses -- compounding horses.
I don't feel proud of the prediction for its "bold" nature. It isn't at all bold. In fact, in the stock market's history, the indices have ended below prices achieved ten years prior only as a result of the Great Depression. Since that time-period, no. So while it can happen, the prediction still isn't very bold.
Either way, the prediction itself isn't what matters in the end, but the mind-frame that results from believing the prediction is important.
Investing on such a premise steers you away from being the woman, for example, that I happened to see interviewed on CNBC Thursday. Unfortunately, this woman lost $300,000 trading stocks in the last six months, even in the strong market. During the latest market rally she recovered one-third of her money and I felt some happiness for her, but then she spoke. She said, "I'm learning to read the charts, and I'm also learning to wait for the pull-backs..."
Foolishly, I wonder if she's ever "read" the ten-year chart of General Electric. Or, better yet, viewed a chart of the stock market indices over their entire history.
These are the charts upon which you should base your investment decisions. These are the charts that you stand back from in order to view a trend that takes place over an entire life-time. These charts could be on a museum wall -- and perhaps should be.
The woman in the interview was shown working at her desk, watching CNBC, and flipping through dozens of stock transaction records, her brow furled. She's learning to play the piano to take away all the stress.
She doesn't know it, but she's Wise. She's very Wise. And if CNBC could share her address or name (almost certainly they can't or won't) we would gladly send her a copy of The Motley Fool Investment Guide. Maybe she'd pitch it in the fire. Or maybe not. But the path that she's on right now isn't an enviable one, and the expression on her face shares that she feels that same sentiment.
But she's not the only one reading charts. I've also read the charts. I've read the ten-year charts and I've made my prediction. The prediction reiterates an earlier point: "Buy stocks early in life, and sell them late in life -- if ever."
THE WEEK: It doesn't matter to Fools that the stock market is soaring to new highs. Ten years from now, this Fool thinks that stocks will be higher. What happens in the meantime, though -- well, it's fun to watch.
For the week, the Fool gained 0.65% while the S&P fell 0.15% and the Nasdaq soared to new highs, rising three percent. It was earnings week for a number of leading companies, and the Fool had its share of participants.
Lucent, General Motors, Iomega, and Innovex all reported strong earnings -- all of them pleasing investors.
IOMEGA (NYSE: IOM) reported earnings of nineteen cents per share on record revenues of $400 million. The stock now has a PEG ratio of about 0.75, implying a fair value of $32.50. That price is twenty-seven times 1998 estimates. If Iomega succeeds, it's fairly easy to imagine the stock trading at $32 per share one year from December, or twenty-seven times trailing earnings, while growing over 30% per year. The stock rose on the news.
INNOVEX (Nasdaq: INVX) reported earnings of $0.72 per share, above estimates. It currently trades at 15 times trailing earnings. On estimates of $2.93 per share, a share price forty to fifty percent higher in five quarters is realistic. The stock rose 13% this week. The conference call was positive.
Our big loser was AMERICA ONLINE (NYSE: AOL). The stock fell on two analyst downgrades based on share price. Here's the story: the stock rises, analysts downgrade it on price, it falls, later it rises again. The stock earlier made record new highs this week. The Fool will offer a "Duel" on AOL's stock on Monday -- speak your mind in the message boards in order to be a part of it!
Finally on the stock front, LUCENT TECH (NYSE: LU) blew estimates out of the water, and rose $6 over the week as a result. Lucent announced a billion dollar acquisition the next day. Things are going well at Lucent.
Things are clipping along at the Fool, too. The Fool is happy to announce that, working with the Universal Press Syndicate, fresh and original Motley Fool content is now appearing in nearly forty newspapers -- and growing -- across the country, beginning this past week. The content is timely, lively, and of course all-out Foolish. "Read all about it!" -- as they say in newspaper lingo -- in the Fool's press release.
Some closing statements: Tuesday I stated that TRUMP HOTELS (NYSE: DJT) had a current ratio below 1.0 -- at 0.86 -- meaning that it had more current liabilities than current assets. I was mistaken. I had read the wrong numbers in my haste to make deadline. Trump actually has a current ratio of 1.19 on June numbers. 1.50 or higher is considered favorable, but 1.19 is better than 0.86. I apologize for the error.
Also, as was promised, we'll soon discuss more stocks that the Fool has considered in the past. We're also still hoping to speak with someone at ATC COMMUNICATIONS (Nasdaq: ATCT), to the capacity that management can discuss current performance.
Have a very Foolish weekend!
--Jeff Fischer, Fool
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Stock Change Bid ---------------- AOL -3 13/16 63.94 T - 9/16 34.44 ATCT - 1/16 4.13 CHV -1 3/4 75.63 DJT + 1/16 11.38 GM - 3/8 55.00 INVX -1 1/8 32.00 IOM +2 3/16 24.19 KLAC -2 1/8 54.88 LU -115/16 84.25 MMM -1 7/16 98.38 COMS -1 11/16 53.88Day Month Year History FOOL -0.67% 7.22% 13.07% 201.77% S&P: -1.75% 3.41% 23.57% 99.67% NASDAQ: -1.33% 7.34% 19.90% 114.94% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 24.19 859.82% 8/5/94 355 AmOnline 7.27 63.94 779.47% 10/1/96 42 LucentTech 47.62 84.25 76.94% 8/11/95 125 Chevron 50.28 75.63 50.39% 8/12/96 110 Minn M&M 65.68 98.38 49.79% 8/24/95 130 KLA-Tencor 44.71 54.88 22.73% 6/26/97 325 Innovex 27.71 32.00 15.48% 8/13/96 250 3Com Corp. 46.86 53.88 14.97% 8/12/96 280 Gen'l Moto 51.97 55.00 5.82% 8/12/96 130 AT&T 39.58 34.44 -12.99% 4/30/97 -1170 *Trump* 8.47 11.38 -34.32% 10/22/96 600 ATC Comm. 22.94 4.13 -82.02% Rec'd # Security In At Value Change 5/17/95 980 Iomega Cor 2594.53 23703.75 $21109.22 8/5/94 355 AmOnline 2581.87 22697.81 $20115.94 8/12/96 110 Minn M&M 7224.44 10821.25 $3596.81 8/11/95 125 Chevron 6285.61 9453.13 $3167.52 8/13/96 250 3Com Corp. 11714.99 13468.75 $1753.76 10/1/96 42 LucentTech 1999.88 3538.50 $1538.62 6/26/97 325 Innovex 9005.62 10400.00 $1394.38 8/24/95 130 KLA-Tencor 5812.49 7133.75 $1321.26 8/12/96 280 Gen'l Moto 14552.49 15400.00 $847.51 8/12/96 130 AT&T 5145.11 4476.88 -$668.24 4/30/97 -1170*Trump* -9908.50 -13308.75 -$3400.25 10/22/96 600 ATC Comm. 13761.50 2475.00-$11286.50 CASH $40625.59 TOTAL $150885.65
