Fool Portfolio Report
Thursday, July 31, 1997
by Jeff Fischer (TMFJeff)

ALEXANDRIA, VA (July 31, 1997) -- The "slow and dull" summer month of July ended with the S&P up an impressive 7.81% and the Nasdaq up 10.52%. The Fool Portfolio gained 9.59%. That's a far cry from last July, when the Nasdaq lost 8.82% and the Fool dropped 23.59%. Last summer was difficult for many investors, but those that held steady have come out victorious.

Following Tuesday's recap questioning the Foolishness of shorting stocks (as opposed to spending your time researching and then buying and holding great companies for the long term), many of you sent in letters of agreement. That surprised me. What was a pleasant surprise, though, was that only two people mentioned the possibility of the article signifying a Bull Market that was finally topping -- that the day someone is writing about never shorting stocks again is the day to step aside and let the market cascade downward.

That most Fools didn't interpret a single column written by one person as a "contrarian market indicator" is hopefully, in its own right, a sign that investors are letting go of the old and broken "crystal ball" that the Wise like to reference. If this is so, good Fools, then perhaps in the future a negative Barron's story on tech stocks won't send the whole sector tumbling, as it has in the past. Because it certainly shouldn't.

Consider that while one Fool was writing about never shorting stocks again, Money Magazine's current cover screams, "Sell Stocks Now!" and Time magazine's most recent issue has an article titled, "Wall Street's Doomsday Scenario." The article even mentions the Fool as a place to go when the market does tumble, to discuss the event and stocks in general with other investors. Time is preparing investors for a decline, just as a Washington Post article did two weeks ago when it wrote of Vanguard's preparation for any large market decline.

The Old School would say that all these negative expectations are a good sign for the stock market. In one sense, a Fool could bend to believe that -- because stocks have been known to climb a wall of worry. So then, should you be investing more money in stocks due to the negative Money Magazine and Time articles?

Well, of course not.

The market is its own beast. It knows nothing of what is said about it. In the end, it moves on earnings, interest rates, and the overall economy. There is some value in tracking investor sentiment, but that sentiment is usually so varied that the conclusions reached are rarely, if ever, cohesive or meaningful. And when sentiment is actually cohesive and strong, acting upon that moment of "group sentiment" is probably the worst thing that you can do. You would have sold everything in October of 1987.

The value of any outside sentiment is questionable, and once undue power is taken away from any and all "pockets" of influence -- be they television shows, magazines, or newspapers -- and investors only invest on fundamentals rather than on hype or gloom, the market's volatility will probably subside substantially. The result: investors will probably perform much better over the years. Nobody, for instance, would have bought CompuServe or AT&T based only on the Wall Street Journal articles stating that both companies were involved in buy-outs. Investors would act on fundamentals, not on stories. As Fools do.

Coming back to the recap about shorting stocks -- there was an interesting and strong argument for shorting from one Fool. He mentioned that if this was 1974 and the market had just been cut in half, I'd be singing a different tune about shorting. I admitted to that, but then realized that I probably would have paid for that new tune, because the market gained 63% from 1974 to 1976. And from 1975 to 1980 the Nasdaq gained 238% and the Dow 56%. We all know what stocks have done since.

I can see being short as a happy situation in the 1974s and 1987s of stock market history, but the longer you plan to be invested, arguably the less your need for shorts. Sure, you would have been happy to be short in 1974; but by 1976 you'd be scrambling to get back on the other side of the fence -- if you were lucky. Meanwhile, long-term investors were consistently secure in their intentions and have won out ever since, again. They only took a "break" from winning for a few years.

Tonight Mark Weaver, MD, wrote his argument for shorting in the Boring Portfolio report. He does like to short, and is always short a few stocks.

To close, ATC COMMUNICATIONS (Nasdaq: ATCT) is due to announce year-end results at the end of August. The stock has been the worst performer in the portfolio, down as much as KLA-Tencor was for the Fool long ago.

The company chimed in with some words about its business to some Fools, and thanks go to Eric Gower for sharing. ATC management said that business is stable and going as planned. As announced in April, the company has moved from a telemarketing focus to telesourcing, which still uses the same foundation as telemarketing, but advances it to include counseling or consulting. ATC now only accepts high-yield and long-term business with Fortune 500 companies, and that's the plan going forward. The company has even turned business away in the last two months.

That doesn't exactly mean that ATC is stuffed to the gills with business, though. AT&T has slowed orders and that's resulting in flat third and fourth quarters, as was shared earlier. But ATC is building a base of new long-term customers, offering higher-yield business, and actually the company anticipates announcing ten new clients in August. The work for the new clients should begin that month.

In the final week of August, the company is expected to announce earnings of $0.02 per share. The stock trades at 15 times estimates of $0.28 per share for the year ending in June of 1998.

Fool on!

--Jeff Fischer, Fool

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Fribble -- A fun short story from readers.

Stock Change Bid ---------------- AOL + 7/8 67.50 T - 3/16 36.81 ATCT + 9/32 4.31 CHV - 5/8 79.00 DJT + 1/4 10.75 GM +1 7/8 61.88 INVX - 3/8 31.00 IOM - 3/16 22.50 KLAC +1 3/16 60.50 LU --- 84.88 MMM - 5/16 94.75 COMS -1 1/8 54.63
Day Month Year History FOOL +0.09% 9.59% 15.57% 208.43% S&P: +0.21% 7.81% 28.83% 108.18% NASDAQ: +0.36% 10.52% 23.45% 121.31% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 67.50 828.47% 5/17/95 980 Iomega Cor 2.52 22.50 792.86% 10/1/96 42 LucentTech 47.62 84.88 78.25% 8/11/95 125 Chevron 50.28 79.00 57.10% 8/12/96 110 Minn M&M 65.68 94.75 44.27% 8/24/95 130 KLA-Tencor 44.71 60.50 35.31% 8/12/96 280 Gen'l Moto 51.97 61.88 19.05% 8/13/96 250 3Com Corp. 46.86 54.63 16.57% 6/26/97 325 Innovex 27.71 31.00 11.87% 8/12/96 130 AT&T 39.58 36.81 -6.99% 4/30/97 -1170 *Trump* 8.47 10.75 -26.94% 10/22/96 600 ATC Comm. 22.94 4.31 -81.20% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 23962.50 $21380.63 5/17/95 980 Iomega Cor 2594.53 22050.00 $19455.47 8/11/95 125 Chevron 6285.61 9875.00 $3589.39 8/12/96 110 Minn M&M 7224.44 10422.50 $3198.06 8/12/96 280 Gen'l Moto 14552.49 17325.00 $2772.51 8/24/95 130 KLA-Tencor 5812.49 7865.00 $2052.51 8/13/96 250 3Com Corp. 11714.99 13656.25 $1941.26 10/1/96 42 LucentTech 1999.88 3564.75 $1564.87 6/26/97 325 Innovex 9005.62 10075.00 $1069.38 8/12/96 130 AT&T 5145.11 4785.63 -$359.49 4/30/97 -1170*Trump* -9908.50 -12577.50 -$2669.00 10/22/96 600 ATC Comm. 13761.50 2587.50-$11174.00 CASH $40625.59 TOTAL $154217.22