Fool Portfolio Report
Tuesday, January 14, 1997
by  Tom Gardner (TomGardner)

ALEXANDRIA, VA., January 14, 1997 -- Back and forth and forth and back. After a tough day yesterday, The Fool Portfolio bounced back with the market, climbing 1.47%. The S&P 500 rose 1.23% and the NAZ was up 1.16%. Two weeks into 1997, the scorecard reads:

FOOL + 4.82% Nasdaq + 4.29% S&P 500 + 3.80%

That's a pretty nice month so far. Does anyone think this sort of growth will continue throughout the year? Well, I have the advantage of my Windows Scientific Calculator. And the answer is most certainly a Madonnian, "Not!" If we continue at this growth rate, the year-end 1997 scorecard will look like this:

FOOL + 240.05% Nasdaq + 198.06% S&P 500 + 163.71%

And I can promise you that if we generate those sorts of returns for the year, we're staring 1929 squarely in the face. In that scenario, keep your eyes open for the following -- in mid-April a glamorous unsinkable ship heads out on its maiden voyage in the North Atlantic, without enough lifeboats; you find yourself at a debutante ball dancing the Charleston with someone half your age; you're married to more than one person; the idea of "permanent prosperity" is lovingly embraced by bent-back, ratchety pessmists; your technophobic great aunt treats her 800-MHz home computer, her satellite dish and surround-sound home theatre, her General-Motors Jetpack, and her three-man squad (RoboChef, RoboMaid and RoboShopper) as necessities.

Suffice to say, The Motley Fool will not compound two-week growth of 4.82% through 1997. In fact, there is historical evidence enough to suggest that this may be all the growth we see for the entire year -- packaged right here in the first two weeks. What a cruel joke and a severe test of our collective will that would be!

Or. . . can we imagine greater cruelty and severity than that?

Looking back over the past two-and-a-half years, the stock market has climbed 67.73%. The $25,000 portfolio indexed thirty months back is now tipping the scales at $41,900. At that rate, the just-average portfolio is doubling itself every thirty-three months. And, Fools young and old, placing this performance in a historical context certainly allows for the possibility of greater cruelty and severity than a single year's flat performance.

At historical growth rates of 11% annually, stocks would return to their average if they showed us zero growth over the oncoming thirty-month period. Can you believe that? Yep. Five years of 11% annual growth adds up to 68.5% total growth, and that's precisely what we've got on our hands from the past two-and-a-half years. If the balance of power among investment vehicles is to be restored, if Borges is right that history repeats itself -- that we're caught in a self-rephrasing maze -- then it isn't ludicrous to posit a market that runs sideways into the millennium or one that melts its wings in the sun, cools its wings in the water, and returns to flight somewhere on the other side of the century mark.

Cruel and severe?

Well, yes, for some. For the overextended. For those dealing in options with lofty strike prices. For those who have leveraged their portfolios without considering that the market has daytimes and nighttimes, that is has blossoms and dormancies and declines. But a short-term market mashing or more intermediate-term stagnancy also would hurt employees with options that vest too soon, the retiree counting on his IRA to carry him in retirement starting in January 1999, the company that just agreed to be acquired in an un-floored stock-for-stock transaction.

A hard-hitting short-term market decline would hurt a lot of people. An intermediate term loafish performance by equities would irritate plenty of portfolios as well. Given the performance of US equities over the past two-years and over the past fifteen years relative to their historical achievements, even the greatest of long-term bulls can imagine such carious, foul circumstances.

I don't propose crash or even delay. I haven't the faintest clue where the whole market motorcar is headed. I was heartened to see Sir John Templeton, one of our centuries great investors, on Mr. Rukeyser's show this week claiming to have no talents in the field of short- or intermediate-term market direction. This market may bumble, stumble, fumble; it may even crumble. The most significant point to be made is that Mrs. Market has a way of humbling any of us with designs for supersized, outrageous halfway-along profits.

For the moment, allow me to distinguish out the long-term investor. Like the woman who passed away in 1995, who turned her secret"arial, helvetica" salary into over $20 million by systematically saving money and investing it in large-capitalization growth stocks. Like the MF Runkles and Cormends who build models around forty- and fifty-year returns. And yes, like the John Templetons, who remind us that when they were born, eighty-four years ago, the Dow was trading at 25. That same growth copied-and-pasted over the next eight decades will have the Dow trading in the millions. So why quibble over a 2500-point decline in the Dow, even if it would amount to a 37% decline from here? It would prove wholly un-notable, painted into the entire canvas.

That's probably enough market-level chatter for one night. But hopefully we can all benefit from some historical perspective mixed with Folly.

America Online and 3Com floated The Fool Flotilla today, rising $1 1/2 and $3 1/4, respectively. No news from either company today. In fact, there was really nothing important out of any of our companies, during market hours. After market close, however, those little news elves caught in our monitors hurried two significant items across the screen. Intel bashed earnings estimates, posting $2.13 versus estimates of $2.00 for the quarter. The great get greater.

More significantly, KLA Instruments announced this evening that they will be merging with another semiconductor-equipment outfit of some renown, Tencor Instruments. I asked MF BudFox to cobble together some information on the merger. His account follows my signoff. Have an joyous evening, Fools.

Tom Gardner

KLA Merges With Tencor Instruments, MF BudFox

KLA INSTRUMENTS (Nasdaq: KLAC) rose $5/8 to bid $40 5/8, hitting another 52 week high. After the bell the company announced a merger with TENCOR INSTRUMENTS (NASDAQ: TNCR). Tencor has been in the biz twenty years and employs 1,400 employees. Combined revenue of the two firms exceeds $1 billion. The firm will be known as KLA-Tencor.

Tencor sports a $900 million market cap, while KLA about $2 billion. The agreement of the merger calls for shares and options of KLA Instruments ( to be exchanged for all shares and options of Tencor Instruments ( at the rate of one share of KLA for each share of Tencor. KLA has 51 million shares outstanding, and Tencor only 31 million.

Remember, it's a merger, not a buy-out. Some folks on the Motley Fool boards questioned if KLA's stock would fall because Tencor trades at $30, while KLA at $40. The market can react however it wishes, but the merger doesn't call for a stock price decline. "Value" is not truly being created or negated.

The press release states that the companies will combine complementary product lines and become a complete supplier of "yield management solutions." One-stop shopping from a new "global leader."

After I wrote of KLA on Friday, an employee of that company sent email directing me to the Motley Fool's message boards to learn more about his company. I find that somewhat ironic -- ironic enough to cause a smile -- but well-guided and indeed a useful reminder. I visited the KLA board and, indeed, there is plentiful smart discussion taking place. AOL members wishing to learn more, be like Mike (Jordan) and hit those boards!

Also Friday, I mentioned that INTEL (Nasdaq: INTC) uses KLA Instrument's products. Intel also has relations with APPLIED MATERIALS (Nasdaq: AMAT). An employee of Intel sent me the following:

"Here's a little more food for thought. I've worked for Intel for about 13 years and have been part of two fab start-ups (Fab 7 & Fab 11). Here's my take. If I have a limited amount of capital for putting equipment into a multibillion dollar factory, where am I going to spend it? If it's between KLA & AMAT I choose AMAT. Here's why. KLA equipment tells me what's going on with wafers -- helps me predict yield. AMAT equipment builds wafers for me -- in many areas of the fab because they make such a broad line of equipment. If I'm down to those last few dollars, I have a hard time cutting AMAT equipment because that limits the number of wafers I can build, my capacity. But I can cut KLA equipment because I can decrease sampling and measure only those steps that I know are most critical to yield. Therefore KLA is a nice-to-have, AMAT is a must-have."

- Jeff


Stock Change Bid -------------------- AOL +1 1/2 39.50 T + 1/4 38.88 ATCT - 1/4 14.13 CHV - 1/8 68.00 GM + 7/8 61.00 IOM - 1/16 16.75 KLAC + 5/8 40.63 LU + 1/2 51.13 MMM +1 7/8 85.25 NCR + 3/4 32.75 COMS +3 1/4 74.25
Day Month Year History FOOL +1.47% 4.82% 4.82% 179.73% S&P 500 +1.23% 3.80% 3.80% 67.73% NASDAQ: +1.16% 4.29% 4.29% 86.95% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 16.75 564.95% 8/5/94 680 AmOnline 7.27 39.50 443.11% 8/13/96 250 3Com Corp. 46.86 74.25 58.45% 8/11/95 125 Chevron 50.28 68.00 35.23% 8/12/96 110 Minn M&M 65.68 85.25 29.80% 8/12/96 280 Gen'l Moto 51.97 61.00 17.37% 10/1/96 42 LucentTech 47.62 51.13 7.37% 8/12/96 130 AT&T 39.58 38.88 -1.78% 1/2/97 8 NCR 33.63 32.75 -2.60% 8/24/95 130 KLA Instrm 44.71 40.63 -9.14% 10/22/96 600 ATC Comm. 22.94 14.13 -38.42% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 33667.50 $28604.37 8/5/94 680 AmOnline 4945.56 26860.00 $21914.44 8/13/96 250 3Com Corp. 11714.99 18562.50 $6847.51 8/12/96 280 Gen'l Moto 14552.49 17080.00 $2527.51 8/11/95 125 Chevron 6285.61 8500.00 $2214.39 8/12/96 110 Minn M&M 7224.44 9377.50 $2153.06 10/1/96 42 LucentTech 1999.88 2147.25 $147.37 1/2/97 8 NCR 269.00 262.00 -$7.00 8/12/96 130 AT&T 5145.11 5053.75 -$91.36 8/24/95 130 KLA Instrm 5812.49 5281.25 -$531.24 10/22/96 600 ATC Comm. 13761.50 8475.00 -$5286.50 CASH $4600.04 TOTAL $139866.79