Fool Portfolio Report
Friday, February 21, 1997
by Jeff Fischer (MF BudFox)

ALEXANDRIA, VA., (Feb. 21, 1997) -- The train was near empty after Bayonne and as it moved the sun moved too and it was high and bright and the horizon was lost. A field of sunflowers jumped row by row by the window, then the train relented and thread itself alongside a river.

Non sequitur. That has little to do with today's column, but I'm working towards a future where my entire recaps can be stories of fiction. (Kidding). Though for this recap, if you wish to imagine you're crossing France by train, I'll quickly accommodate your imagination throughout.

The distant landscape aches past the window and it's the weekend and you're wondering about the Fool stocks back in the States. You heard from a Fool in Monaco that some stocks were down lately. Down. Makes you thirsty thinking of "down." Down the hatch. You raise your hand and a stodgy Frenchman takes your order and returns with a drink. You drink and turn on your lap-top.

You begin reading a dull recap filled with numbers: "The Fool lost three percent this week as the tech-filled Nasdaq fell 2.40%. The Fool is now trailing the S&P by 16% for the year. But hey, the portfolio is still beating the S&P by a whole 70% after two and half years, and it's the big picture that counts!"

What a clown, you think to yourself, sipping your drink, watching cows flash by the window. Of course it's the big picture, but you don't need to always restate that. Give us the dirt!

The recap continues: "ATC COMMUNICATIONS (Nasdaq: ATCT) has fallen a bit since the Fool picked up 600 shares. Off 74% now, well, what can I say? My bosses first found the stock and it's awesome. I'm sticking by that stock forever! Go ATCT!"

Moron, you think to yourself. Suddenly the man seated beside you leans over the armchair. "Excuse me. You're reading the Fool?" "Yes, about ATCT," you answer.

He replies coyly, "I have a close friend at the Fool and he told me that the discussion while deciding upon the ATCT purchase touched along these lines: with the stock at that valuation, $22, the risk-to-reward ratio is very questionable. The risks we're taking in hopes of making 50% -- or man, 100% -- are substantial. For the stock to double it would need to trade near 100 times next year's earnings. You know what we should do: buy Microsoft. That stock very well may double in three years or so, and with much less risk. At this price, it makes more sense to buy Microsoft."

"Really? That was said?" you ask. He replies, "Yes. That's what I hear. But one question raised was, what lesson does buying Microsoft offer?" You think about it a moment. "So what made them buy ATCT?" you ask.

"The Fool's portfolio is supported by the Foolish Four approach, they were lacking small-caps, and this one did look hot, especially if earnings could surprise on the upside." "But that's a dangerous assumption," you respond. The man nods. "There's a lesson here with small-caps: the added risk you're taking better be merited before you buy. Especially as you could invest in a world-leader compounding 25% annually instead. Believe me, it's much more fun to make money steadily than to lose money. Besides, you can take great pride in owning world-leaders." The man raises his hand, "Coke, please!" he asks the waiter. "Of course, even world-leaders offer no guarantees," he states. His Coke arrives and he drinks. "Ahh... that's good," he smiles.

You nod and continue reading the recap, then pause. "America Online and Iomega were both small caps, " you say. "The Fools only did well buying those, and continue to do well."

"Yes," your fellow traveler agrees. "Those companies both held proprietary technology and AOL was quickly emerging as a leader in its field. Iomega also had market-leading promise with its dynamic new products. Not so with ATCT."

The train slows, passing through a small town on a river-bank with a tall cathedral and tight homes on a hill. Trees hang low over the river and two men fishing watch the train pass. You look down and read the recap again, while the man reads over your shoulder: "3COM (Nasdaq: COMS) has fallen 48% in 1997 on price cuts and lowered earnings estimates."

"3Com," the man begins, "there's a leader that fell. It very much leads its market." You look at him and nod. He continues, "I think it may be a fine investment over the long-term, judging on management's past successes. The one weakness it has is a concentration on low-end networking products: ethernet cards, NIC's. Lower-end products make up 40% of 3Com's revenues. Intel controls more than 90% of the microprocessor market and can afford to cut prices on its low-end networking products, and did. 3Com had to follow suit. The company needs to focus on more high-end networking products, as Ascend and Cisco Systems do. But in the past, large drops in 3Com have been strong opportunities. It's a well-run firm. I'd research the company when you get back to the States, if you're interested."

"So, what about Intel?" you ask. "Or Microsoft, for that matter?" The man sips his Coke: "Microsoft controls 90% of the operating system market, so both companies more than dominate their industries, but that doesn't mean they can't stumble. I hear Intel's stock is sliding on news of a Cyrix chip being used by Compaq Computer. Technology is under constant assault. That's progress. The leaders have the momentum and resources to continue leading, but nothing is certain in technology."

"The Fool portfolio is a bit tech-heavy," you remark. "Sign of the times, perhaps," he replies. "But technology is shaping the world and in the long run, with the right companies, you'll do extremely well invested in it. I wouldn't base a whole portfolio on it, though. There are many great repeat-purchase businesses out there, for example." He touches his face. "Wow. I really need to shave. And wash my hair."

"Coke?" the French waiter asks. Your acquaintance answers, "Sure, I'll have another Coke." "Microsoft, Intel, Fool," you say, "interesting conversation. AOL France is cool, too." The man nods,"I agree, it is. Well, we're coming to my stop soon."

"By the way, which stocks do you like now?" you ask. He smiles. "I'm a Fool, aren't you, too? I wouldn't take a stock tip on a train." "You're right, of course," you reply. "But back on small caps: what did you think of the Fool's past small-caps, Ride Snowboard and Medicis?" The man grins, and offers, "Ride was a great small-cap purchase at the time. It's a booming, fun, consumer-oriented industry. Medicis I didn't buy. An acne company?" he smiles. "But the Fool more than doubled their money on it. Goes to show you: there are many possibilities out there and, in the end, the mission of investing is to make money for you and your family -- but do it reasonably. Ground yourself first, and then choose intelligently. Think long-term, and keep it fun! If you can't smile about your investing life, you're not doing it correctly."

The train stops at Biarritz. "I'm hitting the beach," the man says. You wave good-bye as he grabs his bags and steps down and off the train. You look to read your lap-top, but just then the battery dies. "Shoot," you say quietly to yourself, "somebody needs to develop a portable battery that lasts longer. Fool," you say to your computer, "I'll read you when I get to the hotel. Waiter," you raise your hand, "is there a Mcdonald's in this town?" The Frenchman frowns at you. "Oui. Yes."


Dear Fools, an offering of my somewhat weekly "Weekend Reading" ideas:

1. Fool Industry Reports.

2. Fool Wires/Fool's Gold Weekend Research

3. America's Most Admired Companies

4. Telecom Wars (AT&T, et. al.)

5. World News

6. The "Pathetic Unofficial Home Page of Jeanne Calment." (By coincidence, Jeanne Calment of Southern France turned 122 Friday, and someone has made a Home Page for her. She's the oldest known person on the planet, ever. She sold pencils to Van Gogh, and is reportedly surfing the Web to celebrate her birthday. Last year, MF Czar wrote a Fool recap about her. She's a Fool!


Have a Foolish weekend....

---Jeff Fischer, February 21, 1997

TODAY'S NUMBERS


Stock Change Bid -------------------- AOL + 1/4 34.88 T --- 39.88 ATCT - 1/8 5.88 CHV + 1 1/4 66.88 GM + 1/2 58.50 IOM - 1/8 16.50 KLAC - 1 1/4 42.75 LU - 1 3/8 57.63 MMM + 2 85.25 NCR - 1/8 35.13 COMS - 1 1/2 38.63
Day Month Year History FOOL -0.20% -10.13% -8.38% 144.52% S&P: -0.13% 1.99% 8.24% 74.91% NASDAQ: -0.97% -3.30% 3.35% 85.28% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 16.50 555.03% 8/5/94 680 AmOnline 7.27 34.88 379.52% 8/11/95 125 Chevron 50.28 66.88 32.99% 8/12/96 110 Minn M&M 65.68 85.25 29.80% 10/1/96 42 LucentTech 47.62 57.63 21.02% 8/12/96 280 Gen'l Moto 51.97 58.50 12.56% 1/2/97 8 NCR 33.63 35.13 4.46% 8/12/96 130 AT&T 39.58 39.88 0.75% 8/24/95 130 KLA Instrm 44.71 42.75 -4.39% 8/13/96 250 3Com Corp. 46.86 38.63 -17.57% 10/22/96 600 ATC Comm. 22.94 5.88 -74.39% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 33165.00 $28101.87 8/5/94 680 AmOnline 4945.56 23715.00 $18769.44 8/12/96 110 Minn M&M 7224.44 9377.50 $2153.06 8/11/95 125 Chevron 6285.61 8359.38 $2073.77 8/12/96 280 Gen'l Moto 14552.49 16380.00 $1827.51 10/1/96 42 LucentTech 1999.88 2420.25 $420.37 8/12/96 130 AT&T 5145.11 5183.75 $38.64 1/2/97 8 NCR 269.00 281.00 $12.00 8/24/95 130 KLA Instrm 5812.49 5557.50 -$254.99 8/13/96 250 3Com Corp. 11714.99 9656.25 -$2058.74 10/22/96 600 ATC Comm. 13761.50 3525.00-$10236.50 CASH $4639.01 TOTAL $122259.64