Fool Portfolio Report
Monday, March 17, 1997
by David Gardner (MotleyFool)

ALEXANDRIA, VA, March 17, 1997-- The market goofed off today, dropping substantially in the mid-day and roaring back to a mixed close. The S&P 500 was off more than 1% at 2 PM, but went on to close ahead for the day. The Nasdaq sunk even lower, then didn't come back as far (closing off 1%). Yet again, we see the technology stocks underperform the broad market. The divergence between the big guys (S&P 500) and the smaller guys (Nasdaq) continues. For the year, now, the S&P 500 is up 7.4% and the Nasdaq is now down, for the first time in 1997, off 0.9%.

The Fool keeps trudging along at a loss, off 7.9% for the year. We did manage to maintain our market lead during March (our first good month in '97) by splitting the difference between today's market moves. The S&P 500 rose 0.32%, the Fool lost 0.61%, and the Nasdaq surrendered 1.05% of its value.

Reflecting on the early selloff, I'm thinking Warren Buffett had something to do with all this. The nation's best-known investor released his annual market comment over the weekend through his shareholder's letter included with the Berkshire Hathaway annual report... now up on the Web (yep, that's right, even WB is going digital, my friends). Buffett wrote, "You can, of course, pay too much for even the best of businesses. The overpayment risk surfaces periodically and, in our opinion, may now be quite high for the purchasers of virtually all stocks, The Inevitables included. Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid."

So you think this statement was one of the factors responsible for the market's opening selloff?

Then again, the market came back and closed up(!). Maybe this reflects the ongoing reality pointed out to me in concise terms by an astute observer who e-mailed me the following over the weekend:

"With the advent of 401Ks, SEP, Keoghs and all the excess cash it has created I believe demand will [continue to] outstrip supply. There has been a dramatic shift from the institutional-driven markets of ten years ago (many spineless people running the market) to the individual investor-driven market of today (the little guys have lots of guts). The only thing that will stop the market from hitting 10000 by 2000 is an energy crisis (which is possible but unlikely) or huge inflation (also very unlikely)."

Takes two to tango, and make every market trade... buyers and sellers on both sides, as usual.

Buffett endorsed the idea of index funds in his commentary. You can read about those in The Fifth Step of our 13 Steps to Investing Foolishly ("Consider an Index Fund for Starters"). Please do, if you haven't already!

Our primary depressant today was KLA Instruments (Nasdaq:KLAC), which lost a few bucks. Intel (Nasdaq:INTC), the market leader in semiconductors, was off $6 (to $131 3/4) with just 45 minutes left in the trading day. But DOWN THE STRETCH THEY COME, as race track enthusiast and sports announcer Dave Johnson always says. The stretch run saw Intel gain back $4 5/8 of that large loss in the last trading hour. Unfortunately, most of the rest of the sector didn't come back with Intel. KLA Instruments, on no news, dropped down $2 7/8 to a bid of $36 7/8, and others like former Fool holding Applied Materials (Nasdaq:AMAT) lost $2 to $50.

KLA Instruments, having risen back over our cost basis of $44 after an initial 60% decline, is back down 17% overall for the Fool Portfolio. We remain confident of long-term outperformance for this stock, although we acknowledge that KLA/Tencor (KLA will merge with its industry rival on April 30) will remain subject to the whims of cyclicality... an unfortunate aspect of the semiconductor business. Anyway, I liked the message in our KLA Instruments folder on AOL from Hoigard. He responded to a post from a self-acknowledged new investor who got a good price on KLAC (well below ours!) but is now "nervous" with the price down a bit; the fellow wondered aloud about stop losses (i.e. sell orders that you can have executed automatically at price levels of your choice, in order to safeguard against sudden drops in a stock). Hoigard had this to say:

Don't buy companies that make you want to place stop losses. Buy companies that you can watch go up and down (especially down: it can be hard to watch!), and not worry about because you feel, based on your own research, that their long-term prospects are good. Short-term prices are not easy to predict. When setting a stop-loss, you may get stopped out just in time to avoid a crash in the price, but you're as likely to get stopped out right before a tremendous run-up!

Bully to that.

It's nice to see our big holding of Iomega unfazed by a bad Nasdaq day (even with the Nasdaq off 2% at one point, IOM was virtually untouched). The stock has been very dull as of late, which is bad in good market periods and can be quite good in bad market periods.

A reader sent us email questioning the recent weakness in the stock, and MF BudFox sent along a response and posted it in the Iomega board as well. The stock trades at 17.5 times estimates of $0.79 per share for this fiscal year, which isn't much above the industry average for data storage technology firms, though few are growing as quickly as Iomega. And Iomega is far from average, as it very possibly offers the next standard over the out-dated floppy. Only two analysts are currently giving complete estimates on Iomega, and though data storage doesn't demand great volumes of analyst coverage, a Fool would think there would be more interest in the company which grew sales from a few hundred million to $1.2 billion more quickly than any other company in history. AOL readers, check out the IOM board to catch up on just some of the best analysis going on in The Fool on a daily basis. Web readers can read the daily offering from that board in "IOM in Fooldom Today."

Moving away from Iomega for today... I was watching the NCAA basketball tournament over the weekend... my favorite sporting event. I was watching a LOT of it... y'know, 8 or 9 hours a day... what CBS makes available. Yeah, I'm a junkie.

Anyway, color announcer George Raveling made a good comment yesterday that I'd like to translate to a slightly different context. He said, "If you grow up playing ball in urban America, and you don't have a nickname, you don't have a game!"

Great line. And quite true... and I say that as someone who never came within a galaxy or two of developing a name on the blacktop.

But while that is indeed true of hoops, it's not at all true of investing. I really do believe that the best investment games out there are played by those with no nicknames... by "nicknames" here, I mean, "market following" or "guru status." I hope we'll continue to remember that market gurus quoted in the press are often people with sub-par returns who are interviewed because the media needs copy to put around their ads. They make market calls that are often wrong and never followed up on, and they don't seek to educate investors. Meantime, the investment clubs of America -- America's individual investors who take a long-term view and don't yell trades out over their phones -- put up market-beating numbers. And they are interested, more than anything, in learning.

So let's put it this way: Among most American investors, if you do have a name, you probably don't have much of a game. We continue to encourage each of our fellow Fool readers to think independently, invest in what you know, think long term, and be skeptical of the many Wise comments you'll come across on the boob tube and in your friendly daily financial rag.

And I include even our own digital one, in that regard. (Though we never aspire to a following... we aim merely to teach!)

Fool on!

--- David Gardner, March 17, 1997

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.


Stock Change Bid -------------------- AOL + 1/8 43.88 T - 1/4 35.25 ATCT - 5/16 7.19 CHV - 3/8 67.00 GM + 1/8 58.00 IOM --- 14.63 KLAC -2 7/8 36.88 LU - 1/4 52.88 MMM + 1/4 90.00 COMS -1 33.25
Day Month Year History FOOL -0.61% 1.26% -7.92% 145.75% S&P: +0.32% 0.62% 7.42% 73.58% NASDAQ: -1.05% -2.26% -0.90% 77.65% Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 43.88 503.27% 5/17/95 2010 Iomega Cor 2.52 14.63 480.59% 8/12/96 110 Minn M&M 65.68 90.00 37.03% 8/11/95 125 Chevron 50.28 67.00 33.24% 8/12/96 280 Gen'l Moto 51.97 58.00 11.60% 10/1/96 42 LucentTech 47.62 52.88 11.04% 8/12/96 130 AT&T 39.58 35.25 -10.93% 8/24/95 130 KLA Instrm 44.71 36.88 -17.53% 8/13/96 250 3Com Corp. 46.86 33.25 -29.04% 10/22/96 600 ATC Comm. 22.94 7.19 -68.66% Rec'd # Security In At Value Change 8/5/94 680 AmOnline 4945.56 29835.00 $24889.44 5/17/95 2010 Iomega Cor 5063.13 29396.25 $24333.12 8/12/96 110 Minn M&M 7224.44 9900.00 $2675.56 8/11/95 125 Chevron 6285.61 8375.00 $2089.39 8/12/96 280 Gen'l Moto 14552.49 16240.00 $1687.51 10/1/96 42 LucentTech 1999.88 2220.75 $220.87 8/12/96 130 AT&T 5145.11 4582.50 -$562.61 8/24/95 130 KLA Instrm 5812.49 4793.75 -$1018.74 8/13/96 250 3Com Corp. 11714.99 8312.50 -$3402.49 10/22/96 600 ATC Comm. 13761.50 4312.50 -$9449.00 CASH $4909.01 TOTAL $122877.26