Fool Portfolio Report
Wednesday, March 19, 1997
by David Gardner (MotleyFool)

ALEXANDRIA, VA., (March 19, 1997) -- Rats. A continued selloff in computer networking and Internet stocks caused the Fool Portfolio more grief Wednesday, further sinking our 1997 performance into the red. America Online (down $3 7/8) and 3Com (down $1 5/8) led the Fool Portfolio down 3.64%, and 11.80% for the year. That's new-low territory. This transpired in the context of a further Nasdaq selloff, down 1.58% today, and now down 3.23% for the year. The S&P 500 remained much stronger, off 0.49% for Wednesday and still up decently for the year.

Let's rattle through a few news items before talking a bit today about technology and courage.

America Online scored a sizable loss, Wednesday. This probably mostly reflects the overall tenor of the market. It may also be related to a number of insider stock sales registered this morning, appearing over Dow Jones News Retrieval. It appears to be the the routine cashing out of stock options by management, which we've seen for years. Possibly also a factor in today's drop is that AOL is restructuring its Greenhouse studio, which is apparently resulting in some layoffs. This message runs contrary to the Tartikoff announcement (a bullish AOL Studios announcement) which boosted the stock five bucks last week. Perhaps it's not only in with the new, but out with the old, as well.

AOL's name is coming up in regard to freedom of speech on the Internet. That's because a Clinton administration lawyer is asking the Supreme Court to uphold last year's law (struck down in summer '96) about "indecent" material posted on the Internet. I'm a father of two, but I can tell you that this sort of regulation is comical. The law simply will not be effective because publishers will just set up pieds-a-terre in foreign nations and "broadcast" legally from there.

Plus, how do you define "indecent"? Different strokes for different folks. As always, the way to combat things we don't like is through attacking demand, not supply. It's through more education, more openness, more light. Attacking supply is Prohibition; have we still not learned this?

I liked the words of one contributor to our message boards, who wrote today, "I'll tell you this, I think we'd all be psychologically healthier running around naked in the rain forest... (but then, would we need AOL?)." Giggle.

3Com was down to a new low today, hitting just $30 5/8 at one point. The stock appeared to be down following comments from the managers of both 3Com and Cisco, who at different conferences said similar things: the growth rate for Internet networking stuff has slowed recently. This, coupled with negative comments from Morgan Stanley market strategist Barton Biggs in today's Wall Street Journal ("Technology is entering a secular growth slowdown," to sum it up) sent COMS down $1 5/8 on the bid.

I took a call from a Dow Jones reporter today asking what I thought of technology stocks. I don't know what portion of my comments, if any, will appear in her story, but I'll give 'em to you unexpurgated.

We shouldn't be using the phrase "technology stocks" or "tech stocks" anymore. That's because almost everything's a technology stock in one way or another today, and if it isn't already, it'll need to be in future. Two weeks ago, I heard Chancellor Michael Hooker of the University of North Carolina at Chapel Hill point out that even the steel industry, of all things, is driven by technology today. If you want to get ahead in the steel industry, you use technology to reduce your costs, increase your efficiency, and improve the quality of your steel. More than anything, what separates a great steel company like Nucor from all the rest is its successful use of technology. Right on, Chancellor.

Everything's a "tech stock."

Further, for better or for worse (and there's good and bad in most things), technology will rule our world going forward. It's already the case in the United States, where development and use of the Internet is well beyond the rest of the globe. Going forward, companies like 3Com and America Online and others are going to have great international expansion opportunities. So the notion that we're entering a bear market for technology is, as the phrase "bear market" always connotes (I wish more people understood this), a very short-term notion. Fine, the market's bad; it's already been fairly bad. (We were already well down from recent Nasdaq highs before today.) 3Com is down from $80 to $30, and we have talking heads telling us that we're entering a bear market.

Where was Barton Biggs with 3Com at $81?!

I tell you, it takes courage to invest in the stock market. If you have it, hold onto it. If not, invest elsewhere... you have many other options, some of them even fairly decent. As we mentioned in a report on Monday, we now have Buffett saying the market's overvalued, today the Morgan Stanley fella, and the same goes for Michael O'Higgins (author of Beating the Dow, and interviewed for an upcoming Rogue article -- but he's been bearish for a couple years.) And various portions of the media have been saying it since we launched Foolishness online three years ago. And you know what? At some point these people are going to be right!

But for how long will they be right? You think technology is disappearing? You think nobody's going to make any money off wireless communicators, robots, virtual reality? And that's only the exotic stuff. Listen, the highest profit margins in the world come from America's high tech darlings of today. Talk 'em down if you like, sell their stocks for a few months if you're an institutional trader measured by your daily activity, but for most of the rest of us, I advise courage.

The Reverend Maurice Boyd of the City Church of New York, a precious national resource and one of the more powerful thinkers and speakers of our time, had this to say on courage, which I'll close with today:

"Shortly before the end of the Cold War, I listened to a well-educated, articulate Russian engineer who had been imprisoned for a decade by the KGB, often in solitary confinement. He told us that he wondered why, when he knew they were coming to get him, he did not commit suicide as so many others had done, but had managed to stand up to them during his arrest and long years in prison.

"Part of his reason was the American Western, whose hero is so often the solitary man who knows who he is and will not be less. The Russian engineer learned his courage from Red River and Shane, from The Magnificent Seven and The Big Country.

"Gary Cooper won an Academy Award as the lonely sheriff in High Noon. I like to remember not only how the film brought honor to him, but how it brought courage to a solitary Russian in the Gulag."


Stock Change Bid -------------------- AOL -3 7/8 38.88 T - 3/8 35.00 ATCT --- 7.00 CHV + 7/8 67.75 GM - 5/8 56.13 IOM - 3/8 14.38 KLAC -2 5/8 35.88 LU -2 3/4 49.38 MMM - 3/4 88.63 COMS -1 5/8 32.13
Day Month Year History FOOL -3.64% -3.02% -11.80% 135.38% S&P: -0.49% -0.64% 6.08% 71.42% NASDAQ: -1.58% -4.56% -3.23% 73.47% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 14.38 470.67% 8/5/94 680 AmOnline 7.27 38.88 434.52% 8/12/96 110 Minn M&M 65.68 88.63 34.94% 8/11/95 125 Chevron 50.28 67.75 34.73% 8/12/96 280 Gen'l Moto 51.97 56.13 7.99% 10/1/96 42 LucentTech 47.62 49.38 3.69% 8/12/96 130 AT&T 39.58 35.00 -11.57% 8/24/95 130 KLA Instrm 44.71 35.88 -19.76% 8/13/96 250 3Com Corp. 46.86 32.13 -31.44% 10/22/96 600 ATC Comm. 22.94 7.00 -69.48% Rec'd # Security In At Value Change 8/5/94 680 AmOnline 4945.56 26435.00 $21489.44 5/17/95 2010 Iomega Cor 5063.13 28893.75 $23830.62 8/12/96 110 Minn M&M 7224.44 9748.75 $2524.31 8/11/95 125 Chevron 6285.61 8468.75 $2183.14 8/12/96 280 Gen'l Moto 14552.49 15715.00 $1162.51 10/1/96 42 LucentTech 1999.88 2073.75 $73.87 8/12/96 130 AT&T 5145.11 4550.00 -$595.11 8/24/95 130 KLA Instrm 5812.49 4663.75 -$1148.74 8/13/96 250 3Com Corp. 11714.99 8031.25 -$3683.74 10/22/96 600 ATC Comm. 13761.50 4200.00 -$9561.50 CASH $4909.01 TOTAL $117689.01