Fool
Portfolio Report
Friday, November 21, 1997
by David Forrest
([email protected])
ALEXANDRIA, VA (Nov. 21, 1997) -- Hiya, Fools. TMF Bogey riding shotgun for the boys tonight. The Fool Port fell 184% today after all 12 companies in the portfolio went bankrupt, except for Trump, of course, which was bought out for $666 dollars a share. Iomega (Nasdaq: IOM) fell to zero after people started realizing that it didn't store anything but Pop Tarts. America Online (Nasdaq: AOL) lost everything when the company was sold to Zimbabwe. Only after the deal was done did people realize that there aren't any phones in Zimbabwe. The huge margin debit the portfolio racked up caused the Fool to actually owe money. We'll be going public next week under the symbol Nasdaq: SMOOSH to raise the cash.
Okay, okay, I was just seeing if you were paying attention...
Actually, the portfolio did fall a wee bit today and is trailing both the Nasdaq and S&P 500 for the year. Oh, how the mighty have fallen! Just a few weeks ago we were bragging about how we were on top of the pack. It'll be a dogfight, but I have my money on the Fool Portfolio for the rest of this year. (Besides, Tom Gardner threatened to fire me if I didn't say that.)
In the news, KLA-Tencor (Nasdaq: KLAC) was downgraded by the analyst at Adam Harkness from "attractive" to "market perform." Attractive? Market perform? "Long-term accumulate, short-term neutral, intermediate-term pray???" In reaction to the absolute stupidity of all Wall Street stock-rating systems, Fool analyst F. Dale Wettlaufer downgraded Adam Harkness' ratings from "finger-lickin'-good" to "No-way, Jose."
Danger, Will Robinson! Testimonial to Follow.
Amazon.com (Nasdaq: AMZN) announced today that "just in time!" for the holiday season, it will offer a 30% discount on all audio tapes and 1998 calendars. For those of you who want to wait, we're sure they'll be having a sale in late January, "just in time!" for Groundhog Day. Seriously, though, if you're looking for some good investment reading, I encourage you to check out a few of my recent favorites:
Built to Last, by James Collins and Jerry Porras This book isn't about valuations or specific investment-related stuff, but it is the best look at what makes a company visionary and wildly successful that I've ever seen. The book is key in learning how to spot great companies and, as such, will help you in your investment decisions.
Net Gain, by John Hagel III and Arthur Armstrong I've yet to read anything that teaches how to be successful on the Internet. Want to better understand how companies like AOL, Yahoo!, Excite, and the rest work? Buy this book.
Testimonial Over; Back to Reality.
There wasn't much other news in the Fool port today, so I'd like to spend a paragraph or three talking about "risk" and how you can manage it. I have three rules that I'd like to share with you that will make the management of your risk much easier and hopefully help your portfolio in the future.
Rule 1: Diversify
This word gets thrown around a lot and people pay it a lot of lip service, but it's pretty darn important. Diversifying means more than owning one stock and praying that it goes up. It also means more than owning 4 networking stocks and thinking you're covered. Basically, the approach that the Fool portfolio has laid out is to invest in the Dow Dividend theory and a mix of strong growth stocks. Dow Dividend assures us that we'll own some monster companies that are diversified across the world. These are multi-billion dollar behemoths. The rest of the portfolio consists of one short-sale and the rest large- and small-capitalized growth stocks that span various industries. Some people will argue that the Fool Portfolio isn't diversified enough because of the heavy concentration of tech stocks. Well, we call it like we see it and the growth has been in technology. Call us crazy. If bamboo were a growth industry, we'd have Hsing-Hsing the panda as our poster-bear.
Rule 2: Never, ever, average down.
Averaging down is the equivalent of saying, "Yes, what a loser, I think I'll get more of it." Much better is averaging up, a concept that is alien to many, but has treated smart investors very well. Buying stocks that are doing everything right, and continue to do everything right, will reduce your risk greatly.
Rule 3: Actually know what the company does!
Simply put, don't ever buy a stock if you don't have a very keen understanding of what the company does. I'd rather see you put your money in a savings account than buy stocks you don't understand. Yes, learning all about a company is time-consuming, hard, and sometimes boring. Nobody said it would be easy. If you decide somewhere along the line, though, that you don't want to do the work, please don't buy blindly. Put the money in an index fund and leave it alone. Buying companies that you actually understand will greatly reduce your risk, as you'll be better equipped to separate the good stuff from the garbage.
Put these together and I think you'll greatly reduce your investment risk. It isn't easy. Don't expect it to be. Hopefully, though, the Fool helps make it fun for you. This leads me to the end of the report, but I'd like to ask you all a question first. Please e-mail me the answer to the following question (and if possible, tell me why):
Would you rather:
1. Let someone else manage all of your money
and blame/praise them for the returns you get.
2. Do all of the work yourself and take responsibility
for the great or poor returns you get.
3. Get unbiased research from somewhere else,
but make the decisions yourself.
Thanks for reading, Fools. It was fun. Have a great weekend!
David Forrest
(TMF Bogey)
Today's FoolWatch: all the latest in Fooldom.
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TODAY'S
NUMBERS
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Day Month Year History FOOL -0.34% 0.88% 25.18% 234.09% S&P: +0.43% 5.30% 30.02% 110.10% NASDAQ: -0.36% 1.70% 25.54% 125.05% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 31.63 1154.96% 8/5/94 355 AmOnline 7.27 74.88 929.51% 10/1/96 42 LucentTech 47.62 81.19 70.50% 8/11/95 125 Chevron 50.28 84.50 68.04% 8/12/96 110 Minn M&M 65.68 96.75 47.31% 9/9/97 290 Amazon.com 38.22 53.88 40.95% 8/12/96 130 AT&T 39.58 55.69 40.70% 8/12/96 280 Gen'l Moto 51.97 62.06 19.41% 8/24/95 130 KLA-Tencor 44.71 44.63 -0.19% 4/30/97 -1170 *Trump* 8.47 8.75 -3.32% 6/26/97 325 Innovex 27.71 24.25 -12.49% 8/13/96 250 3Com Corp. 46.86 34.94 -25.44% Rec'd # Security In At Value Change 5/17/95 980 Iomega Cor 2509.60 30992.50 $28482.90 8/5/94 355 AmOnline 2581.87 26580.63 $23998.76 9/9/97 290 Amazon.com 11084.24 15623.75 $4539.51 8/11/95 125 Chevron 6285.61 10562.50 $4276.89 8/12/96 110 Minn M&M 7224.44 10642.50 $3418.06 8/12/96 280 Gen'l Moto 14552.49 17377.50 $2825.01 8/12/96 130 AT&T 5145.11 7239.38 $2094.27 10/1/96 42 LucentTech 1999.88 3409.88 $1410.00 8/24/95 130 KLA-Tencor 5812.49 5801.25 -$11.24 4/30/97 -1170*Trump* -9908.50 -10237.50 -$329.00 6/26/97 325 Innovex 9005.62 7881.25 -$1124.37 8/13/96 250 3Com Corp. 11714.99 8734.38 -$2980.62 CASH $32438.81 TOTAL $167046.81
