Fool Portfolio Report
Thursday, December 4, 1997
by Tom Gardner (TomG@fool.com)


ALEXANDRIA, VA (Dec. 4, 1997) -- The Fool Portfolio rose a memorable 0.01% today as the S&P 500 fell 0.38%. Foolishness was hoisted higher by the $1 5/8 rise in the value of our Amazon.com (Nasdaq: AMZN) shares. Amazon, whose value is the subject of active debate in Fooldom, has now risen 40.63% for us since our purchase on September 9, 1997. I shared a few of my thoughts on Amazon.com last night -- click here for that post -- and I honestly believe this is one of the more fascinating stories and situations in 1997.

Tonight, I wanted to plow into the end of the year by sharing what I consider to be four of the flaws that have to be corrected in order for Americans to truly be served by the money world. Perhaps Foolishly, I also believe that these are inevitables over the next five years. The Internet is turning the financial industry into a name-brand consumer business. And, in that environ, the corporate providers of financial services that restructure to include, educate, and assist their clients -- rather than exclude, confuse, and exploit them -- will reap substantial marketing rewards over the next decade.

Here are four flaws that I think will be fixed in the next few years:

1. Full-Service Brokerage Compensation.

The game of commission-driven compensation on Wall Street among individual-investor accounts is disintegrating right before our eyes. It was a profitable ruse for decades -- with retail brokers methodically trading accounts for risk-free profit. But for clients, increased trading just meant higher fees, an increase in yearly capital-gains taxes, and greater feelings of inadequacy ("I have no idea what Joe is doing with my money; I can't follow all his moves.")

Wall Street's full-service firms are now being hit hard by every investigation into the business model underlying their "service" of individual investors. Expect low, flat-fee annual payments to dismantle the commission strategy that has hurt private investors for years.

2. Equal access to information.

Last week, Greg Markus (TMF Boring) published a wonderful interview with Mary Thurber, the head of Investor Relations for Cisco Systems (click here to read it). Among a host of laudable comments, Thurber said:

The philosophy of our department is that no matter how small their holdings, all company shareholders are treated the way shareholders should be treated. We strive to return all phone calls and e-mail within 24 hours. We send out requested material promptly. If an individual shareholder requests access to a quarterly conference call, they get it. We often have hundreds of people on line for quarterly conference calls, and many more call to listen to the taped replay.
Fools, if you work at a public company or are invested in a public company that disadvantages the investing community by providing high-net worth clients and institutional investors with exclusive access to new information -- you should let your company know that most likely they're in violation of basic securities laws.

In past months, we've identified a few companies that do not provide access to live or taped conference calls to their full complement of investors. And in the past week, the Fool's Evening News has concentrated attention on a few corporations that have, regrettably, given advanced notice of bad news to Wall Street analysts, rather than issuing public statements over the business wires, first.

Below are six companies that we believe have, in the past year, violated the trust of their broad base of shareholders by creating a private market of information for an exclusive group of institutions. We're not whining here or trying to unduly stoke fires, but if these businesses would like to be private entities, they have that option. If, however, they'd like to remain public companies in this country, there are basic disclosure principles that they have to abide.

I'm listing the companies and phone numbers here, not so that we all call and harry them in the morning. No, I'm listing them so that we give them a jingle to let them know that we don't believe it is fair or appropriate for them to, through the timed release of information, privilege particular investors in a public market.

Abbott Labs  (847) 937-6100
Altera Corporation  (408) 544-7707
Anchor Gaming  (702) 896-7568
E-Trade Group   (415) 842-2500
Electronic Arts   (650) 571-7171
Starbucks Corp.   (206) 447-1575 ext. 7806

Give them a one-minute jingle and let them know you care about this matter.

Today, with the Internet and the business wires, there are no technological constraints against releasing all information simultaneously to the entire investing community. Wonder why it happens then?

3. Consumer advocacy in the financial media.

The world of new media and mass conversation is only beginning to redefine the way that the traditional media covers the financial industry. Without the Internet (and a dollop of Foolishness), many Americans would not yet understand that:

a. Over 80% of all managed mutual funds underperform
the market each year.

b. Those Wall-Street traders that many celebrate are
often rewarded for trading a lot, not trading well.

c. Very few Americans should be paying interest on
credit-card debt above 10% per year -- in today's
interest-rate environment.

d. Unless you belong to an investment club or are
participating in an online financial area, the chances
of your getting unbiased answers to your questions
are slim.

e. Managing the whole of your savings account, whether
you have $1,000 or $15 million, needn't take more than
fifteen hours of your time each year.

As Americans begin talkin' turkey about this topic in Fooldom via linked up personal computers, the existing media are being forced to play the role of consumer advocate -- which means less reliance on jargon, less reliance on celebrating money gooroos, and a greater understanding that their readers are pretty smart, and getting smarter by the hour.

4. Credit card fine print.

A fun game that credit-card-issuing banks have been playing for two decades is to blanket the nation with promotional mailers designed to entice borrowing at initially low interest rates. Soon enough, though, the lending rates climb to exorbitant, usurious levels -- today, ranging from 15-18% and higher. Given that we live in a low-interest-rate environment, the rates that most banks are charging today only have a basis in reality because America doesn't understand the industry.

As the Internet shines light on the principles of prudent borrowing alongside the benefits of compounding growth on a small base of savings, banks will be forced to promote the FINE PRINT, the actualities of their products.

Hey, the Fool is not suggesting that all these things HAVE to happen. Nope, the Fool is just predicting that, in a competitive marketplace of informed individuals, they will.

Can't wait for that!

Tom Gardner, Fool

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TODAY'S NUMBERS

Stock Change Bid ---------------- AMZN +1 5/8 53.75 AOL - 1/8 81.88 T + 7/8 57.88 CHV - 15/16 77.63 DJT - 7/16 8.13 GM + 9/16 61.56 INVX --- 22.38 IOM - 11/16 30.81 KLAC -1 15/16 37.56 LU + 5/8 79.19 MMM + 5/8 96.94 COMS -1 33.88
Day Month Year History FOOL +0.01% 0.78% 25.04% 233.72% S&P: -0.38% 1.85% 31.37% 112.28% NASDAQ: -0.11% 0.80% 24.97% 124.03% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 30.81 1122.72% 8/5/94 355 AmOnline 7.27 81.88 1025.76% 10/1/96 42 LucentTech 47.62 79.19 66.30% 8/11/95 125 Chevron 50.28 77.63 54.37% 8/12/96 110 Minn M&M 65.68 96.94 47.60% 8/12/96 130 AT&T 39.58 57.88 46.23% 9/9/97 290 Amazon.com 38.22 53.75 40.63% 8/12/96 280 Gen'l Moto 51.97 61.56 18.45% 4/30/97 -1170 *Trump* 8.47 8.13 4.06% 8/24/95 130 KLA-Tencor 44.71 37.56 -15.99% 6/26/97 325 Innovex 27.71 22.38 -19.25% 8/13/96 250 3Com Corp. 46.86 33.88 -27.71% Rec'd # Security In At Value Change 5/17/95 980 Iomega Cor 2509.60 30196.25 $27686.65 8/5/94 355 AmOnline 2581.87 29065.63 $26483.76 9/9/97 290 Amazon.com 11084.24 15587.50 $4503.26 8/12/96 110 Minn M&M 7224.44 10663.13 $3438.69 8/11/95 125 Chevron 6285.61 9703.13 $3417.52 8/12/96 280 Gen'l Moto 14552.49 17237.50 $2685.01 8/12/96 130 AT&T 5145.11 7523.75 $2378.64 10/1/96 42 LucentTech 1999.88 3325.88 $1326.00 4/30/97 -1170*Trump* -9908.50 -9506.25 $402.25 8/24/95 130 KLA-Tencor 5812.49 4883.13 -$929.37 6/26/97 325 Innovex 9005.62 7271.88 -$1733.75 8/13/96 250 3Com Corp. 11714.99 8468.75 -$3246.24 CASH $32438.81 TOTAL $166859.06