FOOL PORTFOLIO
REPORT
(FOOL GLOBAL WIRE -- Tuesday, January 6, 1998)
by Jeff Fischer
([email protected])
ALEXANDRIA, VA (Jan. 6, 1998) -- Are we having fun yet?
This year you're going to witness either my getting fired from this job, or one fun year, or both. My aim is to enjoy, relax, and let the long term take its course. I'm not going to bend over backwards to report the latest news in excruciating detail. I'm not going to be screaming, "Buy, Sell, or Wrong!" like some kind of over-animated hyperactive puppet. And I'm not going to propose that this single column is more useful or intelligent than everyone out there is collectively -- of course it isn't.
How easily a person can fall into routine, though, clicking in to read the Fool Column every day (as if it were printed in a newspaper) and then clicking out and going on their merry way. The way I've written this column in the past has often facilitated such "one-way" communication (as the column should sometimes do), but going forward my aim is to turn this thing "inside-out" more often than not, and to make the column about the community and all that it has to offer, rather than about my thoughts and my thoughts alone.
Sure, probably at least half of the time, through necessity, the columns will be much like last year's and the year's before that -- giving analysis, trying to teach something, and announcing news and earnings reports. But whenever possible, it's going to aim to be much more interactive and to offer added value well beyond just one Fool's opinion. We'll begin that today. This column is going to end with a link to the 3Dfx (Nasdaq: TDFX) message board, where I'll post thoughts as soon as I'm finished writing this, and then I promise to be around for the next week (at least, of course! -- truly for months) to share conversations with much more knowledgeable Fools there, day by day.
Speaking of the latest Fool buy, we didn't yet pull the trigger on 3Dfx. The stock rose too sharply for us this morning so we're going to wait. We have four more days. We try not to buy whenever our heart is racing, just as we try not to sell when we're sick to our stomachs (though that would have worked well with ATCT at numerous points). Investing is made successful by rational thought and by thinking long term, though, and not by jumping on impulse. Also, we didn't yet buy our Spiders either. We have two more days to buy those. It's not that we're trying to time the S&P, for Fool's sake, we just held off initially due to the coming 3Dfx purchase, and now simply because we're too Foolish to worry about a day here, a day there. We'll buy them soon -- before Thursday is over.
So what about today?
Today the S&P and Nasdaq both traded lower, with the S&P now in negative territory in young 1998. After the most volatile year in the market's history, and after the only three-year span of consecutive gains of 20% or more, you can bet that this year is going to be a DOOOZY. Whatever happens, the market is bound to be volatile and interesting. So what is the quick lesson of today that I'm going to stand up on the soapbox for and shout out into Cyberspace? Easy:
Margin, baby, margin.
You can buy stock worth up to twice the amount of the cash in your account if you use full margin. Enticing? How about: dangerous.
Consider if you had $13,500 this morning and you set out to buy 1,000 shares of 3Dfx at $26 1/2, the opening price. Using margin you would be able to buy $26,500 worth of stock no problem, with only thirteen grand to your name. 3Dfx closed bidding $23 3/4, so you hypothetically lost 2 3/4 points from your $26 1/2 purchase price, meaning that $2,750 dollars were erased from your mere $13,500.
The stock is down 10.3% from this morning's opening price, but you already lost a hefty 20.3% of your money. 20% is nothing to sneeze at. It's massive.
Then suppose the stock loses $3 more tomorrow, to $20 3/4 -- you lose another $3,000. Your $13,500 is now worth $7,750, or 43% less than it was worth just two days before, while the stock has lost only 21% comparatively. The beauty of margin, indeed. It can kill.
With full margin, you lose money twice as quickly as you otherwise could. When you're fully margined, every point drop is like two points for you. In a down market, your money is wiped out faster than an Iraqi foot army that doesn't want to fight for their tyrannical leader. (Yes, that's exactly what it's like.) Following three years of tremendous returns and a 1997 that displayed extreme volatility (in fact, margin already eliminated several would be "investors" last year when the market tumbled 7% in one day, including one nationally known speculator who was valued in the millions of dollars before being made bankrupt in a single day, on a single trade) -- so, where was I? Ah, yes...
Following such a market performance (and I would be saying that whether the market had soared over the past three years or plummeted), it would be very Foolish of you to be especially LIGHT on the margin this year and forevermore. Investors using excessive margin have less control over their investing future in certain circumstances (when? at the worst of times, precisely when they need the most control) than those who invest solely with their own cash -- cash that they know can sit and rot in the market for years if necessary. Add to that the fact that you pay interest on margin, and you have the potential for a double whammy. So be careful, Fools.
What?
Oh sure, margin does have benefits if used diligently, and it can increase returns for the savvy investor, but still we recommend that you always have cash available elsewhere before utilizing margin -- so that you can cover any possible margin calls without having to sell your beloved stocks after a sharp decline. Ma wouldn't be happy to hear that you sold AOL at $22 only because you had a margin call, now would she?
America Online (NYSE: AOL) made a new all-time high today above $93, before closing lower. Drat! (Meaningless observation: Maybe AOL will split the stock soon.)
Much more exciting than that, though, are the following three announcements:
1. Tom is launching the Cash-King Portfolio very shortly, and today the 11 Steps to Cash-King Investing has been made live on the Fool. Take your time reading them, or print them out, or bronze them, or do whatever you want with them, but do enjoy them. Tom and his Foolish team have done a tremendous job on these steps and we all look forward to the portfolio launching this month or in early February when Tom returns from the book tour. One Fool wrote this canned paragraph for the launch, which I'll share right here:
"The Motley Fool presents the 11 Steps to Investing in Cash-King Stocks. Fools have been asking for a more thoroughgoing analysis of the group of stocks presented by Tom Gardner in July 1995 that are running 125 percentage points ahead of the S&P 500 today. To read more about investing in very profitable, large-cap companies for the next 10, 20, 30... heck, 120 years, click here -- Cash-King Investing."
2. That leads to number two: Tom and David began their national book tour today. Rather than list all ten cities and dates here, please see the information from the Fool's mainpage. The brothers hope to see you. And remember to bring some Blue Cheese for them. They love cheese. And crackers. And bring a pen if you want your book signed. They're always losing pens.
3. On a more serious note, AOL's CEO, Steve Case, wrote of the Fool's charity fund in his recent letter to the AOL community. Mr. Case wrote:
"One of our partners, The Motley Fool, last month conducted one of the most successful group-giving efforts in Internet history -- raising a total of $120,000. The Fool Charity Fund will benefit a group called Share Our Strength (SOS) which works to prevent hunger and poverty in the United States and around the world.
"The success of this event proves that the medium can be a powerful tool for giving and bodes well for future efforts for deserving causes. In fact, many wrote to tell the Fools how much they liked the idea:
"What a great idea. You have the power and the inclination to make a difference in the world.
"A successful capitalist who gives back to society is the ultimate American dream. You are to be admired for not forgetting about those less fortunate than yourself and doing something about their plight.
"...This gesture is unprecedented and the beginning of a huge paradigm shift in our efforts to feed, train, and otherwise rehabilitate the least fortunate members of our little tribe here in America."
This reminds us again to thank all of you for your recent generosity, and for making our first Fool charity fund together such a success.
I'm now headed to the 3Dfx message board (on the Web today) to post my current thoughts (they're probably different than what you might think). I hope to see you there, sharing yours.
Fool on!
--Jeff Fischer
WE
DELIVER - Get Fool Portfolio Nightly Reports
delivered straight to your e-mailbox every evening!
Today's FoolWatch: all the latest in Fooldom.
TODAY'S
NUMBERS
|
Day Month Year History FOOL -1.21% -0.56% -0.56% 233.71% S&P: -1.07% -0.40% -0.40% 110.86% NASDAQ: -0.88% 0.62% 0.62% 119.41% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 90.00 1137.48% 5/17/95 1960 Iomega Cor 1.28 13.00 915.30% 10/1/96 42 LucentTech 47.62 83.63 75.62% 8/12/96 130 AT&T 39.58 60.00 51.60% 9/9/97 290 Amazon.com 38.22 57.94 51.58% 8/11/95 125 Chevron 50.28 73.75 46.66% 8/12/96 110 Minn M&M 65.68 83.63 27.33% 4/30/97 -1170 *Trump* 8.47 7.13 15.87% 8/12/96 280 Gen'l Moto 51.97 59.38 14.24% 12/19/97 17 Raytheon 53.21 48.88 -8.15% 8/24/95 130 KLA-Tencor 44.71 39.00 -12.77% 6/26/97 325 Innovex 27.71 23.25 -16.09% 8/13/96 250 3Com Corp. 46.86 33.88 -27.72% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 31950.00 $29368.13 5/17/95 1960 Iomega Cor 2509.60 25480.00 $22970.40 9/9/97 290 Amazon.com 11084.24 16801.88 $5717.64 8/11/95 125 Chevron 6285.61 9218.75 $2933.14 8/12/96 130 AT&T 5145.11 7800.00 $2654.89 8/12/96 280 Gen'l Moto 14552.49 16625.00 $2072.51 8/12/96 110 Minn M&M 7224.44 9198.75 $1974.31 4/30/97 -1170*Trump* -9908.50 -8336.25 $1572.25 10/1/96 42 LucentTech 1999.88 3512.25 $1512.37 12/19/97 17 Raytheon 904.57 830.88 -$73.70 8/24/95 130 KLA-Tencor 5812.49 5070.00 -$742.49 6/26/97 325 Innovex 9005.62 7556.25 -$1449.37 8/13/96 250 3Com Corp. 11715.99 8468.75 -$3247.24 CASH $32678.33 TOTAL $166854.58
