Fool
Portfolio Report
Monday, February 2, 1998
by David Gardner
([email protected])
ALEXANDRIA, VA (Feb. 2, 1998) -- The Fool Portfolio ROCKED AND ROLLED today, floating like a butterfly and stinging like a bee, and all that jazz. If it could go right, it did today. All 14 longs went up, many of them substantially, while our lone solitary short went down. Our three biggest holdings were among our most volatile, as AOL rose $4 1/2 to close over $100, Iomega gained $9/16 (almost 7%, these days), and Amazon.com scored $3 3/8 to close bidding $62 3/8.
All this led to a very healthy first day of February... hope the month follows through! Fool Portfolio gains came to 4.20%, roughly doubling an extremely strong market day. The S&P 500 and Nasdaq rose 2.14% and 2.07%, respectively. For the year, both remain 5-7 percentage points ahead of the Fool Portfolio's tally.
It was our fourth consecutive market-beating day.
Interestingly, the same day that America Online crossed into three-digit territory, our S&P Depositary Receipts did as well. In fact, both closed identically at $100 1/8, giving the Fool Portfolio two holdings now listed at over $100 per share. This brings up a good opportunity to talk about "share price."
A lot of people think share price matters. Far too many, in fact. Share price really does not matter terribly much. It's one of those things that trips up too many beginning investors, who want to buy low-priced stocks because it makes them feel that they own more "shares." Sure they do, but whether it's 100 shares of a stock at $10 or 10 shares of a stock at $100... that's $1000 either way.
It is true that the Foolish Four Approach works partly using low share price. After you locate the highest-yielding stocks on the Dow, you separate out those with the lowest share prices. This is because historically, lower share prices are slightly more volatile. But that volatility works both ways; it works with something like the Fool Four, but it can also sink you -- particularly when you invest in penny stocks. Studies have shown that 75% of the companies below $5 per share will be out of business within 10 years.
So OK, having started off by saying that share price doesn't matter, I've now pointed out that it does with the Foolish Four (a good thing), and it does for penny stocks (a bad thing). But MOST of the time, it doesn't matter at all.
Warren Buffett has said that you should pretend that ALL stock prices in America are $100 right now, and make your investment decisions accordingly. That's another good way of saying the same thing: buy the business, dear Fools... don't buy share prices. Fortunately for us, imagining that everything is at $100 is a little easier to do today, as both AOL and Spidey sit right there!
But pretend Iomega is at $100 too, and 3Dfx, and Chevron, and Lucent (it's not far!), and Innovex, and AT&T, and even El Donald... our short sale... sitting there at $100 per share. In other words, let's get away from share prices, people.
By the way... nice to see Trump (NYSE: DJT) back down under $9 a share. It's been a volatile short for us -- volatile the wrong way, as of late. Not that any of the rise occurred for business reasons. The business has only performed worse and worse since we shorted. It's been announcements of recommendations and buyout rumors that have driven the stock up on fumes over the past year. Perhaps the recent fumes are dissipating once again.
To 3Dfx (Nasdaq: TDFX): Its coming Voodoo 2 chipset is beginning to give way to a host of publicity and new products. A good example comes from Diamond Multimedia (Nasdaq: DIMD), which today released FOUR (count 'em: four) separate press releases regarding its Diamond Monster 3D II card. Frequent Web board contributor Cyric pointed out these releases in a message today, and then predicted we'd see a similar show soon enough from Creative Labs (Nasdaq: CREAF). These companies will compete against each other to get PC gamers to buy their various Voodoo 2 offerings, but the winner no matter what is going to be 3Dfx. There just aren't many small-cap companies in America that establish industry technology standards and then release products that blow away their own existing industry standard.
But that's exactly what the Voodoo 2 is going to do when it comes out in March. There is no doubt about that anymore. The advance hardware reviews from PC magazines and Web sites have already confirmed that this is one amazing product, part of the reason Wall Street last week doubled its annual earnings estimates.
Finally, why did America Online (NYSE: AOL) reach new heights today? Chairman Steve Case stated that the company intends to grow through subscriber base expansion and increased online transactions, of course, but also by way of acquistion as the industry begins to consolidate. With that statement, today the company closed its CompuServe deal.
To close tonight, stay fully invested through all markets as best you can, and keep adding more money to the stock market over time. Use the stock market as your savings vehicle, your savings themselves invested in the best American businesses (large and small) that you can find. That's the way to win the second biggest game of all: investing.
It also positions you well to enjoy the biggest game of all: Life. Fool on!
-- David Gardner, February 2, 1998
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TODAY'S
NUMBERS
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Day Month Year History FOOL +4.20% 4.20% -1.85% 229.41% S&P: +2.14% 2.14% 3.18% 118.43% NASDAQ: +2.07% 2.07% 5.26% 129.51% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 100.13 1276.69% 5/17/95 1960 Iomega Cor 1.28 9.63 651.71% 10/1/96 42 LucentTech 47.62 89.38 87.70% 9/9/97 290 Amazon.com 38.22 62.38 63.19% 8/12/96 130 AT&T 39.58 62.81 58.71% 8/11/95 125 Chevron 50.28 75.63 50.39% 8/12/96 110 Minn M&M 65.68 86.88 32.28% 8/12/96 280 Gen'l Moto 48.74 60.44 23.99% 1/8/98 115 S&P Depos. 95.91 100.13 4.40% 12/19/97 17 Raytheon 53.21 52.75 -0.86% 1/8/98 425 3Dfx 25.67 24.63 -4.06% 4/30/97 -1170 *Trump* 8.47 8.94 -5.53% 8/24/95 130 KLA-Tencor 44.71 39.88 -10.82% 6/26/97 325 Innovex 27.71 23.25 -16.09% 8/13/96 250 3Com Corp. 46.86 33.81 -27.85% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 35544.38 $32962.51 5/17/95 1960 Iomega Cor 2509.60 18865.00 $16355.40 9/9/97 290 Amazon.com 11084.24 18088.75 $7004.51 8/12/96 280 Gen'l Moto 13647.92 16922.50 $3274.58 8/11/95 125 Chevron 6285.61 9453.13 $3167.52 8/12/96 130 AT&T 5145.11 8165.63 $3020.52 8/12/96 110 Minn M&M 7224.44 9556.25 $2331.81 10/1/96 42 LucentTech 1999.88 3753.75 $1753.87 1/8/98 115 S&P Depos. 11029.25 11514.38 $485.13 12/19/97 17 Raytheon 904.57 896.75 -$7.82 1/8/98 425 3Dfx 10908.63 10465.63 -$443.00 4/30/97 -1170*Trump* -9908.50 -10456.88 -$548.38 8/24/95 130 KLA-Tencor 5812.49 5183.75 -$628.74 6/26/97 325 Innovex 9005.62 7556.25 -$1449.37 8/13/96 250 3Com Corp. 11715.99 8453.13 -$3262.87 CASH $10740.46 TOTAL $164702.83
