Fool Portfolio Report
Monday, February 9, 1998
by David Gardner (DavidG@fool.com)

ALEXANDRIA, VA (Feb. 9, 1998) -- Today is one of those days that a long-term investor must simply just celebrate. In my case, I'm having a little Wyndham Estate Chardonnay (I like Aussie wines!) as I scribe tonight's Fool recap. Because you see, dear Fool, our top stock -- America Online -- rose twelve bucks today -- slightly more than 12%. Another way of putting it is that we made well more than our entire original cost basis in AOL stock in just one day's move.

I remember when I inherited an account passed down to me by my grandfather. Just as my father has always invested in the stock market, so did his father before him. And after Grandfather Gardner died, his money was put into an estate, invested, and then passed on to us various grandchildren as we each turned 25.

When I got my account, I couldn't believe my eyes as I looked at the cost bases in the stocks that it held. There'd be a stock with a split-adjusted cost basis of $1.73, presently trading at $30. And another similar story. And another. And another. One after another. The manager of that account was my uncle Gene Gardner, a brilliant money manager in Lancaster, Pennsylvania (the Gardner family homestead), and the first account statement I received at age 25 spoke so eloquently of his superlative long-term approach. Uncle Gene had guided the family estate into superb companies and held them for a few decades. And what resulted, dear Fools, was an account whose stocks could routinely rise in excess of their cost bases in a given day.

It's a feeling that Warren Buffett has often, as opposed to traders, who never do.

Because the Fool Portfolio is a relatively young account, we must particularly celebrate those days when similar things occur with our own stocks. In our case, we paid a split-adjusted $7.27 when we first bought AOL back in August 1994. Today, the stock rose $12 -- nearly double our cost basis -- following a host of news releases and at least one brokerage upgrade.

This move was enough to lift an otherwise drab Fool Portfolio up 1.94% today in a down market.

This week promised to be an interesting one for AOL shareholders, as the company prepares to release its quarterly earnings at market close Tuesday. Little did we expect the spate of releases that came today, a day ahead of earnings. As has been pointed out in our Fool message boards (join the conversation!), it's somewhat unusual for a company to announce key changes a day BEFORE earnings; most companies include such announcements as part of their earnings reports. We'll see if there's any significance to that. We can all "Monday-morning quarterback it" after we've seen the earnings numbers, eh?

Let me summarize the key developments here. They are three. First, AOL has announced that as of April, its monthly unlimited-use charge will rise two bucks to $21.95. Second, AOL reorganized its business into three new segments: AOL Interactive Services, CompuServe Interactive Services, and AOL Studios -- all reporting to industry bright-light (and Chief Operating Officer) Bob Pittman. And third, AOL will be restructuring CompuServe, firing 500 employees, but putting the online service's new 5.0 client software on the "fast track," as our own Dale Wettlaufer writes in today's news feature about AOL. Click here to read Dale's take and acquaint yourself further with AOL's moves today.

Many questions arose regarding this price increase. Some of our Foolish contributors on AOL announced they'd be "outta here," as today's price rise was the proverbial last straw for them. (Hence to www.fool.com, dear people.) Then again, I suspect 90%+ of AOL subscribers will stay with the service, making me think that today's price increase was a smart move. The market obviously liked it! Important: AOL's Steve Case did mention this afternoon that the price increase should NOT be expected to make its way to the bottom line. It was to cover network costs, he stated. However seriously one wishes to take Case, with 10 million plus customers paying an extra $2 a month, that's another $240 million in revenues. You see there AOL's pricing power... not many companies can, with a simple announcement, bring in some $200 million more annually from a wide base of consumers.

For this reason, perhaps, Cowen & Co. raised its price target on AOL stock to $150 this afternoon, according to CNBC.

For my own part, I'll continue to side with those who think AOL is successful and smart. There have been few better stocks in the 1990's. One skeptic wrote, "Let me ask anyone who follows AOL: What content does AOL provide that is worth something that you can't currently find for free on the web? Is AOL content worth $10/month? More than $10/month? What is YHOO [Yahoo] content worth? Or XCIT [Excite]?"

To which JBCumming wrote: "AOL is for all the people who aren't yet on the Internet; who are frightened of computers; who don't like the hassle of plug-ins and Java script that is 'taking a long time to load': who don't even know what plug-in means, and don't want to know; in short, AOL is for most of the people... and there are lots of them... and AOL will give them what they want... simplicity."

We'll have a full report when those earnings come out tomorrow after market close. For now, it's enough for shareholders to sit back and enjoy the night. Maybe treat some others to a glass of wine. And I think of my grandfather and my Uncle Gene and long-term shareholding... holding stocks that rise more than their cost bases in one day.

It just takes patience, dear Fools.

-- David Gardner, February 9, 1998

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TODAY'S NUMBERS

Stock Change Bid ---------------- AMZN - 5/8 58.25 AOL +12 110.50 T - 5/8 63.19 CHV -1 1/4 76.44 DJT + 11/16 11.75 GM +2 3/8 62.94 INVX - 1/16 23.25 IOM - 3/16 10.00 KLAC -1 5/16 40.50 LU -1 5/16 93.38 MMM - 7/16 87.13 RTN.A - 3/4 52.69 COMS - 3/8 32.38 TDFX + 5/8 25.13 SPY - 9/32 101.28
Day Month Year History FOOL +1.94% 5.19% -0.91% 232.53% S&P: -0.17% 3.11% 4.15% 120.49% NASDAQ: -0.23% 4.39% 7.65% 134.72% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 110.50 1419.34% 5/17/95 1960 Iomega Cor 1.28 10.00 681.00% 10/1/96 42 LucentTech 47.62 93.38 96.10% 8/12/96 130 AT&T 39.58 63.19 59.65% 9/9/97 290 Amazon.com 38.22 58.25 52.40% 8/11/95 125 Chevron 50.28 76.44 52.01% 8/12/96 110 Minn M&M 65.68 87.13 32.66% 8/12/96 280 Gen'l Moto 48.74 62.94 29.12% 1/8/98 115 S&P Depos. 95.91 101.28 5.60% 12/19/97 17 Raytheon 53.21 52.69 -0.98% 1/8/98 425 3Dfx 25.67 25.13 -2.11% 8/24/95 130 KLA-Tencor 44.71 40.50 -9.42% 6/26/97 325 Innovex 27.71 23.25 -16.09% 8/13/96 250 3Com Corp. 46.86 32.38 -30.92% 4/30/97 -1170 *Trump* 8.47 11.75 -38.74% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 39227.50 $36645.63 5/17/95 1960 Iomega Cor 2509.60 19600.00 $17090.40 9/9/97 290 Amazon.com 11084.24 16892.50 $5808.26 8/12/96 280 Gen'l Moto 13647.92 17622.50 $3974.58 8/11/95 125 Chevron 6285.61 9554.69 $3269.08 8/12/96 130 AT&T 5145.11 8214.38 $3069.27 8/12/96 110 Minn M&M 7224.44 9583.75 $2359.31 10/1/96 42 LucentTech 1999.88 3921.75 $1921.87 1/8/98 115 S&P Depos. 11029.25 11647.34 $618.09 12/19/97 17 Raytheon 904.57 895.69 -$8.88 1/8/98 425 3Dfx 10908.63 10678.13 -$230.50 8/24/95 130 KLA-Tencor 5812.49 5265.00 -$547.49 6/26/97 325 Innovex 9005.62 7556.25 -$1449.37 8/13/96 250 3Com Corp. 11715.99 8093.75 -$3622.24 4/30/97 -1170*Trump* -9908.50 -13747.50 -$3839.00 CASH $11259.61 TOTAL $166265.33