"What if..."
Thursday, April 9, 1998
by Paul Larson ([email protected])

Chicago, IL (April 9, 1998) -- The Fool Portfolio had an outstanding day today ahead of the long holiday weekend, rising 2.37% thanks in large part to strong gains from two of the online-related stocks in the portfolio. Both America Online (NYSE: AOL) and Amazon.com (Nasdaq: AMZN) were up significantly in sympathy with Yahoo! (Nasdaq: YHOO) after the fellow Internet standard-bearer posted much stronger-than-expected earnings. Jolly O, we'll take it.

The portfolio was also aided in a small way by Trump's (NYSE: DJT) continued slump, down another $1/4 to close at $8. I can't say that I am really surprised. I think I covered more than adequately why things are looking up (or down, as the case may be) for the Fool Port's short of Trump in last week's Toasted Trump recap.

Today I want to cover a topic that many of those rooting against the Fool Port seem to love to talk about. That topic is "Where would the portfolio be if they didn't have X?"

What is X? X is whatever the hottest stock in the portfolio happens to be at the moment. A year ago when Iomega (NYSE: IOM) was the golden-boy of the portfolio, our critics seemed to always rib, "Those Fools. They got lucky with one stock, Iomega. That's all. Where would they be without Iomega?"

It's funny, but now that Iomega has slumped and America Online has soared, X has mysteriously mutated from Iomega to AOL. The question has now turned to "Where would those lucky Fools be without AOL?" Well, ponder no more for coming up is the answer to those questions.

Below is a table of how the Fool Port has performed in its entirety against the major indices since it was started back on August 4, 1994: 

            Total Gain        Annualized Gain 
 Fool Port     292.75%               45.0% 
 Nasdaq        152.75%               28.6% 
 S&P 500       142.29%               27.2%
Let's stick to the annualized gain number since it is an easier number to comprehend and gives a better perspective of how the portfolio has performed. "45% annualized" is much easier to understand than the very wise and yet impressive sounding "292.75% over 3 years and 8 months." In any case, below are some "what if" scenarios for the portfolio. 
What if the Fool Port...     Annualized Performance 
 Never bought AOL                      30.7% 
 Never bought IOM                      39.4% 
 Never bought AMZN                     41.6% 
 Never bought ATCT                     47.3% 
 Never bought AOL and ATCT             33.7% 
 Was never started                        0%
I don't know about you, but I find these numbers to be of some interest. Notice that even without the strongest, all-star player on the floor, the Fool Port would have still bested both indices. Granted not by a large margin, but still bested. It's also interesting to note that these numbers assume that the cash used to buy these stocks simply sat in the portfolio not collecting interest. Maybe in some future recap I will recalculate these numbers assuming interest on the cash balance.

Another thing to note that is that even without the huge gaffe of buying ATC Communications (Nasdaq: ATCT), which knocked the portfolio for a loss of $11,660.75 (Doh!), the performance increase seen really is not all that great. It just goes to illustrate the power of compounding over time. When you buy a stock your maximum loss is 100%, but compounding lets you potentially double, triple, quintuple or ten-bag your money. The portfolio may have lost almost all of its investment in ATC, but the portfolio's current investment in AOL is trading at nearly 20x what was paid for those shares. Who says buy and hold doesn't pay?

We could do "what ifs" until the cows came home and get some interesting insights into the past, but I think this whole topic is actually rather absurd when it comes to actually evaluating performance. Look not at what we might have done, but what we actually did. I mean, what if instead of ATC the portfolio had bought Dell (Nasdaq: DELL)? There was a reason the portfolio bought ATC, and that reason is that we are not perfect. Not even close. The mistake had nothing to do with bad luck. Likewise, there was a reason the portfolio bought America Online back in 1994, and it was not just luck, either.

Oh, and don't be surprised to hear our critics boast in the future, "Those lucky Fools. They got bailed out by that pick of Amazon.com. Any Fool can get lucky." At some point luck ends and Foolery begins. All we can say for certain right now is that the portfolio with both its "lucky picks" and "bad breaks" has earned 45% annually since its inception, easily beating the market.

Anyone can do their own "what if" scenarios by simply going to the historical Fool Port information and crunching the numbers themselves. In what other forum will you find such openness and accountability?

Before ending this column, I should really mention two other features currently running in the Fool that deal with portfolio stocks. The first is this week's Dueling Fools that covers 3Com (Nasdaq: COMS). Trois Coms now has the dubious distinction of having the largest paper-loss of the current portfolio stocks. Nevertheless, I think things are looking up at the company, but Jim Surowiecki thinks 3Com is a potential short. If you have some time, make sure to check out the Duel.

The second feature of interest has to do with Iomega. We have a little contest running where all you have to do to enter is post a reply to the question of, "What you would do as CEO to turn Iomega around?" The winning entry, selected by us, will win a cool two Gs from Web Street Securities. (And those Gs aren't Gardners, either.) Click here for more info on the contest.

Next week the Fool Port will welcome back Jeff Fischer, who has been sipping French wine across the big pond for the past two weeks. Welcome back, Jeff!

Have a great holiday weekend, Fools.

-Paul Larson

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Today's FoolWatch: all the latest in Fooldom.

TODAY'S NUMBERS

Stock  Change    Bid 
 ---------------- 
 AMZN  +6 3/4   95.25 
 AOL   +1 5/8   73.50 
 T     +  3/8   66.00 
 DD    +2 13/16 73.88 
 DJT   -  1/4   8.00 
 XON   +  5/8   66.75 
 INVX  +  5/16  25.38 
 IP    +  3/16  48.19 
 IOM   -  1/16  6.56 
 KLAC    ---    37.06 
 LU    +2       70.00 
 COMS  -  3/8   32.31 
 TDFX  +  3/8   26.38 
 SPY   +  27/32 111.09 
 
 
   
                   Day   Month    Year  History 
         FOOL     +2.37%   4.25%  17.03% 292.75% 
         S&P:     +0.82%   0.81%  14.45% 142.29% 
         NASDAQ:  +0.73%  -0.84%  15.91% 152.75% 
  
  
     Rec'd    #  Security     In At       Now    Change 
    8/5/94   710 AmOnline       3.64     73.50  1921.21% 
   5/17/95  1960 Iomega Cor     1.28      6.56   412.53% 
   10/1/96    84 LucentTech    23.81     70.00   194.02% 
    9/9/97   290 Amazon.com    38.22     95.25   149.21% 
   8/12/96   130 AT&T          39.58     66.00    66.76% 
   2/20/98   215 DuPont        59.83     73.88    23.47% 
    1/8/98   115 S&P Depos.    95.91    111.09    15.84% 
   4/30/97 -1170*Trump*         8.47      8.00     5.54% 
   2/20/98   200 Exxon         64.09     66.75     4.15% 
    1/8/98   425 3Dfx          25.67     26.38     2.76% 
   2/20/98   270 Int'l Pape    47.69     48.19     1.04% 
   6/26/97   325 Innovex       27.71     25.38    -8.43% 
   8/24/95   130 KLA-Tencor    44.71     37.06   -17.11% 
   8/13/96   250 3Com Corp.    46.86     32.31   -31.05% 
  
  
     Rec'd    #  Security     In At     Value    Change 
    8/5/94   710 AmOnline    2581.87  52185.00 $49603.13 
    9/9/97   290 Amazon.com 11084.24  27622.50 $16538.26 
   5/17/95  1960 Iomega Cor  2509.60  12862.50 $10352.90 
   10/1/96    84 LucentTech  1999.88   5880.00  $3880.12 
   8/12/96   130 AT&T        5145.11   8580.00  $3434.89 
   2/20/98   215 DuPont     12864.25  15883.13  $3018.88 
    1/8/98   115 S&P Depos. 11029.25  12775.78  $1746.53 
   4/30/97 -1170*Trump*     -9908.50  -9360.00   $548.50 
   2/20/98   200 Exxon      12818.00  13350.00   $532.00 
    1/8/98   425 3Dfx       10908.63  11209.38   $300.75 
   2/20/98   270 Int'l Pape 12876.75  13010.63   $133.88 
   6/26/97   325 Innovex     9005.62   8246.88  -$758.75 
   8/24/95   130 KLA-Tencor  5812.49   4818.13  -$994.37 
   8/13/96   250 3Com Corp. 11715.99   8078.13 -$3637.87 
  
                               CASH  $11233.54 
                              TOTAL $196375.57
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