The
Big Strike Out
Tuesday, April 14, 1998
by Jeff Fischer (JeffF@fool.com)
ALEXANDRIA, VA (April 14, 1998) -- Science shares that very large events -- earthquakes, volcanoes, and hurricanes -- are easier to predict than smaller earthquakes, volcanoes, and hurricanes. A scientist can measure the activity beneath the earth's surface to predict when Mt. Saint Helens is likely to erupt with more accuracy than he or she can measure the slumbering activity beneath a dormant volcano in the Virgin Islands.
The U.S. stock market is the most heavily researched, written about, and analyzed market in the world -- by literally thousands of investment professionals. And far too many of these Wise people who follow the market closely, day-in and day-out, have made very good careers by portraying an ability to predict the market, thereby advising investors on where stocks are next headed. Sometimes -- very rarely, but sometimes -- they're right.
Yet the intelligence of these thousands of people all focused entirely on the stock market has resulted in exactly zero accurate predictions on where this market has been headed since 1994. You would think, if anything, that this explosive stock market -- akin in power to the earthquake that leveled all of Lisbon, Portugal in 1755 -- would have been at least somewhat predictable, especially given all of today's "modern" market-watching tools and the number of high-paid investment experts in the industry.
But it wasn't predictable. Nobody predicted it. An advance this large, this monumental -- and nobody foresaw it. And yet people still make the mistake of listening to advisors when they claim to foresee even very small, short-term market movements. Ponder that for a moment. A Fool should ask:
"If all the professionals couldn't foresee this giant 140% advance during four year's time, how can they possibly claim to foresee, for example, a small 10% decline in stocks happening over the next two months? The very notion is ludicrous!"
Yet in magazines, newspapers, on the Internet, and on television, too many financial advisors are still pretending to know where the market is likely to go next, even in the short term. They hint at their feigned knowledge by wearing fancy suits and expensive watches and then having the phone number to their office flash on the screen:
"Call us. We'll help you to invest in this tough market. We know."
But if you feel that you need a professional to help you invest your money because this large market advance has you concerned, remember that no professionals predicted this advance -- the largest three-year advance and, therefore, arguably one of the most predictable in history. And it's just as likely that nobody is going to predict the market accurately going forward. A Fool is left with his or her own Foolishness and long-term outlook to carry them forward. There is no great Sage.
But what about market declines?
Sure, it's easy to now say that we're due for a decline. But when? And to what advantage is acting on any prediction?
When Portugal's largest earthquake struck Lisbon in 1755, it was a Sunday and most of the city's people were in church. The earth was moving wildly, shaking the buildings, so everyone ran out of the cathedrals and into the town's large square along the Atlantic Ocean -- for safety. There, in the safety of the square, a giant tidal wave greeted them, carrying away at least 40,000 people.
Not nearly as horrific, but ironic just the same, is that many people took money out of "inflated" U.S. stocks in 1996 and invested in the booming Asian economy. And some people sold out of equities entirely and shorted stocks after 1995's advance. Reacting to what you think is going to happen, or moving to protect yourself (from what, we might ask) can often be more dangerous than simply staying the course.
Invest in what you know and invest with the long-term trend. Once you begin to need your money to live -- after retiring, perhaps -- you should reconfigure your investments; but for the majority of the country, what stocks do over the next five years should be relatively meaningless. That's why the rest of today's report is rather frivolous: it's not necessary, but it'll aim to be Foolish.
The main point of today, though: If nobody could predict such a wonderful (in hindsight, even obvious?) bull market, how can anyone predict any nuances of the market going forward?
It was such a strong day that even Trump Hotels (NYSE: DJT) rose. The Fool Port gained 1.81% in what is becoming a record advance, while the S&P and Nasdaq both made new highs. The Nasdaq gained 1% and the S&P added 0.55%. Meanwhile, we're entering earnings season, so this column will list the coming quarterly report dates for Fool stocks. Today International Paper (NYSE: IP) announced first quarter results.
On $4.9 billion in sales, the Paper Boy reported earnings of $75 million. The company achieved $0.25 per share in earnings, below the First Call mean estimate of $0.27, but the stock still rose another 6% on top of yesterday's 6% gain.
Why the excitement?
In part, worldwide paper inventory levels are suspected to be low, meaning that paper companies can charge more for paper. The industry as a whole suddenly appears healthy, and it seems that the old Fool Four magic (which is, "buy the unruly Dogs of the Dow and watch as they become mannered and respectable again") is working once more. International Paper has been restructuring since 1996, which in part put the stock into the Foolish Four position.
DuPont (NYSE: DD) is enjoying the Dow Dog magic, too, rising to another new high. With the market, America Online, Amazon, Innovex, and Lucent rose as well.
The most controversial holding in the Fool Port is probably Amazon.com (Nasdaq: AMZN) with its $2.4 billion market cap. This was the valuation that we were hoping for in the year 2000 when we wrote the Amazon buy report last September. We hoped for sales of about $1 billion in the year 2000 or 2001, and we hoped for a multiple to sales above 2. But the market is valuing these stocks much farther out than just one or two years, obviously. Is that right or wrong? It's right. The market sets the price. That certainly doesn't mean that the market won't change its mind in the near term, though. Being long-term investors, we're not losing sleep, and now we're thinking of the years 2003, 2004, 2005...
On the topic of such contested stocks as Amazon and Yahoo! (Nasdaq: YHOO), James Cramer of TheStreet.com recently wrote a good article about how these stocks have been valued and are valued. It can be read here on Yahoo!. And our own TMF Boring sent me a link to a C/Net article on Amazon that's worth a read by interested parties. That article also has two RealAudio offerings -- interviews with Amazon's CEO, Jeff Bezos.
To discuss the above Amazon.com articles, please visit the very active Amazon message board. Don't forget your taxes, due tomorrow. And catch Tom and David in Cleveland tomorrow.
Finally, the coming earnings for Fool Port stocks:
Ticker, Announce Date, Estimate
TDFX, April 16, $0.24
KLAC, April 16, $0.36
IOM, April 17, ($0.03)
T, April 20, $0.73
INVX, April 21, $0.28
XON, April 21, $0.66
LU, April 22, $0.09
AMZN, week of April 27, (0.47)
DJT, week of April 27, ($0.76)
AOL, May 6, $0.12 COMS, June 21, $0.18
Fool on!
--Jeff Fischer
WE
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TODAY'S
NUMBERS
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Day Month Year History FOOL +1.81% 7.09% 20.21% 303.42% S&P: +0.55% 1.27% 14.97% 143.40% NASDAQ: +0.99% 0.40% 17.36% 155.91% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 74.31 1943.55% 5/17/95 1960 Iomega Cor 1.28 7.13 456.46% 10/1/96 84 LucentTech 23.81 69.06 190.08% 9/9/97 290 Amazon.com 38.22 97.00 153.78% 8/12/96 130 AT&T 39.58 65.00 64.23% 2/20/98 215 DuPont 59.83 76.88 28.48% 1/8/98 115 S&P Depos. 95.91 111.81 16.58% 2/20/98 270 Int'l Pape 47.69 54.38 14.01% 1/8/98 425 3Dfx 25.67 27.00 5.19% 2/20/98 200 Exxon 64.09 67.19 4.83% 4/30/97 -1170*Trump* 8.47 8.06 4.80% 6/26/97 325 Innovex 27.71 26.75 -3.46% 8/24/95 130 KLA-Tencor 44.71 38.38 -14.17% 8/13/96 250 3Com Corp. 46.86 32.56 -30.52% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 52761.88 $50180.01 9/9/97 290 Amazon.com 11084.24 28130.00 $17045.76 5/17/95 1960 Iomega Cor 2509.60 13965.00 $11455.40 10/1/96 84 LucentTech 1999.88 5801.25 $3801.37 2/20/98 215 DuPont 12864.25 16528.13 $3663.88 8/12/96 130 AT&T 5145.11 8450.00 $3304.89 1/8/98 115 S&P Depos. 11029.25 12858.44 $1829.19 2/20/98 270 Int'l Pape 12876.75 14681.25 $1804.50 2/20/98 200 Exxon 12818.00 13437.50 $619.50 1/8/98 425 3Dfx 10908.63 11475.00 $566.38 4/30/97 -1170*Trump* -9908.50 -9433.13 $475.38 6/26/97 325 Innovex 9005.62 8693.75 -$311.87 8/24/95 130 KLA-Tencor 5812.49 4988.75 -$823.74 8/13/96 250 3Com Corp. 11715.99 8140.63 -$3575.37 CASH $11233.54 TOTAL $201711.98
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