Big
Deal Buffett?
Friday, April 24, 1998
by Jeff Fischer ([email protected])
ALEXANDRIA, VA (April 24, 1998) -- The market is only 1.6% below its all-time high (after a record three-year run), and yet the traditional media will probably focus on the "large, unnerving" two-day drop that we experienced on Thursday and Friday in all of the weekend papers.
Such is the way of the Wise.
It was a volatile week, we'll give them that. The Fool Port suffered sharp declines in key holdings, the strangest of which came from 3Dfx. What's to say, though? It was only one week. For the past five days the Fool Port lost less than one percent while the S&P fell 1.32%. For the month the Fool is up 7% and the S&P has gained 0.56%. This week was of no more consequence to investors than any other single week in history.
We did have plenty of news, though. For one, the Fool Port made a new all-time high on Monday -- albeit short-lived. While the majority of the week's news was earnings-related, as AT&T, Lucent, DuPont, Exxon, and Innovex all reported quarterly results. There were no giant shocks, though Lucent (NYSE: LU) did surprise to the upside. Lucent's complete conference call synopsis is now available from the Fool.
Our Foolish Four stocks -- DuPont, Exxon, and AT&T -- are all in good standing, while Innovex (Nasdaq: INVX) reported numbers that were in line with recently lowered estimates. In its conference call the company said it believes that it has reached the low-point in its operating results. So Innovex should see an increase in quarterly business going forward. The stock is down $1 since the announcement, which puts it in better standing than most tech stocks since Wednesday.
Next week we'll see first quarter results from Amazon.com (Nasdaq: AMZN). That stock and America Online (NYSE: AOL) continue to be volatile. Not surprising. What is surprising is that, despite all of the cries on the message boards that they're "incredibly overvalued," a calm look at the numbers might argue otherwise. AOL trades at 5 times projected fiscal 1998 sales, while Amazon trades at 6 times this year's projected sales. So in fact, when you look around, these two stocks are comparatively inexpensive.
The comparative figures don't lie, whether they're reasonable or not. We have Microsoft at 17 times sales, Cisco at 10 times sales, Yahoo at 60 times sales, and Excite at 14 times sales. The multiples to projected sales for these stocks are considerably higher than they are for our two guys. Even if you think that all of these valuations are high, I still don't believe that AOL and Amazon are outrageously priced, especially not for the long-term investor.
Our most mysterious stock is 3Dfx (Nasdaq: TDFX). Since doubling earnings estimates the stock, after jumping, has plummeted. Several things could be responsible: The end of a 3.5 million share lock-up, old fears reignited by Intel -- you name it. We might never know. 3Dfx trades at 13 times the 1998 earnings estimate of $1.91 per share.
Perhaps more troubling than the falling stock has been the frantic reaction on what has been, in the past, a reasonable and intelligent message board. Perhaps the Wisest post follows:
"Listen. I took off for a country retreat on Friday afternoon [last week] without selling my shares. As of Friday I had an $8000 profit from my last buy-in at $26 1/4. Now I'm sitting on dead money. When I called my broker... and heard about the huge drop, I wanted to go drown myself in the stream. Instead I ended the vacation early and raced home. I can't believe I didn't take profits when I had the chance."
Well... to each his own.
But to a Fool, the thought of ending your vacation early just because one of your stocks has declined is extremely Wise -- in fact, you can't get much Wiser than that. And by the way, what do you do about this situation upon returning home? How does ending your vacation impact the stock's performance?
Anyway, we can probably all learn something from this investor who is likely new to the arena of wealth building, though they do sound woefully experienced in the realm of short-term speculation. Put yourself in his position and you'll likely form your own conclusions about investing versus trading. If you need a counterpart to the trader, consider the woman who is living in Tuscany right now and hasn't checked her investments in General Electric or Tootsie Roll for the past twelve months. Which life is more enviable? That one, or fleeing nervously from your vacation when one of your stocks declines?
After criticizing the ways of a trader, though, it's only fair to chide a long-term investor as well. What better target than Warren Buffett? The man has been deified for his ability to build wealth, but the process of building wealth in itself is by no means something for which one should be immortalized and heralded as a "god." What is Warren doing with those billions of dollars that corporate America afforded him? He admittedly doesn't need even 95% of his wealth, meaning that right now Mr. Buffett is in a position to do an extreme amount of good for the world -- an extreme amount, not just a few hundred million here, a few hundred million there (if he even does that -- he's reported to be doing surprisingly little).
Mr. Buffett has the means to help hundreds of causes that need help right now, and yet he's utilizing the old ipso facto routine that is: "I'll give away the money after I die."
Well, of course. It's easy to give away money once you're dead. Literally: big deal. The shame is that there are thousands, literally millions, of people who could derive some benefit from Mr. Buffett's generosity right now. Cancer patients, AIDS patients, the starving, the homeless, the school systems....
Of course, Mr. Buffett has no obligation to anyone -- at all. It's his choice. He could help right now, or he could never help. Or, as he is doing, he can sit on his money and comfortably follow the old routine: "Hey, once I'm dead, whatever... my money will be spread around." (He plans to give money to causes that fight population growth, a potential problem that nature, many scientists believe, will take care of best on its own.)
Either way, not sharing the possibilities that simple money can bring until after he's gone is a fairly unimpressive route for such an intelligent man to take. If anyone knows the value of time, Mr. Buffett does. And it works both ways. With some things, you shouldn't wait.
Anyway, let the flame mail begin. I can hear it now:
"Hey you Fischer, jerkboy pighead, Mr. Buffett has no obligation to give money to anyone!"Right. Still, I'm stating an opinion that is: If you have far more money than you could ever use, why wait to help others that need it now? Why wait?
We've all read about how incredible Buffett is at building wealth. In fact, it's become almost tiring to read about it. He built wealth by owning great companies and by having financial genius. Great. Now we should be impressed when he actually does something worthwhile with the majority of that wealth. Ted Turner, who was worth $3.2 billion last September, announced that he is giving $1 billion to charity (namely, to the UN). That was 33% of his wealth at the time. He doesn't need it.
Bill Gates, who was worth $16 billion last fall, has given away less than one percent of his wealth. Buffett, who was worth more, has given away even less. They argue that their gifts will be worth more if they give later. Sure, but the world needs them now -- and Gates' and Buffetts' wealth is a growing balloon anyway. Letting some air out would do an incredible amount of good in the present -- and this type of charitable investment compounds as well. The sooner that the good can begin, the larger and earlier it will spread. Money is far from the only thing that is worth compounding.
Of course in this column I went places that I had no right to go. Nobody has the right to tell a stranger how to spend his money. But I'm just a Fool. You can't chop my head off. Somewhere in this tirade must be some truth.
Fool on...
--Jeff Fischer
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TODAY'S NUMBERS
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Day Month Year History FOOL +1.79% 7.14% 20.27% 303.64% S&P: -1.04% 0.56% 14.17% 141.69% NASDAQ: -0.66% 1.81% 19.01% 159.51% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 74.69 1953.87% 5/17/95 1960 Iomega Cor 1.28 8.63 573.61% 10/1/96 84 LucentTech 23.81 73.50 208.72% 9/9/97 290 Amazon.com 38.22 84.88 122.06% 8/12/96 130 AT&T 39.58 62.19 57.13% 2/20/98 215 DuPont 59.83 74.50 24.51% 1/8/98 115 S&P Depos. 95.91 110.81 15.54% 2/20/98 200 Exxon 64.09 73.50 14.68% 2/20/98 270 Int'l Pape 47.69 53.06 11.26% 1/8/98 425 3Dfx 25.67 26.38 2.76% 4/30/97 -1170*Trump* 8.47 8.38 1.11% 8/24/95 130 KLA-Tencor 44.71 42.69 -4.53% 6/26/97 325 Innovex 27.71 26.25 -5.27% 8/13/96 250 3Com Corp. 46.86 34.00 -27.45% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 53028.13 $50446.26 5/17/95 1960 Iomega Cor 2509.60 16905.00 $14395.40 9/9/97 290 Amazon.com 11084.24 24613.75 $13529.51 10/1/96 84 LucentTech 1999.88 6174.00 $4174.12 2/20/98 215 DuPont 12864.25 16017.50 $3153.25 8/12/96 130 AT&T 5145.11 8084.38 $2939.27 2/20/98 200 Exxon 12818.00 14700.00 $1882.00 1/8/98 115 S&P Depos. 11029.25 12743.44 $1714.19 2/20/98 270 Int'l Pape 12876.75 14326.88 $1450.13 1/8/98 425 3Dfx 10908.63 11209.38 $300.75 4/30/97 -1170*Trump* -9908.50 -9798.75 $109.75 8/24/95 130 KLA-Tencor 5812.49 5549.38 -$263.12 6/26/97 325 Innovex 9005.62 8531.25 -$474.37 8/13/96 250 3Com Corp. 11715.99 8500.00 -$3215.99 CASH $11233.54 TOTAL $201817.85
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