"Will It All End Badly?"
Thursday, April 30, 1998
by David Gardner (DavidG@fool.com)

ALEXANDRIA, VA (April 30, 1998) -- The Fool Portfolio zagged as the market zigged, turning in one of its worst days of the year. OK, today's loss of 0.68% ain't nearly as bad as some of the doozies we've put up in the first four months of this year, but given that the S&P 500 rose 1.57%, we underperformed by nearly two-and-a-half percent.

Blech.

OK, we don't take bad single days very seriously, and let's face it: we were spoiled this month. Now that it's over, we can look back on April as a slam-dunk month for the Fool Portfolio. With the S&P rising 0.91% and the Nasdaq topping that at 1.78%, the Fool Portfolio gained a great big fat 8.28%, with America Online and Amazon.com leading the way. We bypassed the market averages, establishing in particular a nice 7-point cushion over the S&P 500.

Given that 91% of mutual funds lose to the S&P 500, this makes us happy. Given that our historical return is now 307.91% vs. a gain in the S&P 500 over the same period of 142.53%, we're ecstatic. Ecstatic at the degree of outperformance, though unsurprised overall at the very fact of outperformance. Foolish investing as we've taught it can and should beat the market, by a combination of Foolish Four stocks and patient buy-and-hold investing in dynamic growth stocks. Yes, it's been a great market over the past four years. That said, the average mutual fund is up a mere one-third of our overall return.

And because we hear from you, our Foolish readership, day in and day out on our message boards and through e-mail, we know that many of you have outperformed our own gains. Nothing makes me happier than knowing our readers did better than we. Keep at it.

If you haven't done so well, or if you haven't even tried yet because you're new at this, please use the lessons taught here and in other areas of The Motley Fool to begin garnering good returns going forward. Start with this lesson: Pay no attention to the past. The market is blind to the past, and those who have resisted investing because "the market seems high" have continually been frustrated over the past couple of years -- indeed, over the past several decades -- by this dilatory approach.

Two years ago, a Wise journalist named Joe Nocera wrote a story that put us on the cover of Fortune magazine. We were happy to do it, though it was clear as the story was being done that we were being "set up." You see, we were going to be the poster boys for the market crash. The cover of the mag was entitled "MARKET MANIA," and portrayed us in a memorable photo donning our wacky hats and hanging from a Wall St. lamppost. The cover read, "Stocks are surging, led on by new gurus like AOL's Motley Fools. Will it all end badly?"

Nocera's work has been characterized by the premise that as soon as the average person (us, for example) begins to take an interest in the market and invest, that the market is bound to fall. To dive. The presupposition there is that the market is for institutions and professionals -- individuals are fish outta water -- a very very Wise notion.

That was April 1996. Fast-forward now to the close of April 1998. Has it all ended badly, I ask you... since Fortune magazine won't? How much is the S&P 500 up since those wacky rookies were on the cover of the magazine that read "MARKET MANIA" two years ago this month? I'll tell you. The two-year return is 73%. Seventy-three percent, my dear friends.

In the meantime, Nocera's work continues. Last year he produced a special for PBS Frontline on the stock market. The premise? The average person is getting into the market today, so it's probably overvalued. Lacking any real courage, and lacking the accountability that so many financial journalists eschew, Mr. Nocera wouldn't actually come out with a specific dire prediction. Y'know, the trick is just to phrase it all as a question: "Will it all end badly?" No responsibility there.

We were featured in the piece again, this time with a few quotations pulled out of context (I still can picture my mouth opening to finish a sentence, and the camera cutting away to make its point). Far worse was the explicit editorial statement made by the narrator (Nocera himself) that we are telling people they can get 22% returns... "GUARANTEED." As if! As if we would ever guarantee anyone anything in any of our work. (Our readers know this, though Frontline's audience might not.) That was the most unethical act of journalism I have personally witnessed in my four years doing TV, radio, and print interviews, by far worse than the irresponsible Mark Hulbert's failure to even call us before he botched his facts in a Forbes piece a couple of months ago. But hey, operating with no accountability in media that are non-interactive, Nocera and Hulbert know what they can get away with, so they just do it. Nocera's viewer thinks, "What wacky irresponsible young guys, promising people 22% returns." Yeah, right. Hulbert's reader thinks, "That Motley Fool portfolio, what a lucky fluke."

Perhaps it is. It's been running four years now, and we're doing a wee bit better than the market and even a wee bit better than that versus the 8000+ sorry mutual funds offered by overpriced professionals who don't want you to know their returns. But maybe we'll underperform over the next four years, and turn out only to be average investors. I hope not, but regardless, you'll be right there with us able to watch and read and learn.

You know, the Internet is what's putting an end to bad journalism. Fortune has Nocera on its payroll as editor-at-large today, even though his cover story for their magazine and his embarrassing Frontline piece have called the market exactly wrong. Work like his can't stand the Internet's scrutiny, so much safer to stay in the moribund magazine world. Hey, "Joe's a good guy" they say around the Manhattan old-boy network; this matters much more to them than the 70%+ rise we've seen in the financial markets, in direct contrast to the conclusions of his most prominent work.

"Will it all end badly?"

The unasked questions -- never to be answered -- are how many people sold their stocks due directly to the efforts of bad journalists. There was Money magazine's cover last August urging you to "Sell All Your Stocks Now." The consequences of these bad and dated forms of journalism cannot be fully calculated, except perhaps that the growth of The Motley Fool shows you something: Many of their readers have become our readers. So perhaps in the end I should welcome the efforts of old men to portray me as the young yokel. That's cool: I'm a Fool, which is why I like to go on the cover of Fortune wearing my hat and my smile. These things I hold dear:

The market is GOOD.
Investing is GOOD.
PATIENCE is a virtue that enables one to ignore bad days, or quarters, or even years.

We had a bad day today, we've had bad quarters, and we'll have some really bad years. That's part of investing, but it's not the important part.

To close -- and speaking of anniversaries -- our short of Trump Hotels & Casino Resorts had its one-year anniversary today. We've made 2.58% on our money. That's lousy, overall, given that an S&P 500 index returned 38.52% over the same period. On the other hand, given that the market has risen 39%, you can't be too unhappy to show a gain on a shorted stock. And what happens to Donald "when it all ends badly"?

:)

-- David Gardner, April 30, 1998

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TODAY'S NUMBERS

Stock Change Bid ---------------- AMZN -3 7/8 91.63 AOL - 9/16 79.94 T + 7/8 60.13 DD + 3/8 72.81 DJT - 1/8 8.25 XON + 1/8 73.06 INVX + 5/8 25.44 IP + 3/8 52.19 IOM - 5/16 7.88 KLAC - 5/8 40.19 LU +2 1/8 76.25 COMS + 5/16 34.25 TDFX - 13/16 23.94 SPY +2 5/32 111.34
Day Month Year History FOOL -0.68% 8.28% 21.55% 307.91% S&P: +1.57% 0.91% 14.56% 142.53% NASDAQ: +0.91% 1.78% 18.98% 159.44% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 79.94 2098.24% 5/17/95 1960 Iomega Cor 1.28 7.88 515.04% 10/1/96 84 LucentTech 23.81 76.25 220.27% 9/9/97 290 Amazon.com 38.22 91.63 139.72% 8/12/96 130 AT&T 39.58 60.13 51.92% 2/20/98 215 DuPont 59.83 72.81 21.69% 1/8/98 115 S&P Depos. 95.91 111.34 16.10% 2/20/98 200 Exxon 64.09 73.06 14.00% 2/20/98 270 Int'l Pape 47.69 52.19 9.43% 4/30/97 -1170*Trump* 8.47 8.25 2.58% 1/8/98 425 3Dfx 25.67 23.94 -6.74% 6/26/97 325 Innovex 27.71 25.44 -8.20% 8/24/95 130 KLA-Tencor 44.71 40.19 -10.12% 8/13/96 250 3Com Corp. 46.86 34.25 -26.92% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 56755.63 $54173.76 9/9/97 290 Amazon.com 11084.24 26571.25 $15487.01 5/17/95 1960 Iomega Cor 2509.60 15435.00 $12925.40 10/1/96 84 LucentTech 1999.88 6405.00 $4405.12 2/20/98 215 DuPont 12864.25 15654.69 $2790.44 8/12/96 130 AT&T 5145.11 7816.25 $2671.14 2/20/98 200 Exxon 12818.00 14612.50 $1794.50 1/8/98 115 S&P Depos. 11029.25 12804.53 $1775.28 2/20/98 270 Int'l Pape 12876.75 14090.63 $1213.88 4/30/97 -1170*Trump* -9908.50 -9652.50 $256.00 8/24/95 130 KLA-Tencor 5812.49 5224.38 -$588.12 1/8/98 425 3Dfx 10908.63 10173.44 -$735.19 6/26/97 325 Innovex 9005.62 8267.19 -$738.43 8/13/96 250 3Com Corp. 11715.99 8562.50 -$3153.49 CASH $11233.54 TOTAL $203954.01

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