My Squash Racket
Monday, May 18, 1998
by David Gardner
ALEXANDRIA, VA (May 18, 1998) -- The Fool Portfolio wrecked on the shoals of middle May again, suffering another 1% plus drop. In order to rack up annualized gains of 44.37% over the past four years, we've continually demonstrated that you must be prepared occasionally to suffer the slings and arrows of outrageous volatility. Growth-stock investing isn't for everyone. It's OK on us long-termers, but if you're trying to play this game with anything less than a five-year horizon, hang on to your cardiologist's e-mail address!
(Note to self: Do cardiologists have and use e-mail addresses?)
So anyway, Monday was the "one step back" part of "Two steps forward, one step back." (Hey, didn't Springsteen turn that old cliche into a popular rock song? Geez.)
It's worthwhile to revisit a Foolish analogy that we've made from time to time, over the years. And that is the "Honey, our house is down 1%!" analogy, first introduced in a memorable "Fool on the Hill" column two years ago entitled, "My God -- The House is Down Again!?".
Do you spend much time concerning yourself with the valuation of your house on a daily basis? If you're like most of us, you probably spend little to NO time doing so. Now, if you're like most Fools, you treat your stocks the same way. The most successful investors I know have taken good care on the "front-end" -- the period during which they select their stocks -- so that they need not spend much time worrying about the "back-end" -- the time that they would sell their stocks. Thus, daily (or hourly) checks of their valuation are mostly wasted time.
I grant you, it's fun to see how your stocks are doing -- through a bull market. "Woo-hoo! Up another thousand bucks today, honey!" And break out the bubbly apple juice. But don't swig too hard, because that next day you might give it back -- or $500 of it, anyway (two steps forward, one step back).
And during bear markets, the experience of watching your savings erode one day after the next can be positively dispiriting. Losing money in the short term has probably been the #1 reason people swear off the stock market -- "I can't make money at this," they say, as they drop another 10% over a six-month period and quit. If they were investing for just six months, OK, I agree with them. If they're investing for six decades, they just made a tragic mistake.
After years of racket failures, I attempted to take up squash some years back. A friend and I went out and I hacked away for an afternoon. At the end of it, I found out I'd had a good day on the market and so I went out and bought a squash racket. "I earned this today and more," I thought happily, a great way to justify my purchase. The next day, I lost more than I'd gained the day before. And I don't think I've won a squash game since. (In fact, I don't think I've played.)
PRODUCT PLACEMENT WARNING: This "New Low" (tm) athletic moment of mine is brought to you by the friendly people at Converse... "Striving to distract you from noticing we're near a New Low today."
So the point has now been made about concerning yourself with the short-term performance of your portfolio. Just think about the changing valuations of your property... or my squash racket.
Does this beg the question as to why we put something up in this space each day? Well that's easy to explain. We do enjoy following our portfolio daily, as we do our sports teams. Notice throughout this writeup that I have been speaking of "caring about" your portfolio's valuation, which is quite distinct from "following" it.
A couple Foolish notes to close. There's a fine piece tonight on Netscape (Nasdaq: NSCP), written by fellow Fool James Surowiecki, who pens all our Slate pieces; Jim considers the irony of a company playing catchup in a product category it created. If you're looking for a good read, the Foolish Pick of the Month is available in our online store, and it's Against the Gods, a book which I myself own but haven't read yet. (Ah yes, the rigors of overwork....) It explores the nature of risk, and is particularly enjoyable for those of us who enjoy numbers. Hey, I'm an English major and I ain't scared off by them things!
(News on our companies today, by the way? You may have guessed: nothing particularly interesting.)
-- David Gardner, May 18, 1998
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Day Month Year History FOOL -1.53% -1.63% 19.56% 301.26% S&P: -0.26% -0.54% 13.95% 141.23% NASDAQ: -0.82% -1.97% 16.64% 154.33% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 83.00 2182.45% 5/17/95 1960 Iomega Cor 1.28 7.06 451.58% 10/1/96 84 LucentTech 23.81 71.56 200.58% 9/9/97 290 Amazon.com 38.22 88.00 130.24% 8/12/96 130 AT&T 39.58 56.31 42.28% 2/20/98 215 DuPont 59.83 80.75 34.96% 1/8/98 115 S&P Depos. 95.91 110.59 15.31% 2/20/98 200 Exxon 64.09 72.56 13.22% 2/20/98 270 Int'l Pape 47.69 52.69 10.48% 4/30/97 -1170*Trump* 8.47 8.69 -2.58% 8/24/95 130 KLA-Tencor 44.71 38.63 -13.61% 1/8/98 425 3Dfx 25.67 21.75 -15.26% 6/26/97 325 Innovex 27.71 22.25 -19.70% 8/13/96 250 3Com Corp. 46.86 29.19 -37.72% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 58930.00 $56348.13 9/9/97 290 Amazon.com 11084.24 25520.00 $14435.76 5/17/95 1960 Iomega Cor 2509.60 13842.50 $11332.90 2/20/98 215 DuPont 12864.25 17361.25 $4497.00 10/1/96 84 LucentTech 1999.88 6011.25 $4011.37 8/12/96 130 AT&T 5145.11 7320.63 $2175.52 2/20/98 200 Exxon 12818.00 14512.50 $1694.50 1/8/98 115 S&P Depos. 11029.25 12718.28 $1689.03 2/20/98 270 Int'l Pape 12876.75 14225.63 $1348.88 4/30/97 -1170*Trump* -9908.50 -10164.38 -$255.88 8/24/95 130 KLA-Tencor 5812.49 5021.25 -$791.24 1/8/98 425 3Dfx 10908.63 9243.75 -$1664.88 6/26/97 325 Innovex 9005.62 7231.25 -$1774.37 8/13/96 250 3Com Corp. 11715.99 7296.88 -$4419.12 CASH $11558.06 TOTAL $200628.84