Mudslide Fool Port
...follows weeks of "raining" success
by Jeff Fischer
ALEXANDRIA, VA (July 10, 1998) -- Aw, poor baby. The Fool Port had an ugly day and a losing week, and if the near-term mattered, I might care. Rather than being absorbed in the present, when it comes to investing, Fools need to think of the future. The distant future.
That said, let's quickly look at the past.
Since Monday, the port has sunk like a California mudslide. We lost 5.2% while the S&P gained 1.6%. Amazon.com (Nasdaq: AMZN), which closed at $124 last week, dropped $25, or 20%. Considering the stock was at sixty dollars one month ago, the avalanche might seem appropriate. You can send e-mail to me stating, "See, Amazon was at $130 a few days ago, now look how it's at $99!" And I'll respond, "We bought it at $19 ten months ago, now look how it's at $99." It's perspective.
We're looking ahead from the day that we bought it, not back from some random day on which we wouldn't have sold it anyway. We're hoping that Amazon will become much more successful in the online landscape over the next five years -- large enough that it might merit a higher valuation than now, or than the recent high. That's our mindframe and, of course, only time will unfold the magic scroll that's labeled "Results."
Yes, the risk in holding the stock is arguably high. As people often forget, though, the risk in holding America Online over the past four years was very high, too. Only recently has the company "arrived," and only recently has its stock been perceived as having staying power (minimal or not). Many times over the past four years investors were told by various sources to sell AOL -- "Look how overvalued it is!" sources screamed. Valuation multiples can contract if a business expands, though, not just through share depreciation. And you don't achieve thousand percentage-point returns as the Fool has without taking risks and without holding for years, through peaks and valleys.
Anyway, as if to test our resolve with Amazon, our overview of the holding was written on Monday, the day the stock closed at $139. Fulfilling our stated wish to see the stock relax, Amazon has done nothing but "relax" (read: plummet) since the article was posted. (Now, if only the volatility could be ironed out. I'd love to see the stock trade lightly, or at least with some stability -- though, yes, it took years for America Online's stock to reach a more stable status.) We looked at America Online (NYSE: AOL) in this column on Wednesday. The stock gained $2 the past five days.
Before we close today's book on the ever-intriguing Internet companies, there was a fine article about Amazon.com on the front page of Friday's Washington Post. You can read it on the Web. Also, in his weekly Notes from a Fool column, TMF Cheeze discusses the Internet topic with verve. Finally, in Friday's "Fool on the Hill" column in the Evening News, Louis Corrigan discusses "Internet Insanity Redux."
The other story of the week is DuPont (NYSE: DD). The Foolish Four giant announced on Thursday that second quarter earnings will be as much as 15% below the $0.99 per share earned a year ago, and will miss the current estimate of $1.01 per share. Half of the shortfall is due to adverse weather (when it rains, it pours), Asian currency translations, and weak demand in crop protection products this month (if your crops are ruined by weather, there's no need to protect them). The rest is due to lower oil prices, lagging demand in the textile industry, and the strike at General Motors (NYSE: GM).
Add that all up, and wow, earnings only 15% below expectations doesn't sound too bad considering the many factors working against our company. Still, Mrs. Market didn't care for it. She pulled a ruler and smacked DuPont on both hands. Being a part of the Foolish Four, though, there's nothing we'll do about the holding. There's probably nothing we should do. We suffered through the AT&T (NYSE: T) malaise of 1996 for eventual gain, and we'll suffer through any DuPont malaise as well; at least until August of 1999 when the 18-month holding period expires.
Speaking of DuPont and the Fool Four, we're currently running down the list of Fool Port stocks, discussing each one by one, and this week we tackled Amazon and America Online. From here, the list goes next to the Foolish Four, which we count as one holding. The strategy is methodical and the four stocks are bought as one investment every eighteen months. We'll briefly share details on the well-known strategy on Monday -- sharing why we love it. The remaining list of Fool holdings to give specific attention to is, in alphabetical order:
Foolish Four Innovex Iomega KLA-Tencor Lucent Technologies Starbucks Corp. 3Com Corp. 3Dfx Interactive Trump Hotels
On days of significant news or earnings we might have a slight diversion from the scheduled daily topic. Today, for example, Trump Hotels (NYSE: DJT) made a debt tender offer that was well-received by junk bond traders. The company has to do something to reconfigure its high-interest debt, or retire it. This wouldn't have been enough news to derail a column on Innovex, for example, but it's worth mention. Also, late next week 3Dfx (Nasdaq: TDFX) is expected to report its quarterly results. Earnings of $0.51 per share are expected. We'll of course cover that, too. With earnings season coming at us full steam, it'll be a busy few weeks.
In fact, even this week things were so hectic-crazy that we didn't have time for a coffee break, during which we could've discussed our new holding, Starbucks (Nasdaq: SBUX). The Starbucks message board has been active and interesting. Fools around the world have been sharing recent experiences in Starbucks cafes -- from Hawaii, to California, to Singapore. If you have grassroots experiences to share, join in on the board! If not, perhaps give the Drip Port a read. Friday the Drip column considers its performance and its holdings (Intel, Campbell, J&J), and next week it narrows its search for a banking stock to buy. If that doesn't interest you, in Friday's Cash-King column Phil Weiss shares his experience at a day-trading course. Step into the world of the Wise.
But have a Foolish weekend...
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Day Month Year History Annualized FOOL -2.01% 1.62% 45.02% 386.69% 49.60% S&P: +0.50% 2.69% 19.98% 154.00% 26.78% NASDAQ: +0.17% 2.55% 23.73% 169.80% 28.74% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 112.50 2993.69% 9/9/97 580 Amazon.com 19.11 99.50 420.65% 5/17/95 1960 Iomega Cor 1.28 5.88 358.84% 10/1/96 84 LucentTech 23.81 86.38 262.80% 8/12/96 130 AT&T 39.58 57.00 44.02% 2/20/98 215 DuPont 59.83 68.13 13.86% 2/20/98 200 Exxon 64.09 71.75 11.95% 4/30/97 -1170*Trump* 8.47 7.75 8.49% 7/2/98 235 Starbucks 55.91 57.06 2.06% 2/20/98 270 Int'l Pape 47.69 43.13 -9.58% 1/8/98 425 3Dfx 25.67 17.00 -33.77% 8/13/96 250 3Com Corp. 46.86 28.94 -38.25% 8/24/95 130 KLA-Tencor 44.71 27.00 -39.61% 6/26/97 325 Innovex 27.71 14.63 -47.22% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 79875.00 $77293.13 9/9/97 580 Amazon.com 11084.24 57710.00 $46625.76 5/17/95 1960 Iomega Cor 2509.60 11515.00 $9005.40 10/1/96 84 LucentTech 1999.88 7255.50 $5255.62 8/12/96 130 AT&T 5145.11 7410.00 $2264.89 2/20/98 215 DuPont 12864.25 14646.88 $1782.63 2/20/98 200 Exxon 12818.00 14350.00 $1532.00 4/30/97 -1170*Trump* -9908.50 -9067.50 $841.00 7/2/98 235 Starbucks 13138.63 13409.69 $271.06 2/20/98 270 Int'l Pape 12876.75 11643.75 -$1233.00 8/24/95 130 KLA-Tencor 5812.49 3510.00 -$2302.49 1/8/98 425 3Dfx 10908.63 7225.00 -$3683.63 6/26/97 325 Innovex 9005.62 4753.13 -$4252.50 8/13/96 250 3Com Corp. 11715.99 7234.38 -$4481.62 CASH $11876.47 TOTAL $243347.28