Yo... Wall Street?
Of short-term holds and 10% gains

by David Gardner

ALEXANDRIA, VA (Aug. 17, 1998) -- The Fool Portfolio was trounced by the market Monday, as the indices and most stocks out there (not coincidentally) ran up a couple percent. Our portfolio lost half a percent. The same stocks that are responsible for us being up 30 percentage points over the S&P 500 this year were the very ones that dragged down our Monday return, as both AOL and Amazon lost value. The Donald -- another 1998 star for us -- also dropped, which of course helps The Fool Portfolio as it's our open short position. Through a strong bull market, we Fools all together have watched DJT lose 38.75% of its value. Couldn't happen to a public company less focused on shareholders....

Halfway through August, everybody's down a little, with the Fool Port (-2%) fizzling slightly less than the S&P 500 and Nasdaq (-3% each). Coming after a strong June and July, perhaps this is the pause that refreshes.

KLA-Tencor (Nasdaq: KLAC) rose $3 today, pronounced a "Short-Term Hold" and "Long-Term Buy" by SoundView Financial. A sound view, eh? Hmmmmm...

... OK, guys, I'm confused. So you're saying that the stock won't move in the short term, so I should "hold" my shares (or, in a way, "hold off"). And yet it's up three bucks. But then again, you presumably feel it's a good buy for the long term, hence your "Long-Term Buy" rating. Except that if you don't feel it's going anywhere in the short term, why should I bother plinking down any money in the thing (seeing as how you're suggesting you can make short-term market calls, which Fools never would)? I mean, if this is dead money in the short term, why not hold off on the long-term buy until the short term looks better too?

And why would the stock rise greater than 10% in the face of all this?

Yo... Wall Street?

When are you going to dispense with your silly ratings?

And when are you going to stop presuming to call the short-term market direction? As if anyone could.

We're all grownups out here... it's time we start asking our financial institutions to behave like adults.

Ironically, whatever one might say about KLA's long-term status as a holding, the one thing that is confirmable right now beyond a shadow of a doubt is that it was a GREAT short-term BUY... not a short-term hold. When should a hold NOT be a hold? Answer: When it appreciates more than 10% in a day.


Iomega (NYSE: IOM) announced the sale of its 100 millionth Zip disk, and in so doing dropped prices on its key product. Zip disks, when purchased in a pack of ten, will now cost $9.95 each. Note my italics there, since CNBC reported this morning that it was basically 10 bucks for 10 disks, stating that the company was selling its disks for $1 each. (Come on, fellas... let's introduce some fact checking into our mass-market visual medium.) Iomega lost $3/16 to $4 7/8. The stock is fast threatening to become a small cap! Daily dollar volume is now down to about $8 million. We continue to hold, eager as much as anything to see if management can cut costs, improve sales, and turn a profit. If so, Iomega below $5 will look like a bargain. If not, Iomega may never climb back much above $5. It is our hope and expectation as shareholders that IOM will return to profitability, but we've been wrong before.

All of this said, even when you feel you know a company and its industry pretty well, you'll be wrong from time to time. This is why we stay diversified in 10-15 stocks. Frankly, I can't tell you which of our current holdings will do best over the next 3, 6, or 12 months, and I would suggest you not believe anyone who emphatically answers that question. To be a successful investor, you don't have to be specifically right about calling a particular investment's direction over a particular period. You just need to invest your money in sufficiently good companies that in aggregate your dollars will outperform the market's average over time. That's perhaps the most obvious lesson taught by the Fool Portfolio (the most obvious of many lessons), and it is also the most important lesson.

A final navigational tip to close the report today. If you enjoy this portfolio report every day, consider tapping in to the others in our Portfolios area. The Cash-King portfolio, managed by my brother Tom, is beating up on the market this year. Its ten-year mission is to hold the same group of stocks and leave well alone. The Drip Portfolio, managed by Jeff Fischer, is also beating the market this year. Its twenty-year mission is to add $100 a month into one or another dividend reinvestment plan and wind up with $150,000. The Fool Four is running even with the market; you should already know about that investment approach. And the Boring Portfolio, our sole loser this year, nevertheless makes for an always educational and thoughtful read, through the hard work of our own TMF Boring.

Our aim with the Hall of Portfolios is to provide you living examples of money managed by average people who believe they can beat the stock market, in a world full of large institutions hell-bent on convincing you this is all too...

risky... and,

... to do on your own. Y'know... so they can manage your money for you, and charge you exorbitant amounts to do so.


Where Are The Customers' Yachts? asked Fred Schwed, Foolishly, more than 60 years ago. It's still just as applicable today.

See ya on the message boards. Fool on!

--David Gardner, August 17, 1998

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08/17/98 Close

Stock Change Bid ---------------- AMZN -3 1/16 119.69 AOL -1 31/64104.75 T + 5/8 55.94 DJT - 3/16 5.19 DD +1 3/4 55.13 XON +1 3/16 69.56 INVX + 29/64 14.63 IP --- 41.75 IOM - 3/16 4.88 KLAC +3 31.13 LU +1 15/16 87.81 SBUX +1 3/8 39.88 COMS - 1/16 29.13 TDFX + 1/8 13.13
Day Month Year History Annualized FOOL -0.50% -1.99% 44.14% 383.74% 47.83% S&P: +1.97% -3.30% 11.67% 136.40% 23.78% NASDAQ: +1.56% -2.90% 15.77% 152.44% 25.81% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 104.75 2780.57% 9/9/97 580 Amazon.com 19.11 119.69 526.28% 5/17/95 1960 Iomega Cor 1.28 4.88 280.74% 10/1/96 84 LucentTech 23.81 87.81 268.83% 8/12/96 130 AT&T 39.58 55.94 41.34% 4/30/97 -1170*Trump* 8.47 5.19 38.75% 2/20/98 200 Exxon 64.09 69.56 8.54% 2/20/98 215 DuPont 59.83 55.13 -7.87% 2/20/98 270 Int'l Pape 47.69 41.75 -12.46% 7/2/98 235 Starbucks 55.91 39.88 -28.68% 8/24/95 130 KLA-Tencor 44.71 31.13 -30.39% 8/13/96 250 3Com Corp. 46.86 29.13 -37.85% 6/26/97 325 Innovex 27.71 14.63 -47.22% 1/8/98 425 3Dfx 25.67 13.13 -48.87% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 74372.50 $71790.63 9/9/97 580 Amazon.com 11084.24 69418.75 $58334.51 5/17/95 1960 Iomega Cor 2509.60 9555.00 $7045.40 10/1/96 84 LucentTech 1999.88 7376.25 $5376.37 4/30/97 -1170*Trump* -9908.50 -6069.38 $3839.13 8/12/96 130 AT&T 5145.11 7271.88 $2126.77 2/20/98 200 Exxon 12818.00 13912.50 $1094.50 2/20/98 215 DuPont 12864.25 11851.88 -$1012.38 2/20/98 270 Int'l Pape 12876.75 11272.50 -$1604.25 8/24/95 130 KLA-Tencor 5812.49 4046.25 -$1766.24 7/2/98 235 Starbucks 13138.63 9370.63 -$3768.00 6/26/97 325 Innovex 9005.62 4753.13 -$4252.50 8/13/96 250 3Com Corp. 11715.99 7281.25 -$4434.74 1/8/98 425 3Dfx 10908.63 5578.13 -$5330.50 CASH $11876.47 TOTAL $241867.72

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