The Foolish Mailbag
Only a selection of this week's best e-mails
by David Gardner ([email protected])
ALEXANDRIA, VA (Sept. 4, 1998) -- The market continued downward a bit more, Friday, and the Fool Portfolio down with it, though only slightly. The S&P 500 dropped 0.85%, the Nasdaq surrendered 0.34%, and the Fool Portfolio said sayonara to 0.06%, another $117.22 of real money. Our real money. Yours too, if you're an investor.
It was good to see the Fool Four exhibit real strength in our portfolio. Exxon led the way, up $2 1/8, teamed together with upward moves from International Paper (+$15/16), AT&T (+$1 7/16), and DuPont (+$3/16). In fact, all four of our Foolish Four rose on another bad market day. This is a reminder that the contrarian Foolish Four approach works well in down markets. For the year now, the 1998 Foolish Four are up 4%, versus 0% for the S&P 500 and Nasdaq (the Dow has been worse).
If you're not familiar with our Foolish Four approach, it's time to bone up right here. It's a fine strategy to use anytime, but generally looks best in market downturns.
For investors, this week was one of the more memorable of the past decade. It was a bad one (the FoolPort lost 11%, versus 5% for the indices), and was interesting for that reason. It was also interesting as a way of understanding the media better. We received innumerable media calls to Fool HQ, many of them asking, "What are people saying about this on the Internet?" Now we certainly appreciate the publicity, so far be it from me to suggest to reporters that they actually use the Internet themselves in order to answer their own questions. Anyway, I couldn't help but contrast the stoic tone of most notes I received this week with the comparatively hysterical headlines gracing our papers and TV shows.
Makes one surmise that this is true of most news stories, not just screaming headlines about the stock market....
On Monday, I penned a tribute to long-term investing and what really counts called "No Sorry!" using my children's antics as a touchstone. On Tuesday, I used this space to reflect on a Jerry-Springerlike experience that Tom and I had had on the CBS Morning Show that morning. Following both of these writeups I received a large volume of mail, some of which was so good or relevant that I want to dedicate this week's closing recap to dipping into The Foolish Mailbag, as we are sometimes wont to do.
My only regret is that I have many more good letters than I have space to fit them.
In the face of a really bad market day, Monday, Brian Dalton (labeling himself accurately "A FOOL FOREVER!") wrote:
"It is simply amazing the panic that sets in when the market 'corrects' downward. Isn't it funny that when the market 'corrects' upward the psychological element is much softer? No dramatic TV coverage and no lectures about irrational exuberance.... Time is of the essence, except in investing. Here, all one has to do (based on the history of the U.S. stock market) is simply save and invest long-term in good companies. BUT, everyone HAS to make it ALL so complicated and confusing, that they exchange returns for losses. Rational behavior thus somehow transforms slowly into greed, then fear, and finally into irrational behavior."
Coming at things from an opposing point of view, someone else wrote that he found little to cheer about in my writing this week, and sees bad times ahead for the stock market. He then asked me where I thought it was going over the next month. For that reader I prescribe a visit to the Fool's School, where one quickly learns that we don't make market predictions (especially short-term ones) and we don't really care much about the month or year ahead.
In fact, a better view of the big picture came in from a reader in Connecticut, who sent me the most moving thing I've read this week. (Far more moving than the constant headlines across all media about STOCK MARKET, STOCK MARKET, STOCK MARKET.) He wrote:
"If you go back to 1987, the low was actually in December, not October. Check out December 7th. My Dad went out and got drunk after losing most of what he had, which wasn't much. He made it across five lanes of traffic, not six. He was a bricklayer. The lesson was an expensive one for me. I know what is of real value, and its not your 401(k). It's those two kids and your wife. Don't forget it."
(That e-mail was entitled "My Dad's Death.")
On another note, I also got a bunch of Foolish child-rearing advice, most of which made good sense to me. One fellow named John recommended a book called Systematic Training for Effective Parenting (by Don Dinkmeyer and Gary McKay) from which he used to teach, in fact. "My daughter is now 15 and just like sound investing pays its biggest dividends in one's later years, so too does sound parenting pay off most handsomely in the later years." That's comforting to know, and sounds true. John's basic advice, which corresponded with many others, is that young children often hit each other to get their parents' attention, so by giving that lots of attention, we parents compound the problem. Jane Nelsen's book Positive Discipline, one of my favorites on the subject, offers the contrary advice that when your children start annoying each other and fighting each other in front of you, let them know that you're walking out of the room, and then do so. They usually stop. And indeed, ours did.
Fool reader Andrew Sopchak also likes a book called 1-2-3 Magic, if you're a parent with children aged 2-12, casting about for help with discipline.
Peter Ibsen wrote in from Denmark, a 26-year-old native Danish investor and Fool. There aren't many, he says. "Denmark is packed with VERY conservative investors. 'Only bonds, my son,' that's what I've been told." Peter started just one month ago, and now "SLAM BAM AUCH," he writes. "Now I have to deal with being down some 20% and being told by everyone, 'What did I say? I told you not to do it. Blah blah blah." He was particularly irked when the personality on a financial Web site he follows proclaimed stocks "dead," just a month after helping to convince Peter he should be in the U.S. stock market. But Ibsen's response was eminently Foolish: "I told myself to quit crying. I have put my money to work because I believe in the market over the LONG run. I am not here to sell tomorrow. So what if you enter exactly at the top? As I have learned from the Fools, 'It is not about timing, it's about time in the market.' So I spent all day at the golf course playing 36 holes. The first 5 holes I still felt the Dow down 350 points of pain, but driving home on the freeway I had totally forgotten about the market."
As for the CBS Morning show, we received an outpouring of Foolish sentiment. A typical note read, "Hi. Long time Fool, first time caller. I saw you guys on CBS this morning, and I just had to write to say the [name omitted to protect the Wise] are idiots. Yes, retirees shouldn't be plunking all their life savings into equities now or ever. But if they plan on living more than 5-10 years more, investing money for those years in carefully chosen stocks is very smart (and Foolish!). And how about people in their 20's, 30's, or 40's? Bonds? Treasuries? Give me a break [name omitted...]! They're so Wise it makes me sick! I am (thankfully!!) not familiar with these or any other [name omitted...]. However it is also painfully obvious that they have never taken the time to read one sentence from the Fool library, yet feel the right to criticize you/us with impunity. Were they trying to imply that TMF has a vested interest in all this? You GIVE most of it away for FREE! (OK, you sell the books, but I wait for the paperback.) No matter what the Wise say... keep on Foolin'."
We appreciate the support, Norris, but just know that we didn't take the Springer outburst nearly so seriously. We enjoyed it, really!
Finally, a number of notes questioned my statement to the effect, "If you're over 45, you should gradually be moving retirement money you'll really need into fixed income like Treasury bonds and bills." A number of long-time Fools pointed out some of our past advice, based on none other than Peter Lynch's work, which shows that if you just keep your money invested in stocks and sell off what you'll need to live in retirement, you'll be better off. Assuming a stock market with normal volatility, and anything close to the historical return, that is true. If you don't believe me, pick up a copy of Lynch's Beating the Street and check it out for yourself. It works because the market far outperforms its fixed-income counterparts, and so the longer you live, the more you want to be invested with compounding stock-market returns.
That said, this strategy is suitable only for aggressive older investors who probably won't need every last one of their invested dollars to live out retirement. For instance, many of the Nifty Fifty in the early 70's dropped 85% in value from top to bottom over a two-year period. Some people using Lynch's advice might end up having their retirement years a bit too pinched, if they had to sell at the bottom. It's just something to keep in mind. Nothing wrong with owning U.S. Treasuries (especially the 30-year bond, the "long bond") in one's retirement years.
There's lots more great stuff in my e-mailbox, so perhaps I'll have an opportunity to return to it next week. Looking down the list of currently unreturned e-mails (sorry, I'll get to them -- I've been a bit overwhelmed), anyone would be reminded of just how much smarts there are out there in Fooldom, and how many wonderful people who are eager to help each other out with information and advice. God bless the Internet, and God bless Fooldom.
And for now I depart, belled cap and all... to resurface tomorrow for three hours at noon Eastern, 9 AM Pacific, on The Motley Fool Radio Show. Tomorrow we debut in several more cities, including Seattle! (Yee-hah, Seattle Fools.) That's KNWX, AM 770. We'll be covering the 10 Things To Do During a Market Downturn, the Three Times to Sell, and a host of other standard features.
And don't worry, because if the Fool Radio Show isn't near your hometown (here are the stations we are on), it will be soon. You can help the process by clicking here.
Fool on!
-- David Gardner, September 4, 1998
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Today's FoolWatch: all the latest in Fooldom.
Day Month Year History Annualized FOOL -0.06% 2.33% 17.80% 295.34% 40.04% S&P: -0.85% 1.71% 0.36% 112.46% 20.27% NASDAQ: -0.34% 4.49% -0.24% 117.52% 20.97% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 85.50 2251.20% 9/9/97 580 Amazon.com 19.11 86.25 351.32% 10/1/96 84 LucentTech 23.81 75.25 216.07% 5/17/95 1960 Iomega Cor 1.28 3.63 183.11% 4/30/97 -1170*Trump* 8.47 4.38 48.34% 8/12/96 130 AT&T 39.58 53.25 34.55% 2/20/98 200 Exxon 64.09 66.06 3.08% 2/20/98 215 DuPont 59.83 56.31 -5.89% 2/20/98 270 Int'l Pape 47.69 39.63 -16.91% 7/2/98 235 Starbucks 55.91 31.19 -44.22% 8/13/96 250 3Com Corp. 46.86 23.88 -49.05% 8/24/95 130 KLA-Tencor 44.71 22.25 -50.24% 1/8/98 425 3Dfx 25.67 9.94 -61.28% 6/26/97 325 Innovex 27.71 10.06 -63.69% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 60705.00 $58123.13 9/9/97 580 Amazon.com 11084.24 50025.00 $38940.76 4/30/97 -1170*Trump* -9908.50 -5118.75 $4789.75 5/17/95 1960 Iomega Cor 2509.60 7105.00 $4595.40 10/1/96 84 LucentTech 1999.88 6321.00 $4321.12 8/12/96 130 AT&T 5145.11 6922.50 $1777.39 2/20/98 200 Exxon 12818.00 13212.50 $394.50 2/20/98 215 DuPont 12864.25 12107.19 -$757.06 2/20/98 270 Int'l Pape 12876.75 10698.75 -$2178.00 8/24/95 130 KLA-Tencor 5812.49 2892.50 -$2919.99 6/26/97 325 Innovex 9005.62 3270.31 -$5735.31 8/13/96 250 3Com Corp. 11715.99 5968.75 -$5747.24 7/2/98 235 Starbucks 13138.63 7329.06 -$5809.56 1/8/98 425 3Dfx 10908.63 4223.44 -$6685.19 CASH $12005.75 TOTAL $197668.00
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