Our Best Year Ever
Listen up, Harriet

by David Gardner (DavidG@fool.com)

ALEXANDRIA, VA (Sept. 28, 1998) -- The Fool Portfolio continued to float on the sweet red wine of September, rising 3% versus a flat market. For the month, we're now up in excess of 30% -- for the month. Man. That's our best month ever. For the year, we passed the 50% return mark today. It's been our best year ever, in fact.

Really?! you ask. Well, let's look back:

         FOOL  vs. S&P 500 
    1994:  11%* vs.    0%* 
    1995:  68%  vs.   34% 
    1996:  43%  vs.   20% 
    1997:  26%  vs.   31% 
    1998:  50%  vs.    8% 
        * Starting 8/4/94
As you can see, from a percentage standpoint -- percentages, not points! -- our 42-percentage-point lead over the S&P 500 this year is the best performance in our five years, even though we gained more overall in 1995. We make a real point of emphasizing that all investors look at their performance relative to the S&P 500, as opposed to the gains or losses taken out of that context.

Why?

Well... to avoid the trap that befuddles most people, who are a wee bit too casual about their own money. "My mutual fund was up 25% last year," Harriet says proudly, echoing exactly what the mutual fund boasts in its own marketing pitch. It takes a Fool to point out to Harriet that her 25% return underperformed the S&P 500 by six percentage points last year. Now in any given year most of us would of course prefer to be up and lose to the market, than to be down and beat the market. That stands to reason. But the best way to judge your performance over the long haul (the only haul that counts) is relative to the stock market's total annualized return. One need simply point out to Harriet that her money underperformed the index fund, a simple and brainless alternative that costs a fraction of the fees she paid for her underperformance. Take a look, Harriet:

                     RETURN    ANNUAL FEE 
 Harriet's Fund       25.75%         1.75% 
 Foolish Index Fund   31.01%         0.23%
Year in and year out, to pay nearly 2% in management fees (the average expense ratio of the mutual fund) when you could be paying just 0.2% is going to hurt you. Especially when you have more than an 80% chance of underperforming...

By contrast, those who buy and sell stocks pay NO annual fees, because they are doing it themselves. That's Foolish. Here in Fool Portfolio Land, we pay the commission to enter, and nothing more until we eventually sell (years down the road, if things play out our way). No middlemen skimmin' the cream off our cappuccino, off for two weeks to the South Pacific on our ticket. No sirree. Foolish investors -- those who are in control of their own financial destiny, not relying on middlemen who are incentivized to make money off their customers' accounts -- go see the South Pacific on their own dime, and when they want to. And obviously, after another great year for the Fool Portfolio, we're a little closer to the South Pacific than we were before.

Hope things are playing out the same for you, dear Fool. If we could wave our magic wand, we'd have all our readers outperform our own returns, because that would be the best service of all. Many of you frequently write me to the effect that:

"Hey, you guys are doing well, but I bought Excite when you bought Starbucks so I'm beatin' up on you!"

Again, would that everybody were up 50% this year. In reality, we know that most people aren't. Of those who are, however, you'll find more of them in Fooldom than in the mutual fund industry. I don't think you'll find a mutual fund that's up 50% this year. And I'm almost certain no mutual fund has outperformed the Motley Fool Portfolio since its launch in early August 1994. This is not bragging, but it is amazing (there are over 8000 mutual funds).

Gives me a good opportunity to reiterate our mission, especially relative to the fund industry. You see, our mission is actually to teach you, whereas their mission is to make money off of you. We share with you all of our picks beforehand, while they routinely hide what they're buying and selling and (in at least one well-documented case) say that they're doing the opposite of what they're actually doing to maintain better trading prices. Finally, we offer this all for free, whereas they're constantly trying to figure out some new fee they can add on top of their existing ones.

How much longer can the managed-fund industry exist in the face of index funds and the Internet? Let's count the days together. We'll be here with you every step of the way... and beyond.

The Fool stars today were -- on a percentage basis -- Starbucks (up 14%), Amazon.com (up 6%), DuPont (up 5% -- the Dow heavy with a big move!), 3Dfx (continuing on the warpath, up 5%), and America Online (up 2%). Donald dropping another 2% counts too. We're still short Donald. We foresee that remaining the case.

Starbucks rose $5 3/16 to $41 today after announcing a partnership with Kraft Foods to put its coffee in supermarkets across the country. Such a development was inevitable -- only a matter of time, from our point of view -- but it's great to know that the partnership involves the country's #1 packaged foods company. And it's of course great to know that one of the country's premier food brands -- Starbucks, with our money riding on it -- will now be even more ubiquitous. Ram that brand down the country's collective throat, I say! That's what Coke does, and it has done OK over the years. For more on Starbucks, consult Dale Wettlaufer's Fool Plate Special in today's Lunchtime News. And join us as always on the Starbucks message board. We remain down 27% on our investment, but I feel good about the long term. Time will tell. It always does.

Foolish best wishes, and come back to this space tomorrow and every day to follow the incredible volatility -- heck, it's quite fun -- that IS the Fool Portfolio, circa 1998.

To infinity and beyond.

-- David Gardner, September 28, 1998

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Bookmark Live Fool Port Quotes

09/28/98 Close

Stock Change Bid ---------------- AMZN +6 3/8 115.63 AOL +2 7/8 117.63 T -1 9/16 58.19 DJT - 1/16 3.13 DD +2 7/8 61.63 XON - 5/16 68.06 INVX - 3/8 13.13 IP + 3/4 49.19 IOM - 1/8 4.13 KLAC - 11/16 26.31 LU + 11/16 77.56 SBUX +5 3/16 41.00 COMS + 3/16 32.25 TDFX + 9/16 12.94
Day Month Year History Annualized FOOL +3.05% 30.52% 50.25% 404.23% 47.71% S&P: +0.38% 9.52% 8.06% 128.77% 22.08% NASDAQ: -0.25% 16.01% 10.75% 141.50% 23.68% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 117.63 3134.62% 9/9/97 580 Amazon.com 19.11 115.63 505.03% 10/1/96 84 LucentTech 23.81 77.56 225.78% 5/17/95 1960 Iomega Cor 1.28 4.13 222.16% 4/30/97 -1170*Trump* 8.47 3.13 63.10% 8/12/96 130 AT&T 39.58 58.19 47.02% 2/20/98 200 Exxon 64.09 68.06 6.20% 2/20/98 270 Int'l Pape 47.69 49.19 3.14% 2/20/98 215 DuPont 59.83 61.63 2.99% 7/2/98 235 Starbucks 55.91 41.00 -26.67% 8/13/96 250 3Com Corp. 46.86 32.25 -31.18% 8/24/95 130 KLA-Tencor 44.71 26.31 -41.15% 1/8/98 425 3Dfx 25.67 12.94 -49.60% 6/26/97 325 Innovex 27.71 13.13 -52.63% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 83513.75 $80931.88 9/9/97 580 Amazon.com 11084.24 67062.50 $55978.26 4/30/97 -1170*Trump* -9908.50 -3656.25 $6252.25 5/17/95 1960 Iomega Cor 2509.60 8085.00 $5575.40 10/1/96 84 LucentTech 1999.88 6515.25 $4515.37 8/12/96 130 AT&T 5145.11 7564.38 $2419.27 2/20/98 200 Exxon 12818.00 13612.50 $794.50 2/20/98 270 Int'l Pape 12876.75 13280.63 $403.88 2/20/98 215 DuPont 12864.25 13249.38 $385.13 8/24/95 130 KLA-Tencor 5812.49 3420.63 -$2391.87 7/2/98 235 Starbucks 13138.63 9635.00 -$3503.63 8/13/96 250 3Com Corp. 11715.99 8062.50 -$3653.49 6/26/97 325 Innovex 9005.62 4265.63 -$4740.00 1/8/98 425 3Dfx 10908.63 5498.44 -$5410.19 CASH $12005.75 TOTAL $252115.06

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