Any Bad News?
...why'd our companies get whacked?

by Jeff Fischer (TMFJeff@aol.com)

ALEXANDRIA, VA (Oct. 1, 1998) -- Not a single Fool company announced bad news today. In fact, the opposite took place. All of our companies took another small step in the direction of progress (or what management thinks will be progress) on this day. Over 200,000 people at our companies went to work and they all got through another day's "To Do" list. While working, most management teams running our public companies didn't consider their stock prices. Many won't even know that the stock market declined until they drive home this evening -- they're too busy focusing on the future.

When they hear stock prices are lower on their car radios tonight, their lives won't change. They'll go to work the next morning and continue to build their businesses.

Again, not a single Fool company had bad news today. So if we were to react to the stock market's decline and sell any of our holdings, it'd be like divorcing a beloved, respected, successful spouse merely because we see others divorcing themselves from theirs. Did any of your holdings announce bad news? Did any of the businesses that you own and respect suffer serious business setbacks today? If not, then -- being a long-term investor -- why would you sell your stocks? Just because they're now lower? Doesn't the fact that the stock market falls sharply remind us of the fact that, with just as little warning, it rises sharply, too?

You can't have one direction without the other. The stock market won't go to 0. In fact, it will very likely be higher five and ten years from now.

While money that you need in three years probably shouldn't be in the stock market, if you're anywhere near the age of the average American, you have well over two decades before retiring. And even if you're close to retiring, chances are that you won't need all of your money the day you retire -- just a portion of it. When you're a small handful of years away from the day that you'll celebrate retirement, you should begin to pull the portion of money that you'll soon need from the stock market. But any money that you don't need in three or five years, you should keep invested in companies that you know and love, in companies that are growing over the long term. Have a five-year outlook, or longer. If you do, Foolishly, then today is suddenly (once again) irrelevant.

Even so, we checked all the hatches, pulleys and sails on our Foolish Ship. Everything is intact and well. No bad news from any of our companies, but look at their stock prices: down $11, down $9, down $3 -- all of them down -- except one, which was up a fraction. Nice job, Exxon. But everything else was down. October began with a bust.

The Fool Port declined 6.8%, the S&P lost 3%, and the Nasdaq got whacked for 4.8% -- a decline that puts it in the history books, but not high on the list. The stock market's decline was blamed on the problems in emerging world markets. The fear is that international problems are contagious, because slow world economies could mean slower earnings growth at America's international companies. That's probably why Campbell Soup (NYSE: CPB) didn't decline today. Ninety percent of its earnings are derived domestically. Look elsewhere, though, and all you see are minus signs: Gillette, Coca-Cola, Intel, Johnson & Johnson, Pfizer. All down. Oh, and Amazon.com, America Online and Starbucks (note, though, those last three companies actually achieve a majority of their sales in the United States).

Every action creates an equal and opposite reaction, and perhaps every situation creates an equal and opposite situation. Declining prices, while temporarily erasing wealth for some, create an opportunity of wealth for others. Will America Online be hurt by weakness in Singapore? Uh, no. Does Starbucks (Nasdaq: SBUX), with over 1,600 stores in North America and only 120 international locations, deserve to lose 10% of its market value in one day? The company actually announced good news after the stock market closed. We'll get to that in a moment.

First, if today finds you wondering what to do about the stocks that you own, you're probably a newer Fool. Remember that 1) You should be a long-term investor if you're invested in stocks, and you should invest in companies, not in "the movement" of their stock price. Don't pin your sense of security on something so random as a daily stock price! Pin it to the decade-long coattails of leading, excellent companies. 2) Don't use dangerous amounts of margin, or borrowed money, to buy stocks. 3) Only invest in what you understand.

And finally, 4) Economies and markets do fluctuate, from good to bad, and then back to good. We can't predict when or why, but they do. That's part of investing. If you could know when to sell, you would have sold two months ago at the high. You don't know, though, and you can't know. Just as you don't know when stocks will rise again. But you should realize that over history stocks have gained 11% annually on average, topping all other investments. And even the years of the Great Depression are included in that average. More on investing in a moment.

As for Starbucks, tonight the company reported revenue of $149 million for the five-week period ended September 27, up 38% from the same period last year. Same-store sales increased 4% for the five weeks, a number that should please investors more than the 2% same-store sales reported two months ago. For the 52 weeks ended September 27, revenues were $1.31 billion, up 34% from the same period in fiscal 1997. Same-store sales increased 5% percent for the 52-week period. Starbucks is expected to grow earnings 35% in the new fiscal 1999, just begun, and it trades at 27 times the $1.20 per share earnings estimate.

Starbucks will have some interesting announcements this month, including a new cafe concept called "Circadia Coffeehouse" (with a planned opening in New York City) and a new food -- a line of four different whole grain snack bars that are quite good. (The deal with Kraft will not only allow distribution of whole bean coffee, but distribution of food products as well.) More on Starbucks next time (there's no rush when thinking five to ten years ahead).

For more on declining stock markets, we had columns on the topic last October (deja vu) when, guess what, inflation was the big fear. The 10/17/97 Fool Port column discussed stock market crashes and the media (probably apropos in preparation for tomorrow's headlines), and the 10/28/97 Fool Port provided some context: a history of stock market crashes. Today's decline wouldn't have even made this list.

To close, if you're new to the Fool, please visit the 13 Steps to Investing Foolishly. And if you want to talk, please visit the Fools and their Money message board on our website. I'll be there as will many other Fools for an ongoing discussion of investing and finances.

And finally but importantly, the Boring Portfolio has new management. Meet the new Boring Fools and their investment philosophy, beginning today.

Tomorrow is another day. Remember to Fool on!

--Jeff Fischer

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Bookmark Live Fool Port Quotes

10/01/98 Close

Stock Change Bid ---------------- AMZN -9 102.63 AOL -11 1/2 99.88 T -1 3/16 57.25 DJT - 1/4 3.38 DD -3 7/16 53.69 XON + 41/99 71.04 INVX - 13/16 11.31 IP -1 3/4 44.88 IOM - 1/8 3.63 KLAC -1 3/8 23.50 LU -3 1/4 66.00 SBUX -3 1/8 33.06 COMS - 9/16 29.50 TDFX - 1/8 11.13
Day Month Year History Annualized FOOL -6.80% -6.80% 32.93% 346.11% 43.31% S&P: -3.01% -3.01% 1.64% 115.18% 20.25% NASDAQ: -4.81% -4.81% 2.67% 123.88% 21.40% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 99.88 2646.51% 9/9/97 580 Amazon.com 19.11 102.63 437.00% 5/17/95 1960 Iomega Cor 1.28 3.63 183.11% 10/1/96 84 LucentTech 23.81 66.00 177.22% 4/30/97 -1170*Trump* 8.47 3.38 60.15% 8/12/96 130 AT&T 39.58 57.25 44.65% 2/20/98 200 Exxon 64.09 71.04 10.84% 2/20/98 270 Int'l Pape 47.69 44.88 -5.91% 2/20/98 215 DuPont 59.83 53.69 -10.27% 8/13/96 250 3Com Corp. 46.86 29.50 -37.05% 7/2/98 235 Starbucks 55.91 33.06 -40.86% 8/24/95 130 KLA-Tencor 44.71 23.50 -47.44% 1/8/98 425 3Dfx 25.67 11.13 -56.66% 6/26/97 325 Innovex 27.71 11.31 -59.17% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 70911.25 $68329.38 9/9/97 580 Amazon.com 11084.24 59522.50 $48438.26 4/30/97 -1170*Trump* -9908.50 -3948.75 $5959.75 5/17/95 1960 Iomega Cor 2509.60 7105.00 $4595.40 10/1/96 84 LucentTech 1999.88 5544.00 $3544.12 8/12/96 130 AT&T 5145.11 7442.50 $2297.39 2/20/98 200 Exxon 12818.00 14207.81 $1389.81 2/20/98 270 Int'l Pape 12876.75 12116.25 -$760.50 2/20/98 215 DuPont 12864.25 11542.81 -$1321.44 8/24/95 130 KLA-Tencor 5812.49 3055.00 -$2757.49 8/13/96 250 3Com Corp. 11715.99 7375.00 -$4340.99 6/26/97 325 Innovex 9005.62 3676.56 -$5329.06 7/2/98 235 Starbucks 13138.63 7769.69 -$5368.94 1/8/98 425 3Dfx 10908.63 4728.13 -$6180.50 CASH $12005.75 TOTAL $223053.50

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