Foolish Rating System?
Plus, diversity & the Hall of Portfolios
by Paul Larson ([email protected])
CHICAGO, IL (Oct. 23, 1998) -- The markets took a breather this October Friday after seven trading days in a row where the S&P and the Dow both rose. That's right, you'd have to go all the way back to October 13 to find the last time the markets were down. Not a bad little recovery, no? The FoolPort, however, didn't take a rest (it took one on Tuesday) and just kept on charging forward, tacking on another 0.73% to its value today. On the week the portfolio was up 7.83% and the S&P gained 1.35%. We'll take it.
Helping the portfolio today was Innovex (Nasdaq: INVX), up 16.5%, while the short position in Trump (NYSE: DJT) dragged down our performance as it rose above $5 again to close at $5 3/4. No substantiated news in either stock to justify the moves, just more rumors. If something concrete is disclosed, it's a safe bet we'll have something to say at that time.
It looks like the Fool Portfolio will be welcoming yet another oil stock to its ranks within the next year. Much like how the Fool got a stake in Lucent (NYSE: LU) from holding Foolish Four component Ma Bell (NYSE: T) two years ago, the portfolio will be getting shares in the newly public Conoco (NYSE: COC) in the not too distant future when DuPont (NYSE: DD) spins the rest of its stake in the oil giant to shareholders. It should be noted, though, that there's no guarantee on the date of the spin-off (which has yet to be announced), so perhaps we won't be holding DuPont as part of the Foolish Four anymore. The chances are good, but time will tell.
On the semiconductor front, KLA-Tencor (Nasdaq: KLAC) received an upgrade from BancBoston Robertson Stevens. The company got upgraded from a "Long Term Attractive" rating to a "Buy" from the firm. Am I the only one who looks at these ratings and wonders what the real difference is between the two recommendations? I love when the Wise of Wall Street give ratings such as "Short Term Hold, Long Term Accumulate." Huh? If Fools had their way and were forced into recommending stocks, our rating system might look something like this:
"We love it." (Our favorite stocks.)
"We really like it."
"We kind of like it." (We're rather blithe.)
"We don't like it."
"We hate it." (Our shorts.)
Of course, I doubt we will ever have some sort of institutionalized recommendations here at The Fool because the idea goes against what we most believe -- individual investors are best off thinking for themselves and doing their own homework. And if an individual does not have the time, energy, or desire to research and form their own opinions on stocks, they are best to stick with an index fund if they want exposure to equities.
Getting back to KLA, the research note from BBRS said that they believe the semiconductor equipment industry has bottomed. For KLA and FoolPort's sake, let's hope they're right! The stock was up $1 3/8 to $33 15/16 on this Friday. The FoolPort is still down $10.77 per share (with a cost basis of $44.71 per share) since the stock was purchased way back in August of 1995. While the portfolio is only down 24% on the trade thus far, the opportunity cost of holding the stock has been great considering the S&P 500 has been up over 90% in that timeframe. Woof Woof!
Every portfolio is going to have its dogs. It's one of those realities of investing, and it's why sticking with a relatively diverse portfolio is usually a prudent idea. If the FoolPort with its awesome 46.23% annualized performance has had such pooches as KLA, Sonic Solutions (Nasdaq: SNIC), and the smelliest doggie of them all in ATC Communications, I can only imagine what the approximately 99% of mutual funds that have underperformed this portfolio must be holding.
Moving on, Iomega (NYSE: IOM) was in the news a great deal this week. Make sure to check out yesterday's recap for information on the company's new President, Jodie Glore, as well as recent insider buying at the company. Wall Street is clearly impressed with the new direction of the company since it bid the stock up a buck, nearly 25%, to $5 1/8 at the end of trading today. Interested in some of the reasoning why Iomega is still in the portfolio? Tuesday's recap is for you. I don't know if I particularly agree with David's rosy prognosis for the company going forward, but it's not uncommon for Fools to have differing opinions on any given stock. We not only preach individual thinking; we live it.
One of the best features in which this variety of opinions can be seen is by checking out Dueling Fools. Every Wednesday there's a new stock featured in which two Fools are at polar ends of the spectrum on a given issue. Just the number of portfolios we have here in the Hall of Portfolios should showcase the amount of diversity.
Looking for an easy, mechanical method of investing in stocks that has knocked the leather off the ball in performance and takes all of ten minutes a year? Head towards the Foolish Four. On the other end of the spectrum we have the Boring Portfolio, which is undergoing renovation. If you are mathematically oriented yet Discounted Cash Flow (DCF), Weighted Average Cost of Capital (WACC), and Return on Invested Capital (ROIC) are foreign terms to you, make sure to click in for some excellent valuation lessons at a fraction of what it would cost you to get an MBA. And as for philosophy, Friday's Bore column is especially good -- "Portfolio Dilution: You Don't Want It."
And if that weren't enough, there is the Drip Portfolio with its unique investment technique geared towards building a portfolio over the years, one drip at a time, by buying stock directly from companies commission-free. Also keeping the long-term perspective in looking to buy the best companies, there are the guys over in the Cash-King Portfolio. There are some things we all agree upon here -- credit cards are dangerous, mutual funds underperform, active trading is costly, commissioned salespeople should be avoided -- but there's still that great diversity of opinion when looking at just exactly how to invest for the long term or where exactly any given stock is headed.
Between the five portfolios and the 42 positions among them, there are only four companies that are in more than one portfolio. Two of them are because of the Foolish Four rankings and are purely coincidental. The other two are Intel and Cisco Systems. So, there are five portfolios with five nonpareil flavors, 38 unique positions, and a dozen or so writers each with their own distinctive style -- there should be something for everyone here.
Finally, if you've live in the following cities and have some spare time this weekend, make sure to check out the Motley Fool Radio Show. Tom and Dave will have Ed McMahon at their mercy. Really.
Have a great weekend, Fools!
--Paul Larson
WE
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Today's FoolWatch: all the latest in Fooldom.
Day Month Year History Annualized FOOL +0.73% 3.70% 47.90% 396.34% 46.23% S&P: -0.72% 5.28% 10.33% 133.57% 22.29% NASDAQ: -0.52% 0.00% 7.87% 135.20% 22.49% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 114.94 3060.72% 9/9/97 580 Amazon.com 19.11 116.13 507.64% 5/17/95 1960 Iomega Cor 1.28 5.13 300.26% 10/1/96 84 LucentTech 23.81 77.75 226.57% 8/12/96 130 AT&T 39.58 63.81 61.23% 4/30/97 -1170*Trump* 8.47 5.75 32.10% 2/20/98 200 Exxon 64.09 71.25 11.17% 2/20/98 215 DuPont 59.83 59.13 -1.18% 2/20/98 270 Int'l Pape 47.69 45.56 -4.46% 8/24/95 130 KLA-Tencor 44.71 33.94 -24.10% 8/13/96 250 3Com Corp. 46.86 32.81 -29.98% 7/2/98 235 Starbucks 55.91 37.25 -33.37% 6/26/97 325 Innovex 27.71 12.38 -55.34% 1/8/98 425 3Dfx 25.67 10.38 -59.58% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 81605.63 $79023.76 9/9/97 580 Amazon.com 11084.24 67352.50 $56268.26 5/17/95 1960 Iomega Cor 2509.60 10045.00 $7535.40 10/1/96 84 LucentTech 1999.88 6531.00 $4531.12 4/30/97 -1170*Trump* -9908.50 -6727.50 $3181.00 8/12/96 130 AT&T 5145.11 8295.63 $3150.52 2/20/98 200 Exxon 12818.00 14250.00 $1432.00 2/20/98 215 DuPont 12864.25 12711.88 -$152.38 2/20/98 270 Int'l Pape 12876.75 12301.88 -$574.88 8/24/95 130 KLA-Tencor 5812.49 4411.88 -$1400.62 8/13/96 250 3Com Corp. 11715.99 8203.13 -$3512.87 7/2/98 235 Starbucks 13138.63 8753.75 -$4384.88 6/26/97 325 Innovex 9005.62 4021.88 -$4983.75 1/8/98 425 3Dfx 10908.63 4409.38 -$6499.25 CASH $12005.75 TOTAL $248171.75
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