...gets altitude sickness
by Paul Larson (TMFParlay@aol.com)
CHICAGO, IL (Nov. 6, 1998) -- After yet another extremely interesting week that saw the Rule Breaker-elect portfolio reach heights never seen before, Friday found the portfolio a little short of breath with altitude sickness. While the markets continued their march from the valley skyward to peaks not seen since summer, the portfolio descended 0.76% today. Considering the stratospheric levels the portfolio is at, up 70.9% in 1998, looking down from its perch at the S&P, up only 17.6% on the year, the portfolio's allowed to take a breather now and then. On the week, the portfolio ascended 6.92%.
One of the topics that comes up often in discussion about this portfolio is that of asset allocation. I can hear them now, "Those Fools! They've got half their portfolio in two stocks!" Not being of the persuasion to hide from the truth, here are the portfolio's current percentage equity positions:
Ticker Value % of Equity AOL $99,400.00 34.7% AMZN $72,246.25 25.2% IOM $17,027.50 5.9% XON $14,700.00 5.1% DD $13,437.50 4.7% IP $12,453.75 4.3% SBUX $11,500.31 4.0% COMS $8,906.25 3.1% T $8,246.88 2.9% LU $7,549.92 2.6% DJT -$6,727.50 -2.3% TDFX $5,737.50 2.0% INVX $5,565.63 1.9% KLAC $4,696.25 1.6% Cash $12,005.75 4.2% Ttl Equity $286,745.56
Does the portfolio have an above-average level of concentration risk? Darn straight. But when you look back to see that the largest mistake the portfolio made was to sell half of AOL back in April of 1997, sticking to the "let your winners run" philosophy seems to make a lot of sense. After all, that $12,599.89 raised from selling those 325 shares of AOL would today be worth exactly $105,000.00 had the portfolio not diluted itself. That's a lot of bread left on the table, Fools. We make mistakes just like everyone else, and we try to learn from them and modify our philosophy as experience makes us <<cough cough>> wiser. (Or should that be "more Foolish?")
It's amazing to look back to when the Fool first bought AOL. The commission to buy the stake was nearly $80, and that was relatively inexpensive at the time! America Online was merely 10% of the portfolio when first purchased. It wasn't the Foolish Four back in 1994; it was the Beating the Dow three. Instead of the mere 2.3% of the portfolio that the Trump short now occupies, nearly 20% of the equity was bet on the "don't pass" line on shorts long-since covered. I guess the only thing that remains constant is change.
Anyway, America Online has an interesting marketing deal happening next month as the "You've Got Mail" movie approaches its December release. For those who don't know, it's a movie in which Meg Ryan and Tom Hanks strike up a romance on AOL. As someone who has his job thanks to AOL and knows several couples (some now married) who met online, I think this movie might really strike a chord. More importantly, I honestly can't think of a better product placement than showing two of the most bankable stars in Hollywood using the service. AOL, strong in recent weeks, tacked on another few ticks today to close at $140.
The portfolio's two lowest priced stocks have had exciting times of late. Unfortunately, only one of those positions is a long. That long position is none other than the company that was once (incorrectly) almost synonymous with The Fool in the popular media, Iomega (NYSE: IOM). After the announcement earlier this week that its chief competitor Syquest (Nasdaq: SYQT) bit the dust, Iomega has bounced like a superball, retracing eight months of downward movement in a matter of days.
With a new management team in place, one of the company's competitors now history (read: increased pricing power today and less competition tomorrow for the next generation of removable storage), as well as some recent insider buying, even the most ardent bears of the company have to admit that there have been some positive developments of late. Estimates now stand for the company to earn $.29 in 1999, putting the stock trading at 30x that forward number, a rich valuation in my humble opinion. Nevertheless, many of the estimates are probably due for a revision upward thanks to the Syquest news. Is this rally sustainable or merely a flash in the pan circa spring 1996? Stay tuned!
Trump (NYSE: DJT), the portfolio's lone short, has also had a strong month, nearly doubling off its low of $2 3/4 made on October 13. Today's close? All the way up to $5 3/4. There has been some bona fide good news from the company, namely a strong October of gaming at Trump's three Atlantic City casinos, showing a healthy 12.5% gain versus the same month in 1997. Throw in yet some more hype about a potential refinancing of the company's debt and voila! A double. And for this portfolio, ouch. No exclamation mark needed, since the position is relatively small and still in the black.
On the downside to Trump, ground was broken yesterday on a project that Da Donald did everything in his power to block: the Atlantic City-Brigantine Connector. Donald has called it "Mirage's Driveway" in the past, and that's a rather accurate description. This is a highway that will connect the Atlantic City expressway with the marina district of the city where casino stalwarts Mirage (MYSE: MIR) and Boyd Gaming (NYSE: BYD) plan on building their megaresorts. Every day that passes is another day closer to increased competition in Atlantic City.
From the "random thoughts" bin, can you believe that over four months have passed without a single trade in the portfolio? The portfolio has not traded a single share since a hot afternoon way back on July 2 when Starbucks (Nasdaq: SBUX) was added to the lineup. Can we say, "low turnover?"
Finally, can we talk? On this week's radio show we find David and Tom talking to none other than Joan Rivers about her smartest and dumbest investments. If you are in one of the markets that receives the show, feel free to call in. And if you're interested but can't get the show, click here to help us out!
Have a wonderful weekend, Fools!
-- Paul Larson
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Day Month Year History Annualized FOOL -0.76% 6.82% 70.88% 473.49% 50.76% S&P: +0.63% 3.85% 17.58% 148.91% 23.90% NASDAQ: +1.06% 4.81% 18.23% 157.79% 24.93% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 140.00 3749.92% 5/17/95 1960 Iomega Cor 1.28 8.69 578.49% 9/9/97 580 Amazon.com 19.11 124.56 551.79% 10/1/96 84 LucentTech 23.81 89.88 277.50% 8/12/96 130 AT&T 39.58 63.44 60.29% 4/30/97 -1170*Trump* 8.47 5.75 32.10% 2/20/98 200 Exxon 64.09 73.50 14.68% 2/20/98 215 DuPont 59.83 62.50 4.46% 2/20/98 270 Int'l Pape 47.69 46.13 -3.28% 7/2/98 235 Starbucks 55.91 48.94 -12.47% 8/24/95 130 KLA-Tencor 44.71 36.13 -19.20% 8/13/96 250 3Com Corp. 46.86 35.63 -23.98% 6/26/97 325 Innovex 27.71 17.13 -38.20% 1/8/98 425 3Dfx 25.67 13.50 -47.40% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 99400.00 $96818.13 9/9/97 580 Amazon.com 11084.24 72246.25 $61162.01 5/17/95 1960 Iomega Cor 2509.60 17027.50 $14517.90 10/1/96 84 LucentTech 1999.88 7549.50 $5549.62 4/30/97 -1170*Trump* -9908.50 -6727.50 $3181.00 8/12/96 130 AT&T 5145.11 8246.88 $3101.77 2/20/98 200 Exxon 12818.00 14700.00 $1882.00 2/20/98 215 DuPont 12864.25 13437.50 $573.25 2/20/98 270 Int'l Pape 12876.75 12453.75 -$423.00 8/24/95 130 KLA-Tencor 5812.49 4696.25 -$1116.24 7/2/98 235 Starbucks 13138.63 11500.31 -$1638.31 8/13/96 250 3Com Corp. 11715.99 8906.25 -$2809.74 6/26/97 325 Innovex 9005.62 5565.63 -$3440.00 1/8/98 425 3Dfx 10908.63 5737.50 -$5171.13 CASH $12005.75 TOTAL $286745.56