According to The Washington Post, when it comes to holiday parties, local revelers are striking a balance between thrifty and swank -- figuring that somewhere in the middle employees might get the right message. After all, the belt-tightening of previous years may be behind us, but you don't want workers thinking we're out of the woods yet.

Incidentally, The Motley Fool's holiday party is tonight. Thrifty or swank, we'll try not to get the wrong idea. Party on!

In today's Motley Fool Take:

Investors Pile On

What does today's alleged news that more cash flowed into stock mutual funds in the last three months than at any time since 2000 have to do with dieting?

Well, we all know that the best way to lose weight is gradually by eating fewer calories and exercising more. Yet, to this day, people insist on practically starving themselves for periods, then follow up with explosive binges that lead to greater weight gain. It's a vicious cycle.

When investing, the best course is to dollar-cost average into low-expense, broad-market stock index funds. Or, if we want to buy individual stocks, to get in gradually, having sought out and identified decent-to-great businesses at attractive valuations. Investors, however, invariably forsake the markets when they hit rock bottom, only to binge again once things heat up.

For the less experienced who insist on buying stocks anyway, legendary value investor Benjamin Graham advised buying popular ones. Today, that might include those that make up the Dow Jones Industrial Average, including Johnson & Johnson(NYSE: JNJ), Coca-Cola(NYSE: KO), and General Electric(NYSE: GE). Graham recommended these stocks not because they are safe or guarantee reward, but because they do the least damage the longer you hold.

Why then are investors once more doing the opposite? The tech-laden Nasdaq is up 45% for the year and 74% since its October 2002 lows. The S&P 500 is up 22% and a full 40% over the same periods. By all indications, individual investors are cascading into the market willy-nilly at a time of max enthusiasm, when prices are already high. In the short run, this may indeed drive them higher, but then what?

For one thing, where will more new money come from? Demand will falter, the tide turn, prices fall, and eventually investors will desert in despair. In the days when anyone knew what an odd lot was -- an order for fewer than 100 shares (a "round" lot) -- an increase in odd-lot orders alerted the pros that small investors were piling in and that a market top was at hand.

A loser's game. As Fool Bill Mann points out this week, no one knows what the market will do next year, next month, next minute. If we did, we would have looked at the market in October 2002, known that "it was low," and wagered every penny and more on market average call options or futures. Right.

What happened instead was, in our search for attractively priced decent-to-great businesses, we found many, many that were very attractively priced. That's not market timing, but it's a lot more successful than buying and selling on emotion. When we narrowed our search for our annual publication, Stocks 2003, we had no idea what the market would do. None, nada, squat. Yet most of our picks not only made money, but also beat the S&P 500 handily.

The effort, as always, was to buy growth at a reasonable price. Rex Moore's approached a double when InterActive Corp.(Nasdaq: IACI) bought it out. Matt Richey's Quality Systems(Nasdaq: QSII) has likewise almost doubled. Five others have returned from 30% to 186%. Even the two that underperformed -- Alliance Capital(NYSE: AC) and Hollywood Entertainment(Nasdaq: HLYW) -- are, in my opinion, companies whose businesses and stocks can outperform in the years ahead.

The lesson, however, is that Foolish investors do not predict. We analyze, balance risk and reward, and put our money where our mouths are. There are no guarantees in investing, but we individual investors should stick with what we know and forgo the starving and bingeing. Then the odds -- not the odd lots -- are in our favor.

Quote of Note

"A man's got to believe in something. I believe I'll have another drink." -- W.C. Fields

Adobe's Off to the Races

Six short months ago, it looked like old gray mare Adobe(Nasdaq: ADBE) wasn't what she used to be. In the last two quarters, though, the software maker has been acting again like a young colt. The creator of the ubiquitous Acrobat Reader is proving nimble at reinventing its wares and finding new markets for them -- and its maneuvers are being amply rewarded.

Buoyed by 40% growth in Acrobat sales, the company yesterday reported revenue 22% higher than the year-ago period, and earnings that doubled to $0.34 cents a share. Fiscal 2003 will see an 11% sales hike to $1.3 billion and a 39% jump in earnings to $1.10 a share. Looking ahead to 2004, management is aiming for a revenue target of $1.4 billion, up almost 10%, with an impressive 30% net margin.

Before we wax too enthusiastic about the latest numbers, let's not forget that these were easy comparisons with the prior years' poor performance. Last year, top-line growth declined by 5%, accompanied by a 6% drop in earnings. For the past three years, although sales grew by almost 5%, earnings declined by 5%. The real story isn't in the growth rates, but in the way management has turned around performance.

Adobe has proven masterful at uncovering new markets for its mature products. Historic sales have come from "shrink-wrapped" software sold out of the box to retail customers. This past year, though, saw an expansion into the profitable corporate market with a retooled version of the popular Acrobat -- the gold standard for reading and creating electronic documents. This strategy leverages the more than 500 million downloaded copies of the free Acrobat Reader. Proof that it's paying off can be seen by the 42% growth in 2003 sales in this so-called ePaper business, which now accounts for more than a third of revenue.

At the same time, retail customers are migrating to new versions of the company's graphic software, in part because the products are updated and bundled together as the Creative Suite. Finally, taking a cue from chief competitor Microsoft(Nasdaq: MSFT), Adobe hopes to capture the digital photography market with its free download of a scaled-down Photoshop Album.

The market likes what it sees and has been steadily pushing shares higher. With estimated earnings of $1.27 next year and the stock trading at about 30 times that, Adobe isn't cheap. But its strong recovery and creative growth strategies should be convincing evidence that it will be the lead horse in a pack of software makers.

Discussion Board of the Day: Index Funds

How do you feel about indexing? Is it an easy way to achieve equity diversification with leading companies, or will the right managed mutual funds treat you better? Is there more to telling a good index fund apart from a bad one than just annual expenses? All this and more -- in the Index Funds discussion board. Only on

Coke Too Costly?

By Dave Marino-Nachison

This morning, Coca-Cola(NYSE: KO) sent out a press release as a precursor to an 11 a.m. investor/analyst meeting. While Fools wait for news from that cola confab, there's still plenty to talk about. The press release contained several small but interesting bits of information about tax rates, currency effects, future capital expenditures, and more. In a sign of apparent respect -- better than I could muster, as I'm currently drinking Pepsi(NYSE: PEP) One -- the shares are currently at a new 52-week high.

The company was to discuss strategy, its financials, and the outlook for 2004 -- though, as usual, not provide EPS guidance -- but the upshot will no doubt be its assurance that it can deliver on long-term earnings growth of 11% to 12%. At Coca-Cola, which boasts impressive gross margins north of 60%, this goal mixes elements of simplicity and complexity that have long challenged its managers.

The company's success relies upon four objectives: (1) steadfast (and expensive) brand maintenance and restaurant deals that allow the company to continue battling Pepsi and others in the race to sell soda; (2) constant experimentation and creation of new sources of incremental growth (as Sprite Remix, Frozen and Vanilla Coke, and the simple-but-brilliant "fridge pack" have been this year); (3) a focus on cost management and efficiencies; and 4) share buybacks. Notably, the company today said it will boost its buyback plan.

Despite the shares' recent runup, today's highs look pretty pedestrian when you stretch the chart out a bit. Heck, the company's stock hasn't even outperformed the Standard & Poor's 500, itself in negative territory, over the last five years. Even so, with Coke's history (and likely future) of strong operating and free cash flows well in excess of net income -- not to mention its dividend -- the shares may look interesting to some investors.

However, with the stock trading at about 23 times forward earnings estimates, it's difficult to make a value argument. The company's recent operating performance isn't overwhelming, and Pepsi is still the leaner competitor -- while trading at similar multiples.

Shameless Plug: The Best Stocks for 2004

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More Fool News

For a list of all our stories from today, see Today's Headlines.

And Finally...

Today on, Zeke Ashton tells the tale of A Big Win for the Little Guy as Rick Munarriz tempts your taste buds with Five Tasty Stocks.

Bob Bobala, Robert Brokamp, Paul Elliott, Mathew Emmert, Jeff Fischer, Jeff Hwang, Tom Jacobs, LouAnn Lofton, Alyce Lomax, Bill Mann, Selena Maranjian, Dave Marino-Nachison, Rex Moore, Rick Munarriz, Reggie Santiago, Dayana Yochim