Fool Portfolio Report
Friday, July 5, 1996

Friday, July 05, 1996 (FOOL GLOBAL WIRE)
by David Gardner

ALEXANDRIA, VA, July 5, 1996 -- If it had a ticker symbol and granted you some ownership in a company, it probably dropped in value today. Following a strong employment report released this morning, the market opened down and finished downer. The end tally (always available in the window below for your reference) was a NASDAQ down 1.96%, an S&P 500 off 2.23%, and a third-place finishin' FOOL off 2.56%. In other words, 2%-3% declines across the boards on this post-holiday half day of trading.

Every single Fool stock was down, Medicis (off $3) and America Online (down another $2 1/4) leading the way.

In keeping with the holiday spirit of half-day trading, today's Fool Portfolio recap will also be a half report. But hey, after today's market action, you better believe it's going to be a smashingly provocative half report:

RUN FOR YOUR LIVES, EVERYONE!

THE SKY AND THE MARKET ARE FALLING!

BY THE MIDDLE OF NEXT WEEK, THE BEARS WILL BE FEEDING ON THE STREET'S GUTS!

And so on. You don't think after running this business for two years now, that we don't understand the way the press works, do ye?

Today's market action is a pleasing reminder that your portfolio and my portfolio are as much -- and sometimes more -- dependent on external macro factors than on company business performance. You can expect, for instance, that they didn't sell 2.56% fewer new monitoring systems over at KLAC HQ, and I doubt The Gap sold 2.56% fewer chinos, Friday. Yet our stocks -- and the overall market -- did decline by 2.5% largely because of worries about higher interest rates. Interest rates largely drive the stock market.

Let's do a quick lesson, particularly for those who are learning about the stock market, as to why interest rates matter so much to the market.

You have an extra buck. Your intention is to save it, rather than to spend it, with the idea of making it grow. For your buck, you have several options: stocks, bonds, T-bills, CDs, mutual funds of every stripe and color, your mattress... the list goes on. The stock market is effectively competing with all these other options for your buck. When interest rates rise, that increases the attractiveness of interest-bearing vehicles. Money automatically moves out of all non-interest-bearing options into these vehicles... so that stuff like the stock market declines.

Did interest rates rise today? Not the discount rate or the fed funds rate; in a widely followed decision, the Fed announced yesterday that it would those interest rates the same (at least until its next meeting). However, today's new employment report brought new information -- surprising information -- regarding the health of our economy. Employment was higher in June than at any point in the 1990's; the unemployment rate fell to 5.3%. Further, hourly employment wages rose nine cents, their biggest jump ever. What do these symptoms suggest? The possibility of higher inflation. What would higher inflation induce? A potential interest-rate hike, to make the price of money "higher" to deflate some of the inflation.

Stocks and bonds drop, and you and I go into the weekend pondering this possibility, and what it means for us.

Is any of us surprised or very much worried by that? I hope not. We never make any presumption to call the market, and for all I know, stocks could go up another 20 percentage points from here to the end of the year. Indeed, given historical statistical market growth, that possibility seems more likely than the possibility of a decline of 20 percentage points from here. But again, ours is not to say... I haven't the foggiest, and nobody at Fool HQ will ever presume to predict the market. We'll leave that to the gooroos and financial press whose livelihood partially depends on your believing that somebody actually consistently can.

We've built an investment approach that couldn't care less about shor-term market direction. Those who would term themselves Fools in the eyes of the world are invested in well-diversified stock portfolios for the long term. We enjoy the good times, and we weather the bad times with gladsome grins, knowing that without pain there's simply no such thing as pleasure.

At various points in the stock market's history, some people have run for their lives. And most of them never return; burned once by a down market, they think the stock market is Las Vegas, and money invested in Intel is no better than a string of flashy $1 tickets spewed out of a machine at th 7-Eleven. But not in Fooldom, dear reader.

-- David Gardner, July 5, 1996

(c) Copyright 1996, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Transmitted: 7/5/96

                Day   Month    Year  History
        FOOL     -2.56%  -3.78%  54.65% 188.78%
        S&P 500  -2.23%  -1.97%   6.74%  43.42%
        NASDAQ   -1.96%  -2.25%  10.09%  60.83%

*Scroll down or expand screen for full portfolio accounting

AMER -2 1/4 ...CHV -1 1/4 ...GE -1 1/2 ...GPS - 7/8 ...IOMG - 3/8 
...KLAC - 5/8 ...MDRX -3...S - 3/4 ...


    Rec'd   #  Security     In At       Now    Change

  5/17/95 2010 Iomega Cor     2.52     27.13   976.83%
   8/5/94  680 AmOnline       7.27     41.13   465.46%
  4/20/95  310 The Gap       16.28     31.25    92.01%
   8/5/94  165 Sears         28.93     47.00    62.49%
  1/29/96  250 Medicis Ph    27.86     43.00    54.34%
  8/11/95   95 GenElec       57.91     85.63    47.85%
  8/11/95  110 Chevron       49.00     58.88    20.15%
  8/24/95  130 KLA Instrm    44.71     20.50   -54.15%


    Rec'd   #  Security      Cost     Value    Change

  5/17/95 2010 Iomega Cor  5063.13  54521.25 $49458.12
   8/5/94  680 AmOnline    4945.56  27965.00 $23019.44
  4/20/95  310 The Gap     5045.25   9687.50  $4642.25
  1/29/96  250 Medicis Ph  6964.99  10750.00  $3785.01
   8/5/94  165 Sears       4772.65   7755.00  $2982.35
  8/11/95   95 GenElec     5501.87   8134.38  $2632.51
  8/11/95  110 Chevron     5389.99   6476.25  $1086.26
  8/24/95  130 KLA Instrm  5812.49   2665.00 -$3147.49


                             CASH  $16434.53
                            TOTAL $144388.91