Fool Portfolio Report
Tuesday, July 9, 1996

Tuesday, July 09, 1996 (FOOL GLOBAL WIRE)
by Tom Gardner

A post-electrical storm heatwave warmed up The Fool Portfolio today, as six of eight Foolish holdings burned up the track. Our savings account rose 3.33% versus S&P and NASDAQ gains of under 0.50%, and our total gains are now sitting at 196.59% over the past twenty-three months.

Whooop-tee.

I say: Talk to me in twenty years, Fool.

Today, the Standard & Poor's 500 is sitting at around 650. In 2016, the S&P 500 should be hovering around 4800. Ideally, The Fool Portfolio, which has grown from $50,000 to $148,000, will have swelled into more than $5.7 million (pre-tax) by then. Given that aspiration, you can understand why at Fool Headquarters North America, "This is just the beginning" is our favorite phrase.

Now for that sort of talk, we open ourselves up to the blow-darts, slings, arrows and barbs of the Wise, who apparently cannot reasonably assess performance for any period longer than three days, perhaps weeks, on rare occasion three months, rarer still three entire quarters.

Lest any Fool mistake these claims for a blind smear against all the financial paparazzo, I'll take a moment to list three print publications (gasp!) that I think do an extraordinarily fine job of educating their readership about business, pure profitability, savings and investment---all to be distinguished from stock pricing, volatility, leverage and speculation. Fast Company, Individual Investor and Outstanding Investor Digest, to my eye, all aim for high ground---To teach you the soundest principles of savings, business and investing.

I suspect that for all three, the chatter from the mainstream financial presses is pure folly and a source of mixed embarrasment and delight. Stuff like: Where is the market headed tomorrow and by the end of 1997? Is Internet chatter moving stock prices? Will the SEC regulate conversations about stocks---like that one between you and your spouse tomorrow night at the local pizza-house, or that between you and your brother-in-law via electronic mail, or that discussion between you and MF Wildcat about oil drilling on The Motley Fool message boards.

That mix of controversy, competitive positioning and those strong ties to a financial industry addicted to the generation of trading commissions, short-term profits, and low levels of accountability have left the vast majority of our citizenry in dark-caved ignorance when it comes to the management of their money.

This is something we Fools online fairly casually accept. . . that most of our nation has no clue about why to save money, what time horizon to focus on, what sort of growth to expect from their savings, and how simple, enjoyable and profitable can be a communal exploration into tracking down great investments---whether through a local investment club or The Motley Fool.

No chanticleer can blare this message often or loudly enough. Because what a shame it is to know that most people out there are sitting ducks. If The Motley has served 2.5 million investors over the past twenty-four months, via our online services, our investment guide, and magazine articles, and via the work of our Motley Fool MF Staff, there are still 248 million other individuals in the nation that haven't heard. Most of them don't yet know that:

a. 75% of all mutual funds underperform the market;

b. brokers get paid today based on trading not performance;

c. the Vanguard Index Fund exists;

d. Dow High-Yielders have compounded 22%/yr. for 25 years;

e. consumer-demand, branding and profitability are king;

99% of our country has never been exposed to these principles. Some of these people took calculus in college; they can calculate parabolic equations, but have never been taught that stocks have grown at a clip of 10.5% a year for the past six decades. So they get into a penny stock, lose, laugh, and then start buying up a well-rounded mix of market-losing mutual funds with high-loads upfront, sideways, and on the backend.

Others have $25,000 in the bank and think investing is pure speculation. Many more buy lottery tickets or go weak in the knees when America Online offers them a chance at $1 million. Whoa! MAKE MONEY FAST, via just a few hundred brainless mouse clicks, one per day. And no questions to answer, no thought required.

We are still firmly entrenched in financial dark ages, Fools. Medieval historians will remember that it took copper plates, the printing press, and humanism to first push Europe and gradually all of man out of some degree darkness. What sort? Institutional control of the information flow, an unholy alliance between the church and state, the near absence of regulable business contracts, and administrative nightmares.

The darkness isn't so great here as abroad so mayhaps we can't understand what life must have been like back then. But think of faraway places now. Word from the former Soviet Union is that investment records are kept at the headquarters of public companies, in bound notebooks. When books have been lost, all record of equity ownership has evaporated with them. "So you say you own 2,000 shares of Raskolnikov's Roadside Inns?" Not anymore you don't. Savings gone.

So let's not overstate the reach of the darkness in America.

Things could be much worse, with bank records on animal skins, business contracts memorized, and the sum total of all investment expertise packed neatly into the only printed book ever mass-produced, written by an academic with a yen for loopy charts, active trading, a love of the short-term capital gains tax, and a kooky last name, like Prechtnacci.

You see, it could be worse.

But it also could be a hell of a lot better than it is here. Imagine if before the year 2000, we could supplant the mass ignorance of performance expectations, of what makes a great company, of what is and is not in the best interests of the private investor and replace it with a simple sophistication that recognized the long-term benefits of saving money, of investing in stocks, of focusing on profitability and company management, and of the amazing effects of the compounding of long-term growth.

But how do we get there?

It's difficult to pin down which might be more effectual for Fools---trying to reform the financial industry away from short-term trading commissions or trying to steer the financial media from supporting that model with articles that wonder aloud where the Dow is headed in 1997. You can see that in the eyes of a financial media trained on tomorrow's volatility, any prediction which extends farther out than 1997 is absurd. Concommittantly, the very long-term market or business projections that a Fool cherishes are heresy on Wall Street.

The controversies of short-term speculation attract the media. The dollar commissions of short-term speculation bedazzle Wall Street.

Thanfully, though, the darkness of this age is passing with the stripback of every calendar page. Because when you turn to your neighbor and talk of the index fund, you pull money away from meaningless loads and market underperformance. When you explain to your investment club why they ought think very seriously about not habitually trading every week, you help them think harder about the investments they do make, and you help them save money. When you encourage schoolchildren to invest just a dollar a week, $52 a year, into the public companies from whence they purchase combs and brushes, tennis shoes and baseball cards, books and compact disks, you prepare them for the future. It was a future that might instead have treated them heavy indebtedness at twenty-five, to an $874 "investment" into a 26-cent stock trading on a foreign exchange.

And that mass conversation and movement away from short-term concerns is the education of which we speak. That's the work of investors across the country who have learned that institutional Wisdom is weak, that a smidgen of Foolishness can carry a family's and a community's ongoing savings to great heights in a decade, and two and three. The calculations and the principles sit right here in one of the greatest Fribbles ever written in our forum.

Investing for the Really Long Haul, by Cormend. (Click it and you'll see.)

And it's that spirit that reminds us that today's 3.33% gain is something to toast tonight. But tomorrow we continue again our search for highly-profitable companies in burgeoning industries. Companies that incentivize their workforce, strengthen the businesses of their partners, reward their shareholders and the Street, and fashion products and services that people cannot resist.

Those truly simply ideas led me to pen an article in SmartMoney magazine two months back, which drew a fair load of criticism out in an Internet Newsgroup. The criticism read that growth could not be projected forward a decade or more, that these Fools have never seen a bear market, that positivism does not drive stock prices, performance does. Et cetera.

They had not read Cormend's Fribble.

One of the four companies I wrote of, Nike, announced outstanding earnings today. Nike rose $4 1/2 today to $108 3/4. The other three consumer-demand businesses are marching forward as well. They provide products in the $100 range and less. They have some of the most sophisticated and spirited marketing plans in the world. They serve customers. They generate broad margins. They aggressively manage debt, or avoid it altogether. And they focus on making no short-term plans. Here are their three-year graphs. Click them or head to the historical-quotes area.

Coca-Cola: 3-year record

Gap: 3-year record

Microsoft: 3-year record

Nike: 3-year record

Business performance, consumer demand. . . these move stocks.

To that list, I would include companies like Hewlett-Packard, Gillette, Johnson & Johnson, Pfizer, and Intel. Each aims for broad profitability, consumer adoration, global branding, and service. And just so it's clear that I'm not playing Pollyanna, chatting up the market, foaming at the mouth and splashing froth, conversely, consider the performance of these two companies, both of which are sporting negative working capital, excessive debt, cash limitations and branding problems.

The first, XCL TDE, is few-dollar oil explorer that has garnered much publicity in years past for possibly having a great new field, who knows what will happen next, this one could be big. That sorta stuff:

XCL Graph: Monthly for 3 years

And the second graph is probably going to get me in big trouble. But c'est la vie. It comes from a thoroughly-engaging journalist who recently recommended that rather than whining about The Wall Street Journal and Barrons and their consistently negative comments about digital technology and The Motley Fool---even as they constructed their own online sites---that rather than whining, we simply bring up a 10-year performance chart on their parent, Dow Jones & Company. Click the link and you'll see that the stock has compounded 0% annual growth over the past ten years. Simply type in DJ, and date the study from July 9, 1986 to July 9, 1996.

Historical Quotes

Wow.

The future growth in your savings account will depend entirely on your level of committment to long-term compounded growth, your concentration on companies with great products, great reputations and broad profit margins, and your willingness to methodically put more money away into your savings account.

Hopefully, we few lowly Fools can help point you toward extra-large, large, medium and small companies that appear poisted for exceptional and pure (debt-free) growth and service. Today and this year, our stocks---from General Electric to The Gap, Sears to Iomega, Medicis to America Online---have proven that business performance drives company valuation and that private investors---armed with no more than pencils, scientific calculators, inexpensive research materials and an online community that we (and you) can crib off of---can generate superior returns and have a good deal of fun doing so.

Teach and learn.

Tom Gardner

(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: 7/9/96

                   Day   Month    Year  History
        FOOL     +3.33%  -1.18%  58.84% 196.59%
        S&P 500  +0.34%  -2.37%   6.30%  42.83%
        NASDAQ   +0.41%  -2.66%   9.63%  60.17%

*Scroll down or expand screen for full portfolio accounting

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


    Rec'd   #  Security     In At       Now    Change

  5/17/95 2010 Iomega Cor     2.52     29.38  1066.15%
   8/5/94  680 AmOnline       7.27     39.88   448.27%
  4/20/95  310 The Gap       16.28     32.50    99.69%
   8/5/94  165 Sears         28.93     45.63    57.73%
  1/29/96  250 Medicis Ph    27.86     43.00    54.34%
  8/11/95   95 GenElec       57.91     84.63    46.12%
  8/11/95  110 Chevron       49.00     59.50    21.43%
  8/24/95  130 KLA Instrm    44.71     21.25   -52.47%


    Rec'd   #  Security      Cost     Value    Change

  5/17/95 2010 Iomega Cor  5063.13  59043.75 $53980.62
   8/5/94  680 AmOnline    4945.56  27115.00 $22169.44
  4/20/95  310 The Gap     5045.25  10075.00  $5029.75
  1/29/96  250 Medicis Ph  6964.99  10750.00  $3785.01
   8/5/94  165 Sears       4772.65   7528.13  $2755.48
  8/11/95   95 GenElec     5501.87   8039.38  $2537.51
  8/11/95  110 Chevron     5389.99   6545.00  $1155.01
  8/24/95  130 KLA Instrm  5812.49   2762.50 -$3049.99


                             CASH  $16434.53
                            TOTAL $148293.28