Fool Portfolio Report
Wednesday, July 10, 1996

Wednesday, July 10, 1996 (FOOL GLOBAL WIRE)
by David Gardner

ALEXANDRIA, VA, July 10, 1996 -- The news rolls in from every direction, the NASDAQ and S&P 500 go opposite ways, the Fool Portfolio does its thang... it's business as usual at Fool HQ today. Let's take you right to the numbers.

First thing you'll notice is that we lost to the S&P 500, while avoiding the NASDAQ's 1% slump. Driven largely by a strong move in Medicis (up $3 1/2 today) and uniform gains across our Dow stocks, offset by losses in our ten-ton NASDAQ winners, we basically broke even Wednesday. Considering the torching of the NASDAQ composite today (off 2% a fair amount of the day, closing off 1%), we'll take that most of the time.

For a more graphical look at the NASDAQ on this day or any other, you may be interested to know of a new link I found today: the NASDAQ (http://www.nasdaq.com). It shows you a daily graph of NASDAQ performance, a long-term performance graph, gives you most actives, individual quotes, etc. An attractive site, updated regularly.

Anyway, let's go over some news snippets for our Fool Portfolio companies on Wednesday, NYSErs first.

Have to start off with The Gap/Merry-Go-Round debacle. Bidding for a bankrupt retailer's erstwhile HQ building in Maryland, Gap put up $18.5 million. Gap spokesman Mike Whisman stated to The Baltimore Sun, "It was our understanding we were exclusively negotiating with the [U.S. Bankruptcy Court-appointed] trustee, but unbeknownst to us, the trustee was negotiating with another party." Lo and behold, May Department Stores, aiming to turn the property into a distribution for its Hecht's division, put up $19 million, and our boys ain't happy.

Hey, when our boys ain't happy, we ain't happy.

Whadda ya think... maybe we place a few calls to our higher-up plants at the Court, maybe restore this turf to Gap turf? That's right... Gap turf! Our company already sports a 750,000-square-foot distribution facility for its East Coast operations in the state of Maryland. This would be a sweet addition. Maybe Maryland doesn't want our business.

Meantime, Gap lost $1/4.

Speakin' o' retail, the grapevine (read: Dow Jones news wire) says that even though sales are expected to trend lower in June compared to recent months, "Sears Roebuck & Co. (S), meanwhile, is expected to again outdistance its competitors, with same-store sales advances expected to be 6% to 8%." Gap? A Gruntal analyst has GPS down for the exact same rise: 6% to 8%. Both are well ahead of competitors. Now... the inevitable thousand-dollar question: May Department Stores, you ask? Our new blood-and-guts competitor is the subject of your inquiry? Furman Selz analyst Kim Walin says "flat to down 1%."

Maybe we bring on Sears to tag-team with the Gap, and we take out May and get our Maryland distribution center back. Hey, we're just a bunch of spoiled rotten kids over here at Fool HQ; we expect to have our way! We want the darned Gap property. Keep it up, S. (It was up today, in fact, up $1/4.)

The Fool stock of the day was Medicis, rising $3 1/2 to bid $46 1/2, within a few upticks of a new high. News? None! Given that we saw volume of 326,700 shares today, the fourth day out of the last fourteen featuring volume over 300,000, it just looks like more institutional buying. We're delighted to have bought back in January, beforehand.

I'd now like to throw some kudos our staff's way, since (a) they do such tremendous ongoing work in service of our readership, and (b) one of our more common complaints from the readership is that they have trouble finding all the best stuff!

Thus, for those of you who are as flat-out mad as I am about the Gap getting hosed, but just can't really figure out real-estate deals (or REITs) in general, you may have an interest in The Motley Fool's Real Estate area, featuring MFs Hoyden and Yorick. In particular, The New Yorick Times is regular daily content that serves as a lifeline for a bunch of real-estate company investors.

Hey, maybe we'll call Yorick and Hoyden about this Gap HQ matter....

I hung out for a couple of hours in our chat rooms last night, answering a lot of reader questions and enjoying, as always, the opportunity to meet new Fools. A fellow named RMitch9999 was one such example, a middle-aged fellow who described himself as "conservative" and in search of solid large-cap companies for long term investments. I said to Robert, "Great! You know about our Dow Dividend Approach, right? That is the way to start your stock market investing... not a flyer on a small cap you heard about on CNBC." Of course he had, he allowed, and said he uses the "dogs of the Dow" but was looking for some others.

That reminded me of one of the best-kept secrets in Fooldom, the Beating the S&P (BSP) approach developed by Ethan Haskel (screen name: Cormend), and written up in the Fribble by that name (appearing 3/12/96). It's a Dow approach copycat, but with a different "universe" of stocks. And the returns have not yet been backtested much further than a year and a half... over that time, though, it's well ahead of the Dow approach. The sorts of stocks this approach features are -- as of 1996, anyway -- are Ford, Chrysler, Bank of America, NationsBank, and Dow Chemical... not anybody's idea of a HOT HOT HOT pick list. Yet a check of the '96 numbers shows the "BSP5" up 13.4%, the "BSP4" (modeled on the Foolish Four) up 14.0%, the Foolish Four up 11.3%, the Dow up 9.2%, and the S&P 500 up just 6.8%.

Ethan points out in his latest weekly update (you can always read these in the Beating the Dow folder in our Let's Talk Investment Approaches section) that "there are a total of 72 non-sector U.S. stock funds managed by Fidelity and Vanguard listed in my local paper. Of these 72 funds, exactly 3 have outperformed the BSP 4 portfolio in 1996 (all by less than or equal to 1%).... Just imagine how much time and money have been spent by investors and portfolio managers who might only dream of achieving the returns of BSP."

Please understand... the idea is not to "turn you on" to these stocks, or even to use this unbacktested approach. The point is to read the intellectual ruminations of another smart investor, shared with you for FREE (except for connect fees... a bit lower, yep, than you'll find the typical money manager charging you!). You read, you learn, you make your own decisions. How Foolish. Anyway, I think Beating the S&P has solid prospects because of its solid rationale.

And you gotta love an unjuicy-looking list of stocks like that one!

Finally, we're frequently asked about screened lists of stocks that match most or all of our Foolish Small Cap criteria (listed in The Motley Fool Investment Guide). MF Bogey's FoolFax product entitled "Industry Decathlon Weekly Report" crossed subscribers' desks today with 17 companies that fit. Foolishly, Bogey included the company phone numbers for all, so that readers can start to do their own research. None of them are in The Fool Portfolio (though Prime Medical is in the Boring Portfolio, and has been its runaway best performer), but they have some potential, anyway. Company names include (at random: this is just a partial list) Datatstream <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DSTM)") else Response.Write("(NASDAQ: DSTM)") end if %>, Game Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:GFIN)") else Response.Write("(NASDAQ:GFIN)") end if %>, HNC Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:HNCS)") else Response.Write("(NASDAQ:HNCS)") end if %>, and PPT Vision <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PPTV)") else Response.Write("(NASDAQ:PPTV)") end if %>.

Heard of any of those? Neither have I... and as usual, that's part of the point... individual investors have great opportunities to locate lesser-known companies before the big guys pile in (as we've seen classically illustrated with Medicis) and drive up the share price. As always, do your darn homework, too... you pick the wrong small-cap highflyer and you can get crushed.

But stay diversified -- with any number of large-cap mechanical approaches in operation, and some dynamic growth stocks mixed in -- keep your eyes open, and stay Foolish. We think you'll do all right investing for the long term.

--- David Gardner, July 10, 1996

Transmitted: 7/10/96

               Day   Month    Year  History
        FOOL     -0.02%  -1.19%  58.81% 196.54%
        S&P 500  +0.20%  -2.17%   6.52%  43.12%
        NASDAQ   -1.07%  -3.70%   8.46%  58.45%

*Scroll down or expand screen for full portfolio accounting

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


    Rec'd   #  Security     In At       Now    Change

  5/17/95 2010 Iomega Cor     2.52     29.13  1056.23%
   8/5/94  680 AmOnline       7.27     39.25   439.68%
  4/20/95  310 The Gap       16.28     32.25    98.16%
  1/29/96  250 Medicis Ph    27.86     46.50    66.91%
   8/5/94  165 Sears         28.93     45.88    58.60%
  8/11/95   95 GenElec       57.91     85.38    47.42%
  8/11/95  110 Chevron       49.00     59.75    21.94%
  8/24/95  130 KLA Instrm    44.71     21.00   -53.03%


    Rec'd   #  Security      Cost     Value    Change

  5/17/95 2010 Iomega Cor  5063.13  58541.25 $53478.12
   8/5/94  680 AmOnline    4945.56  26690.00 $21744.44
  4/20/95  310 The Gap     5045.25   9997.50  $4952.25
  1/29/96  250 Medicis Ph  6964.99  11625.00  $4660.01
   8/5/94  165 Sears       4772.65   7569.38  $2796.73
  8/11/95   95 GenElec     5501.87   8110.63  $2608.76
  8/11/95  110 Chevron     5389.99   6572.50  $1182.51
  8/24/95  130 KLA Instrm  5812.49   2730.00 -$3082.49


                             CASH  $16434.53
                            TOTAL $148270.78