Fool Portfolio Report
Monday, April 14, 1997
by David Gardner
(MotleyFool)
ALEXANDRIA, VA, April 14, 1997 -- Oh, so the market didn't CRASH after all!
Though I wish the Fool Portfolio had done better.
The S&P 500 and Nasdaq rose in tandem today, both posting gains of three-quarters of a percent. The Fool Portfolio, despite a good overall performance by its Dow stocks, was dragged down by America Online and 3Com, and closed lower. We remain solidly ahead for April, up 2% vs. small losses from both indices. For the year, we're up over the Nasdaq but still below the S&P 500.
Whenever the market drops three percentage points on a Friday, people stew about it over the weekend. And those feelings are generally reported on, and then escalated by, media coverage, which often asks the question, "Will Monday be a disaster?!" Look no further than 10 years ago, when October 1987 gave us the pattern so many recall... a bad Friday followed by an abominable Monday.
But does history repeat itself that obviously? It hasn't since. For all I know, the next mini-meltdown will occur on a Thursday, or a Tuesday following a great Monday, or who knows what. Or when. Regardless, we ain't gonna spend much time worrying about it. Of course the market will have bad periods. One of my favorite investing saws runs this way, speaking of stocks: "They always go down faster than they go up." To which my own response has always been, "Yep, but they always go up more than they go down." Which matters more to you?
I think the speed of a decline is sometimes what scares us, when it really shouldn't. At least two things matter more. One is the magnitude of the decline, whatever the time period. The second -- the most important of all, and what doesn't ever seem to grab the headlines it should -- is the magnitude of the recovery. Over its history, the U.S. stock market has never failed to hit higher highs after recent lows. A graph of our market indices over this century looks like a profile of one side of Mount Everest.
Stick with the mountain analogy. If you've outfitted yourself for the journey (appropriate Foolish headdress required), taken along a good map book or two, and surrounded yourself with the right people, you're ready for the expedition. The key now is for you to commit to trekking up the whole of that mountain. Occasionally, you'll actually be walking downhill, even though you're going up a mountain. And no foot journey comes without exertion on your part, or occasional hardship. But if you've committed to the whole, you're a Fool and you're going to be rewarded.
Others' experience of the mountain will be confined to only a small part of the trail. They'll use the wrong map book, become exhausted by running, or surround themselves with unhelpful people. Or maybe they'll look down a chasm, and ask themselves why the HECK they have to go down THAT when the whole point of a mountain is to go UP it. So they'll helicopter out of there -- which is expensive -- and end up doing one of two things: (1) they'll never return, to their extreme detriment, or (2) they'll helicopter back in, paying the pilot more hefty fees, before probably helicoptering out again.
GENERAL MOTORS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GM)") else Response.Write("(NYSE:GM)") end if %> reported its first-quarter earnings today, and they were strong. The company reported earnings per share from continuing operations of $2.30, vs. $2.06 in 1Q '96. That 12% earnings gain came on top of an 8% sales gain ($42 billion for the quarter), demonstrating a rise in profitability that flowed directly down from the top line (rising gross margins, that is, cost of sales as a percentage of sales). The stock did nothing much all day following that morning announcement, but closed up $1/2 with the market's afternoon surge.
From my point of view, this was a good quiet quarter. It gives me confidence in GM as an investment, as the company is performing pretty well without having received much credit yet from the market. (Our GM shares are only up 3% since the August purchase.) Reminds me of a few other Dow Div picks in recent years, like Sears in the early days of its turnaround, or Eastman Kodak's quietly good quarters in the early 90's.
It's of course somewhat ironic to call any quarter from GM quiet. How many other companies do $42 billion in sales in three months?! And how many other companies can afford to buy back $1.6 billion of their own stock, as GM did in its first quarter? The company still has $14.6 billion in cash and marketable securities.
So... stronger earnings, common shares retired, and lots of cash. This continues to look like a solid investment, especially if 1997 continues to deal investors a weak hand. But what do you think? We value -- and learn so much from -- your opinion posted to GM folders on our AOL boards and Web boards.
Speaking of dealing investors a weak hand, I really enjoyed Randy Befumo's comments in today's Motley Fool Lunchtime News. Randy points out two things: (1) Finally the people who've been complaining about no 10% "correction" in the Dow for years can shut up, because it's just happened, and (2) measures like that are completely arbitrary and therefore ridiculous (the Nasdaq, for instance, has regularly lost 10% and more of its value over the past decade, but all these numbers are just arbitrary ways of counting). I have to quote Randy in closing, paraphrasing slightly for context:
"The last 10% drop took the Dow from 2999.80 to 2483.40 in a month, a 16.3% decline. Had some savvy market timer sold at the high, then bought in at the very next low, then sold at the high the next year after that (3168.80 on December 31, 1991), he would have netted 27.5% before taxes. Waiting for the next 10% drop in the Dow to buy in would have caused him to miss a 101% gain over five years and four months, a 13.9% annualized rate sans dividends. That's an expensive lesson that illustrates the white, intellectual underbelly of market timing -- you have to buy and sell at the right time in order beat the market."
Regardless of market direction this week, this month, or this year, these are words to keep in mind for you, me, and the tens of millions of other people who are beginning to take control of our own finances. Fool on!
--- David Gardner, April 14, 1997
Stock Change Bid -------------------- AOL -1 1/8 46.00 T - 1/8 33.50 ATCT - 1/16 5.38 CHV +1 5/8 63.88 GM + 5/8 53.50 IOM + 1/8 17.50 KLAC - 3/8 40.75 LU + 3/8 51.25 MMM +1/8 81.13 COMS - 1/2 31.38DayMonthYear History
FOOL-0.38%2.12%-5.23%152.91% S&P:+0.82%-1.77%0.40%62.24% NASDAQ:+0.79%-0.43%-5.78%68.90% Rec'd#SecurityIn At Now Change 8/5/94680 AmOnline7.27 46.00532.49% 8/12/96130 AT&T 39.58 33.50-15.36% 10/22/96600 ATC Comm.22.94 5.38 -76.57% 8/11/95125 Chevron50.28 63.8827.03% 8/12/96280 Gen'l Motors51.97 53.502.94% 5/17/952010 Iomega Corp.2.52 17.50594.73% 8/24/95130 KLA Instrm44.71 40.75-8.86% 10/1/9642 LucentTech47.62 51.257.63% 8/12/96110 Minn M&M65.68 81.1323.52% 8/13/96250 3Com Corp.46.86 31.38-33.05% Rec'd#SecurityIn At Value Change 8/5/94680 AmOnline4945.5631280.00$26334.44 8/12/96130 AT&T 5145.11 4355.00-$790.11 10/22/96600 ATC Comm.13761.50 3225.00-$10536.50 8/11/95125 Chevron6285.61 7984.38$1698.77 8/12/96280 Gen'l Motors14552.49 14980.00$427.51 5/17/952010 Iomega Corp.5063.1335175.00$30111.87 8/24/95130 KLA Instrm5812.49 5297.50-$514.99 10/1/9642 LucentTech1999.88 2152.50$152.62 8/12/96110 Minn M&M7224.44 8923.75$1699.31 8/13/96250 3Com Corp.11714.99 7843.75-$3871.24 CASH$5240.09 TOTAL$126456.97