Monday, July 8, 1996
In Search of the Next Iomega
by El Cuguar

"Check it out. The carbonated-refried-bean-drink revolution is coming! Invest in Beanadrinko (Ten-Bagger-Exchange:BURP), and you could become one of those heroic investors who was there before it all began!!!!"

Er ... maybe not.

This is just another horror story from that disease that eventually strikes us all: Iomega Fever. I've received mail looking just like the Beanadrinko announcement, from people claiming to have found the next great stock. Although there are many fantastic investment opportunities out there, one cannot stress two points enough:

1. Research every investment you make [and]

2. Maintain a diverse, balanced portfolio

Let's say you complete the first task; you've researched and researched and researched, and really found what appears to be the next great one. Wonderful product, strong demand, experienced management, healthy balance sheet, cheap stock price, this stock has it all. So, isn't it time to borrow money from Grandma, take out a second mortgage on the house, and then margin your portfolio to the hilt?

Not quite.

I've had the same longing to back up the truck, and in my portfolio there are some stocks that did soar like I had hoped. And then there are the others that, well, let's say were upwardly challenged. Heck, even the sacred center of Fooldom, the Fool Portfolio, is a lesson in diversification.

The Fool Portfolio holds Iomega at a several-thousand-percent gain. It also holds, however, KLA Instruments, another very good stock that, despite what seemed a very good investment at the time, has sunk. Even so, the Fool Portfolio is whopping the major averages, and even I've been fortunate in that my portfolio has been outperforming the market.

Why? Because of diversification, the balance in a portfolio across industries and company sizes. The Fools never buy a position with more than 12% - 15% of their savings, even if later the stock grows to be a much larger portion.

If you're looking for the next Iomega, and low and behold you think you've found it, make sure it's not the only stock you buy. Balance your savings across several stocks that look like they will best the market. And also balance your portfolio across the size range, with a little of everything from Dow heavyweights to mid-caps and small caps. Maybe your Iomega will be the next benchmark adopted by everyone in Foolish history.

---Brent Harris

Transmitted: 7/8/96