CONFERENCE CALLS
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FOOL PLATE SPECIAL
Buy & Hold Apocalypse:
Episode 5: Historical Revisionism
If something is quoted often enough as fact, the resulting myth dominates our memory. An old journalism adage advises, "When the myth becomes truth, print the myth." Generations of business writers armed with journalism degrees and a penchant for not checking the historical veracity of their sources have perpetuated flatly incorrect beliefs for decades, one of which I want to outline and disprove today in order to illustrate the power of the much-maligned "buy and hold approach."
In an ill-fated 1929 Ladies Home Journal article called "Everybody Ought to Be Rich," General Motors executive John J. Raskob extolled the virtues of long-term investing. Raskob counseled his readers to invest a mere $15 a month in the market and to expect a massive payoff of $80,000 in 20 years -- a compound annual return in excess of 15%. Of course, a few short months after Raskob penned his essay, the market completely imploded and public confidence in the stock market was absolutely shattered.
Marty Zweig recently referred to Raskob in an interview discussing the recent market correction, smugly pointing to this as an example of where exuberant sentiment occurred before a large market correction. "Everyone knows Raskob was wrong," Zweig quipped. Sadly, the wide-eyed financial journalists who routinely interview gooroos like Zweig fail to verify the full implications of what they say. One who had read Ben Graham's analysis of Raskob's advice in The Intelligent Investor would have would have probably printed that Raskob was not totally wrong.
It is certainly a fact that anyone following Raskob's advice would not have come out with the $80,000 he promised after 20 years. However, to conclude that someone following his advice would have lost money does not necessarily follow. When Graham analyzed the facts in the early '40s, he concluded that if an investor spent the $15 buying equal amounts of the thirty Dow stocks on a monthly basis starting in late 1929 at the market top, 20 years later they would have $8500. This would have been an average annual return of better than 8%, not that far from the average 10.5% large capitalization stocks have returned since 1926. And this with the Dow at 300 in 1929 and having slid to 177 in 1949. (Yet another example of how indices do not reflect real returns, explored in Evening News on July 29th and July 30th.)
US SURGICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USS)") else Response.Write("(NYSE: USS)") end if %> made an $18-cash-per-share bid for CIRCON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CCON)") else Response.Write("(NASDAQ: CCON)") end if %>, sending Circon shares skyrocketing $6 3/4 to $18 7/8. Circon is the country's largest manufacturer of laparoscopic scopes, video systems, and endoscopic suction irrigation devices.
Software developer LERNOUT & HAUSPIE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LHSPF)") else Response.Write("(NASDAQ: LHSPF)") end if %> continued to blast forward, up $2 3/4 to $23 this morning, following Wednesday's news that Microsoft will be using its text-to-speech technology in future applications.
CHECKPOINT SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CHKPF)") else Response.Write("(NASDAQ: CHKPF)") end if %> blew away estimates today, reporting $0.10 per share for its second quarter, compared with estimates of $0.06, and surging $2 3/4 to $21 as a result. Revenues increased 373% over the year-ago quarter.
Morning of the living momentum-stocks. SECURITY DYNAMICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SDTI)") else Response.Write("(NASDAQ: SDTI)") end if %> popped $5 1/2 to $66 3/4, SHIVA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SHVA)") else Response.Write("(NASDAQ: SHVA)") end if %> surged $6 1/2 to $61 and PAIRGAIN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PAIR)") else Response.Write("(NASDAQ: PAIR)") end if %> flew ahead $5 7/8 to $64 3/4.
AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %> shares popped up further today, advancing $3 to $36 3/8 after yesterday's announcement that the online service and Fool Portfolio holding would be moving from the Nasdaq to the New York Stock Exchange (the "big Board").
Storage technology concern and Fool Portfolio holding IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> shares, up $1 3/16 to $18 7/16, continue to benefit from news that the company is buying back 2 million shares. Share buy-backs increase the value of remaining outstanding shares and are welcomed by investors.
OPTICAL CABLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OCCF)") else Response.Write("(NASDAQ: OCCF)") end if %> climbed $3/4 to $9 3/4 today after the company reported last night that its third quarter earnings would be 55% ahead of the year-ago period.
Diagnostic test kit developer CENTOCOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CNTO)") else Response.Write("(NASDAQ: CNTO)") end if %> reported losing two cents less than analysts had expected for its second quarter, and was rewarded with a $3 7/16 to $29 9/16 jump in price. CS First Boston added the company to its "Focus" list, and kept its "strong buy" recommendation.
COMSTOCK RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CMRE)") else Response.Write("(NASDAQ: CMRE)") end if %> rose $1 3/8 to $11 1/4 today after reporting earnings of $0.45 EPS compared to all of a penny a year ago, ahead of consensus estimates.
Electronic product manufacturer SCI SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SCIS)") else Response.Write("(NASDAQ: SCIS)") end if %> whomped estimates, posting $0.81 per share for its fourth quarter when only $0.60 was expected. The company experienced a nice three-dollar anticipatory rise yesterday, and continued its run this morning, up $5 1/2 to $43 3/8.
PATTERSON DENTAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PDCO)") else Response.Write("(NASDAQ: PDCO)") end if %> warned today that its upcoming earnings will disappoint analysts, and fell $6 5/8 to $23 1/4 as a result. Blamed was a slowdown in equipment sales, although disposable supply sales remain strong.
Also warning of disappointing earnings was automation software and hardware developer ADEPT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADTK)") else Response.Write("(NASDAQ: ADTK)") end if %>, slipping $3 1/4 to $5 3/4. The company sees limited earnings growth in the near future, due to competitive, organizational, product development, and marketing issues.
STRATTEC SECURITY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STRT)") else Response.Write("(NASDAQ: STRT)") end if %> reported earnings of $0.28 for its fourth quarter, when fully twice as much had been expected. And surprise, surprise -- the stock was punished, with a $2 5/8 to $15 1/4 drop. Sales for the quarter were up 35% from the year-ago quarter.
A secondary offering priced below the current value of the shares is definitely not the way to boost share price in the short term. FX ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FXEN)") else Response.Write("(NASDAQ: FXEN)") end if %> learned this when it dropped $3/4 to $6 after pricing a three million share secondary at $5 3/4.
HEILIG MEYERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMY)") else Response.Write("(NYSE: HMY)") end if %> continues it volatile ways, dropping $1 3/4 to $18 3/8 today on flat same-store sales. The furniture retailer has spiked and fallen again over the past year as it has posted volatile changes in same-store and total sales. Ultimately, Heilig is a misunderstood financial company, making quite a bit of money off of financing the furniture it sells, not selling the furniture.
Morgan Stanley downgraded shares of GENESIS HEALTH VENTURES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GHV)") else Response.Write("(NYSE: GHV)") end if %> to "neutral" from "outperform", causing the stock to fall $3 1/4 to $23 1/2 today.
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