Looking through the news listings, I saw this small mention by The Fools. They seem to be a little depressed at their buying Innovex. Seems like they just didn't do their due diligence and see that competition had reared it's ugly head and spoiled Innovex's lock on the market in a time that was proving difficult for HDD's at any rate.
Still think you are ahead of the game on flip chips, but who knows when the market might see the potential. I think it's still a year away, but then we shall see. For the time being, INVX needs to prove they haven't lost the game on disk drives and that's yet to be seen.
I highlighted the Innovex mention. It's hardly worth reading except it's interesting to wonder how many people bought and now sell on The Foolish recommendation.
Regards,
Mark
Profit From Funds!
The Motley Fool - December 08, 1998 18:09
December 8,
1998/FOOLWIRE/ -- The Motley Fool has spent a great deal of time
discouraging you from investing in most mutual funds. We believe it makes
sense for most investors who don't want to pick stocks to put their money in
index mutual funds, which have much lower turnover and expenses than their
actively managed brethren. This is no doubt very sound advice that I'm not
going to contradict. There are few compelling reasons to pay 1% (and
oftentimes significantly more) annually to managers who give you sub-par
results. Nonetheless, billions upon billions of dollars have flowed into
these funds. Why not take a free piggyback ride off those folks who are
paying fees?
You can do this by using good-performing mutual funds for stock ideas. The
overall disadvantage of mutual funds is not that portfolio managers are poor
stock pickers (although that is certainly an issue for many funds). The
larger problem arises from trading fees, operating expenses, and management
expenses that are incurred year after year. This puts funds at a
disadvantage to index funds, which minimize these fees. For example, let's
compare the imaginary small-cap GumpFund (1.25% annual expense ratio) to an
efficient Russell 2000 index fund (0.25% annual expense ratio).
Every year, the GumpFund has a one percentage point disadvantage to the
Russell 2000. In a year when the Russell 2000 returns 10%, the GumpFund will
need to post a gross return of 11% for fundholders to achieve the same 9.75%
net return (10%-0.25% for the index fund, 11%-1.25% for GumpFund). Funds
with higher fees simply have the odds stacked against them. The magnitude of
this disadvantage is directly proportional to the size of fees charged to
fundholders. Very few portfolio managers are able to overcome this handicap
over long periods of time, hence their historical underperformance.
Knowing that the historical underperformance of funds is not always
attributable to stock picking, let's consider how we can take advantage of
the money the funds spend researching stocks. Fund managers (and their
research analysts) spend lots of time determining the best stocks to pick.
For the most part, these folks don't face the conflicts-of-interest held by
brokerage firm research analysts (or as Tom Gardner would call them, sales
analysts) who push stocks. People working at funds are almost always
compensated based on the performance of their investment results (okay, the
effectiveness of their marketing department is also important). Since funds
periodically make lists of their holdings publicly available, there is no
reason for you not to capitalize on this research. I believe a terrific
source for new stock ideas is the top holdings and/or new buys of funds I
respect.
Thousands of funds are now being sold. How should you decide which ones to
look at? Many people will probably be tempted to find the hottest performer
over the past year. That's fine, but remember that funds often outperform
over the shorter periods of time because a specific segment of the market is
in favor. That fund may go out of favor just as fast. Instead of looking at
recent superstars, I prefer using mutual funds that have strong long-term
returns and specialize in certain areas. This specialization may be in
either a specific sector of the market (i.e., technology, real estate,
pharmaceuticals, etc.) or an investment strategy (i.e., value or growth).
Using these funds, individual investors can learn from managers who may have
decades of experience and/or specialized knowledge.
Here's an example. I believe one of the best value investing investment
firms is Memphis-based Southeastern Asset Management (SAM), which runs the
Longleaf Partners Funds. These folks are very patient and have amassed an
impressive track record, particularly considering the market's recent
preference for growth stocks over value stocks. Earlier this year, I noticed
that SAM had amassed a large position in FDX Corp. (NYSE: FDX), the owner of
FedEx and RPS, in two of the funds it manages. I normally would have
overlooked that holding (I generally don't invest in transportation stocks)
except for the fact that the Longleaf funds took such a big position and I
knew that both SAM and FDX were based in Memphis. Did SAM know something I
didn't?
I pondered the question for a while. I even talked to an analyst who follows
transportation stocks who told me to stay away from FDX. Still, the Longleaf
purchase had piqued my interest. About a month after seeing Longleaf's FDX
purchase, I received a plane ticket ordered over the Internet via FedEx. It
finally dawned on me that if the Internet explodes, FedEx could be a prime
beneficiary (along with privately owned UPS and everybody-owned U.S. Postal
Service). I decided to tip my toes in the water of FDX stock upon that
realization. Lo and behold, last weekend Barrons comes out with an article
touting FDX as the next big Internet stock and the stock jumps several
dollars. I don't know the exact reasons SAM purchased FDX stock. Perhaps it
was the prospects of an Internet boom, perhaps it is the amazing employee
loyalty that helped the company avoid a pilots strike this Christmas. It may
have been something else. Regardless of why the Longleaf funds purchased
FDX, I wouldn't have looked at the stock if the fund hadn't put FDX on my
radar screen.
There are numerous places to get information on fund holdings. One of the
easiest is Morningstar, where you simply type in the fund symbol or name.
(Once a "Quicktake" pops up, click on Portfolio to get the fund's top-10
holdings.) In addition to the top-10, Morningstar also indicates whether the
position has been increased or decreased in the latest reporting period. You
will unfortunately have to become a "premium" member to get a list of the
fund's entire portfolio. Have no fear, though. If you want more details (or
don't want to use Morningstar), you can check out the fund company's Web
page or call it's toll-free number to get the most recent quarterly or
semi-annual report.
Another option is to check out a fund's EDGAR filings. I've been able to
find semiannual N-30D and/or quarterly N-30B-2 for most funds. These
documents not only include the listing of an entire portfolio, but also a
letter to fundholders and other information regarding a fund's strategy. The
biggest drawback to using EDGAR is that you'll have to enter a fund name
(i.e., Fidelity Magellan) in the search field rather than a fund symbol
(which invariable leads to a message indicating no documents are available).
If that search brings up no documents, try just entering the fund family's
name (i.e., Fidelity). You may have to search through a bunch of items, but
you can eventually find information on most funds.
Don't invest in a stock blindly because it is purchased by a fund manager
you like. Even the best portfolio managers regularly make bad decisions. The
thing that makes them better is that the returns from good decisions
overwhelm the losses from bad ones. Our own Fool Portfolio (soon to be
renamed the Rule Breaker Portfolio) has experienced phenomenal growth
because the astounding returns from good ideas such as Amazon.com (NASDAQ:
AMZN) and America Online (NYSE: AOL) made the losses from clunkers like
KLA-Tencor (Nasdaq: KLAC), 3Com (Nasdaq: COMS), and Innovex (Nasdaq: INVX)
virtually meaningless. Portfolio managers are making their investment
decisions in the context of other stocks they own. You should do the same.
Use the buy and sell decisions of mutual funds as a starting point for
evaluation. Then do your own research to determine whether the stock is
something you want to own.
A major drawback you will find using publicly available fund reports is that
they may not be too timely. Portfolio updates are usually only released on a
quarterly or semi-annual basis. A portfolio manager's perspective could
change during the time lag between when the transaction occurs and when you
find out about it. Of course, the stock price has probably moved as well
(particularly in today's volatile market). This is another reason that you
can't blindly follow the moves of professionals. As with any investment, you
should learn about the prospective candidate and determine your own reasons
for investing. Combining the stock ideas of some pros with your own
investigative skills could prove to be a very profitable endeavor.
-- by Warren Gump
For complete market coverage written by investors, for investors, click over
to www.fool.com.
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