Rule Breaker Portfolio

Fool Portfolio Report
Friday, December 19, 1997
by Tom Gardner (TomG@Fool.com)


ALEXANDRIA, VA (Dec. 19, 1997) --

"Ill blows the wind that profits nobody."
Shakespeare, Henry VI

Today at noon-time, blue in the face, The Fool Portfolio was having trouble even whimpering. It reminded me of the first time I had the wind knocked out of me -- playing football, when I was in seventh grade. I was running punt coverage on the practice field and something, or someone, hit me from the right side, just below the sternum.

Sound went silent and the world ground nearly to a halt, like a wind-up ballerina twirling its last slow round. Seventh graders wobbled in overhead, looking down on me, heads bobbling in overheavy football helmets. Coach Brown knelt on one knee above me and arched my back with his hands. As I was hoarsely groaning, like an old bloodhound, I remember thinking, "So this is what it's like getting the wind knocked out of you."

In fact, I've always assumed an odd, third-person perspective when being wrung out with pain. In first grade: So this is what it's like to shut your thumb in a car door. In fourth grade: So this is what it's like to have your appendix removed. In sixth grade: So this is what it's like to get the snot beaten out of you. In college: So this is what it's like to get hit by an automobile.

Not halfway back to comfort, I was always already branding my mind with images on the periphery. The knotted cotton string of a surgical mask. Emptied ice trays on the kitchen floor. Van Gogh's starry, starry night.

I expect it'll be with that distance that I observe the first real stock-market meltdown in my investing life -- which I was reminded of by recent Fool-Port performance. Having casually followed stocks for a dozen years, I've tasted something of the despair, watching the stubs fluttering above the trading floor during the 36% decline in 1987. After falling 32%, the Nasdaq ended up showing zero growth for investors between 1987-1990. Far worse, over in Japan, from 1989-1995, the Nikkei average lost 62.7%. Sound went silent for six years. Fortunes of the ages, fortunes built from tens of thousands of working hours, were erased. The Nikkei hasn't rebounded yet.

But none of those declines hit U.S. investors with the force and the persistence of The Bear. Reserve that description, say, for the market in the early 1970s, when American businesses were devalued by 50-70%. It took a decade for many of them to return to their prior stature. Investors who had bought on margin at or near the peak, speculators who were playing stocks with their short-term savings, were knocked out and dragged around.

And, in early 1975, at one of the very best times to buy U.S. common stock this century, Wall Street couldn't persuade a ten-year-old to buy her first share of Hershey's. Had The Motley Fool existed then, rather than being free, we'd have had to pay new subscribers to take a look at our service. Just when a Fool should've paid the most for it! The superstore of stocks had announced a 50% discount. Research then could've lead you to chewing gum and Wrigley (NYSE:WWY) at $1 per share (split-adjusted). Today, it closed at $77.

We've had a recent taste of portfolio punishment, a test of patience. From yesterday through to this morning, The Fool was down in excess of 4%. December was shaping up as a double-digit-down month. It may still go that way, with two more weeks to 't. But for now, Foolishness is in the middle of a rally. America Online rose a buck; Amazon snapped back $1 3/4; Iomega rallied $1 7/16; and the darling of Folly this quarter, AT&T, added $2 3/16 and is now a mere eight bucks from its all-time high.

When the scratching of pencils, clicking of the abacus, and all the hollering was done, The Fool Portfolio had risen 1.13% versus a decline on the S&P 500 of 0.89% (read: Microsoft off $2 1/4, General Electric down $1). Investors blew the wind back in our bellies. And, this time, we're right back up on our feet and ready to play.

No, this fleeting Foolish turnaround didn't have all the pomp and circumstance of The Donald's autobiography, The Art of the Comeback (oh, and DJT rose $1/4 today). But then, there is no borrowed money in the Hall of Portfolios!

Tom Gardner, Fool

Please note: We received 17.8556 shares of Raytheon (RTN.A) from GM on Friday, or 0.06377 per share of GM. The fractional shares are given in cash, so we received 17 shares and added $45.52 to our cash account (which we should receive soon). The conversion was done at a Raytheon price of $53.21 per share. Raytheon will be sold with the Foolish Four switch, or earlier if possible for no charge.

Also, Randy wrote on 3Com in Friday's Fool on the Hill, and Thursday night we had coverage of the earnings, too.


Do your Foolish gift shopping now, barely in time for the Holidays. And consider the Fool's Industry Focus '98 book. Learn which 20 companies in 20 industries our news and analysis team favor most, as they pinpoint what they feel is the best investment in each industry.

Today's FoolWatch: all the latest in Fooldom.

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TODAY'S NUMBERS
Stock Change Bid ---------------- AMZN +1 3/4 53.38 AOL +1 84.75 T +2 3/16 61.31 CHV + 1/8 74.19 DJT + 1/4 6.81 GM -1 3/4 58.56 INVX - 1/16 20.63 IOM +1 7/16 25.44 KLAC +3 9/16 37.81 LU -1 1/16 76.00 MMM -2 1/4 83.63 RTN.A --- 51.25 COMS -1 9/16 32.56

Day Month Year History FOOL +1.13% -2.36% 21.15% 223.34% S&P: -0.89% -0.90% 27.82% 106.54% NASDAQ: +0.10% -4.74% 18.10% 111.72% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 84.75 1065.29% 5/17/95 980 Iomega Cor 2.52 25.44 909.42% 10/1/96 42 LucentTech 47.62 76.00 59.61% 8/12/96 130 AT&T 39.58 61.31 54.92% 8/11/95 125 Chevron 50.28 74.19 47.53% 9/9/97 290 Amazon.com 38.22 53.38 39.65% 8/12/96 110 Minn M&M 65.68 83.63 27.33% 4/30/97 -1170 *Trump* 8.47 6.81 19.56% 8/12/96 280 Gen'l Moto 51.97 58.56 12.68% 12/19/97 17Raytheon 53.21 51.25 -3.68% 8/24/95 130 KLA-Tencor 44.71 37.81 -15.43% 6/26/97 325 Innovex 27.71 20.63 -25.57% 8/13/96 250 3Com Corp. 46.86 32.56 -30.52% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 30086.25 $27504.38 5/17/95 980 Iomega Cor 2509.60 24928.75 $22419.15 9/9/97 290 Amazon.com 11084.24 15478.75 $4394.51 8/11/95 125 Chevron 6285.61 9273.44 $2987.83 8/12/96 130 AT&T 5145.11 7970.63 $2825.52 8/12/96 110 Minn M&M 7224.44 9198.75 $1974.31 4/30/97 -1170*Trump* -9908.50 -7970.63 $1937.88 8/12/96 280 Gen'l Moto 14552.49 16397.50 $1845.01 10/1/96 42 LucentTech 1999.88 3192.00 $1192.12 12/19/97 17Raytheon 904.57 871.25 -$33.32 8/24/95 130 KLA-Tencor 5812.49 4915.63 -$896.87 6/26/97 325 Innovex 9005.62 6703.13 -$2302.50 8/13/96 250 3Com Corp. 11715.99 8140.63 -$3575.37 CASH $32484.33 TOTAL $161670.39








Note
The Fool Portfolio was launched on August 5, 1994, with $50,000. It was renamed the Rule Breaker Portfolio in October 1998. The investing strategy began with the first investments of the Fool Port and has evolved with time and experience. In July 2001, the portfolio began adding $12,500 each quarter (We missed Jan. 2002, so we added $25,000 in April 2002). We skip a quarter if we have enough uninvested cash or cash available in stocks we would prefer to sell to make new investments. All transactions are shared and explained publicly before being made, and returns are compared in each week's column to the S&P 500 (including dividends where noted) and the Nasdaq composite. For a history of all transactions, please click here.