Rule Breaker Portfolio

FOOL PORTFOLIO REPORT
(FOOL GLOBAL WIRE -- Tuesday, December 30, 1997)
by Jeff Fischer (JeffF@Fool.com)

ALEXANDRIA, VA (Dec. 30, 1997) -- Oh no. The science fiction novels of yesteryear are coming true! Today America Online announced a deal with Cybermeals, a company that allows for placing hot food orders over the Internet. Computer users can now buy books, hot meals, flowers, cars, groceries, and stocks from home. Soon people will never wander beyond their front door, and -- deserted -- the wilderness of the world will be allowed to thrive again. Before long the entire planet will look like this green and misty photo, with everyone's home hidden beneath the foliage and people in contact with each other only over phone lines. And the one time that we'll actually see the thriving wilderness, however, will be -- just like that photo there -- when viewing it on the Web.

That's exactly how Asimov envisioned it, I believe.

Today a continent that is lush with vegetation (Asia) continued to see its stock markets rebound following yesterday's debt relief conference in New York City, written about in yesterday's Lunchtime News. The U.S. market followed Asia higher as the S&P and Nasdaq both rose 1.8%, while the cash in the Fool Port proved too burdensome -- the Fool gained only 1.23%.

Aside from America Online (NYSE: AOL) announcing a four year, $20 million deal with Cybermeals (http://www.cybermeals.com), there was little news. Rather than ponder the fact that AOL users will soon be able to order pizza and tacos without even signing off (frightening), let's look at the year that just passed.

If anything, 1997 will be remembered as one of the most volatile years in the stock market's history. In fact, depending on how you measure volatility, 1997 was the most volatile year of any. There were more days of 1% moves this year than in any other. (And lo and behold, today and yesterday fit the mold.) If you were looking for volatility, Fool stocks didn't disappoint. KLA and 3Com, not to mention America Online, all had years that would turn a Wise investor pale with worry. How did the chips fall in the end? Fool stocks performed as such:

12/31/96 12/30/97 Change AMZN* $20 $58 190% AOL $33 $88.50 168% LU $46 $80.7 75% T $43 $62.5 45% IOM $8.69 $12.50 44% CHV $65 $78 20% GM** $55 $61.3 11% KLAC $35 $38 9% MMM $83 $83 ---- INVX $27 $20.3 -25% DJT $12 $6.75 -44% COMS $73 $36 -51%

*Amazon price since the May initial public offering
**GM return doesn't include RTN.A spin-off

It's good to see Trump near the bottom of the list, but it hurts to see 3Com even lower. The networking story is already as old as the Berlin Wall, but certainly in 1998 a new and different story will be written about these stocks, including 3Com.

The disk drive story was another tale to remember from '97, with the stock of Innovex (Nasdaq: INVX) being one victim that actually suffered less than the drive makers themselves. We received the Innovex annual report for 1997 yesterday, and the company's achievements for the year, as we know, were nothing short of outstanding. (The stock has suffered, not the company.) Innovex now has a five-year annualized growth rate of 215% in net income and 52% in sales. Last year's numbers compare to 1996 as follows:

(in millions, except for EPS) Innovex, Inc. Year ended Sept. 30, 1997 1996 Net sales $142m $69m Net Income $35m $13m EPS $2.31 $0.91 Cash $37m $21m Total Assets $97m $58m Stockholders' Equity $86m $48m

If you're a shareholder, watch for the annual report in your mailbox (or find it soon at http://www.innovexinc.com). It's well worth a study. We don't have any concerns about the company's management or business in 1998, but the disk drive industry as a whole will ultimately determine the stock's performance, no matter how great Innovex's management is. (There's a lesson in that.)

On the top of our list is Amazon.com (Nasdaq: AMZN), the book-selling pioneer having gained nearly 200% since May. The stock closed at $20 on its debut in the spring and has hardly looked back since.

On Friday I wrote about an Amazon order that I was still waiting on. Many Fools stepped forward to write how pleased they are with Amazon's service, and I do agree, I'm pleased as well. Customer service is a large part of its business, and the company knows this. So, the story: I ordered a snail mail gift certificate on December 18 but hadn't yet received it as of last Friday, the 26th. Saturday I did receive it, though, and it was postmarked the 18th, the day of the order. The delay was the fault of the U.S. mail.

Meanwhile, the books that I was waiting on were shipped next day mail on the 24th (at no extra charge). Apparently the company couldn't get the books any sooner, though they were ordered on the 18th. They do receive books from distributors, of course, so it wasn't Amazon's delay, though the upgraded mail delivery was appreciated. Then there are Amazon's email gift certificates that are almost instantly received by the recipient and are a great gift idea for any occasion. (Hey, did that just sound like a plug for a Fool Port holding? In that case, why not continue? Do you own a Zip drive yet? Or how about a GM car? And haven't you been aching to buy a whole barrel of Chevron oil, just to keep in the garage in case of emergency? Please be sure to buy it before we make our February Foolish Four switch.)

Slightly below Amazon in performance is AOL, having a typically volatile but strong year, and then Lucent and AT&T both topped Iomega, which gained 44% -- no slouch itself.

Looking back is only so much fun, though. For 1998 we want the Fool Port to aim to teach more and to look "forward" more often (as we feel we did with the Amazon.com stock purchase, and with the AOL and Iomega purchases in the past, when both companies were losing money).

Enjoy the final day of the year tomorrow. And get some sleep tonight if you wish to see Tom and David tomorrow morning on "CBS This Morning."

Best wishes to you for a healthy and Foolish 1998.

--Jeff Fischer, December 30, 1997

Catch David and Tom, the Founding Fools, on "CBS This Morning" and CNBC tomorrow, December 31, 1997 -- the final day of the year for them to be completely Foolish on television.

WE DELIVER - Get Fool Portfolio Nightly Reports
delivered straight to your e-mailbox every evening!

Today's FoolWatch: all the latest in Fooldom.

Have You Given? The Fool Charity Fund


TODAY'S NUMBERS
Stock Change Bid ---------------- AMZN +1 1/8 58.13 AOL +1 7/8 88.50 T - 7/16 62.56 CHV + 9/16 78.06 DJT --- 6.75 GM +1 1/2 61.31 INVX --- 20.38 IOM + 1/8 12.50 KLAC - 3/8 38.19 LU + 3/8 80.69 MMM + 1/8 83.13 RTN.A - 7/16 48.38 COMS +1 1/2 35.81

Day Month Year History FOOL +1.23% 0.45% 24.63% 232.63% S&P: +1.83% 1.62% 31.06% 111.79% NASDAQ: +1.79% -2.22% 21.22% 117.31% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 88.50 1116.85% 5/17/95 1960 Iomega Cor 1.28 12.50 876.25% 10/1/96 42 LucentTech 47.62 80.69 69.45% 8/12/96 130 AT&T 39.58 62.56 58.07% 8/11/95 125 Chevron 50.28 78.06 55.24% 9/9/97 290 Amazon.com 38.22 58.13 52.07% 8/12/96 110 Minn M&M 65.68 83.13 26.57% 4/30/97 -1170 *Trump* 8.47 6.75 20.30% 8/12/96 280 Gen'l Moto 51.97 61.31 17.97% 12/19/97 17Raytheon 53.21 48.38 -9.09% 8/24/95 130 KLA-Tencor 44.71 38.19 -14.59% 8/13/96 250 3Com Corp. 46.86 35.81 -23.58% 6/26/97 325 Innovex 27.71 20.38 -26.47% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 31417.50 $28835.63 5/17/95 1960 Iomega Cor 2509.60 24500.00 $21990.40 9/9/97 290 Amazon.com 11084.24 16856.25 $5772.01 8/11/95 125 Chevron 6285.61 9757.81 $3472.20 8/12/96 130 AT&T 5145.11 8133.13 $2988.02 8/12/96 280 Gen'l Moto 14552.49 17167.50 $2615.01 4/30/97 -1170*Trump* -9908.50 -7897.50 $2011.00 8/12/96 110 Minn M&M 7224.44 9143.75 $1919.31 10/1/96 42 LucentTech 1999.88 3388.88 $1389.00 12/19/97 17Raytheon 904.57 822.38 -$82.20 8/24/95 130 KLA-Tencor 5812.49 4964.38 -$848.12 6/26/97 325 Innovex 9005.62 6621.88 -$2383.75 8/13/96 250 3Com Corp. 11715.99 8953.13 -$2762.87 CASH $32484.33 TOTAL $166313.39








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.