Rule Breaker Portfolio

FOOL PORTFOLIO REPORT
(FOOL GLOBAL WIRE -- Wednesday, December 31, 1997)
by David Gardner (DavidG@Fool.com)

ALEXANDRIA, VA (Dec. 31, 1997) -- -- Two-dollar rises in Amazon, AOL, and Innovex (finally something good for Innovex!) made for a good Wednesday, and so the Fool Portfolio closed out the last day of 1997 by beating the market.

Or maybe it was our just-past-dawn appearance on CBS This Morning, propping up all Fool stocks across the board. (Oops, only 5 of our 13 were up today. Check that.)

But while we won the day, we failed to win the year. We lost to the darned market for the first time in our online history.

Well, I should check myself there. We did beat the Nasdaq by 4 percentage points, and that's a pretty large stock market. But we couldn't hang with the S&P 500. Here's the truth:

S&P 500: 31.01%
FOOL: 25.75%
NASDAQ: 21.64%

Now, for history:

FOOL: 235.60%
NASDAQ: 118.05%
S&P 500: 111.70%

The key, of course, is that in 1997 we certainly beat upwards of 80% of America's fee-laden mutual funds (and we charge nothing!). And geez, you don't even have to follow us, whereas you're stuck with your fund manager. (Ba-dum boom.) You know, the guy taking 1 percent of assets to return you 4 percent beneath the index fund. How long are these guys going to be around?

Speaking of index funds -- or rather, here, "Spiders" -- we are announcing tonight in our latest buy report that we're putting most of our current excess cash in the American Stock Exchange's equivalent of the index fund. Yes, America, we are FINALLY putting our excess cash to work earning what the market earns. And it's creepy-crawly.

Standard & Poor's Depository Receipts, or "Spiders" (a game effort at an acronym) were created by the American Stock Exchange in January 1993 as a convenient way for investors to buy and sell the aggregate stock of the companies represented in the S&P 500. They are thus the security equivalent of the index fund, but more liquid to trade. When we're ready for our next new buy or short, we'll just reach back into our spider web (sticky!) and grab the cash we need. It's just like our bank account, now.

What we're effectively doing is permanently moving up our cash from a money-market rate to the stock market's rate, as we should've all along. ("Those Fools," you can tell the chap next to you tonight over champagne, "they always eventually get it right... four years later.")

OK, so does this imply confidence in the stock market for 1998? Well no, it' s not particular to 1998; we think this is a good answer for any long-term investor, at any time. You know, the conventional wisdom a year ago was that there was NO WAY the stock market would have a good year. Why? Because the market had risen 20%+ in 1995 and 1996, and at no point in our history had the market ever risen 20%+ three years in a row.

Until this year.

Sayonara once again, conventional wisdom.

No, Fools never have any idea where the market is going next year, and we encourage you not to listen to those who tell you they do.

One of the better things about our buying of Spiders is that many Fool readers may never before have heard of them. They will be like Keats, in his delightful poem "On First Looking Into Chapman's Homer," where he writes:

Then felt I like some watcher of the skies
When a new planet swims into his ken;

This is a new planet whose existence you are well served to know about, and so do click into our new buy report and read away. And we will of course be writing about these on a regular basis going forward, now that we're invested in the darn things.

(More good reading is Fool UK's Bribble today, the British equivalent of the Fribble. Read what happened to the English woman who fell in love with the Fool, until her phone bill arrived.)

Now I'd like to close by wishing all my fellow Fools a HAPPY NEW YEAR. As another 19th century British poet, Robert Browning, once wrote, "God's in his heaven: all's right with the world." Not only that, but a few days before its official publication date, You Have More Than You Think has already become the #1 business bestseller on Amazon.com!!! (Click here to see the list.) It displaces The Motley Fool Investment Guide, which drops to #2. And two weeks before its publication date, The Motley Fool Investment Workbook has debuted at #6.

I received the kindest note last night from Greg Beer of Iowa, who wrote that he was going to give You Have More Than You Think as a graduation gift to each of his sons. Really, I almost cannot imagine a nicer thing to say. Thank you.

In fact, I wish to thank all of you for your support, hope that we shall be equal to it in 1998, and hope indeed that we are providing you twice the value you're providing us. One day this company may even go public; it will be a pleasure on that day to be owned by you as well. (No promises, and I sincerely doubt you'll see NASDAQ:FOOL show up in 1998!)

FOOL ON!

-- David Gardner, December 31, 1997

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TODAY'S NUMBERS
Stock Change Bid ---------------- AMZN +2 1/8 60.25 AOL +2 90.50 T -1 5/16 61.25 CHV -1 1/16 77.00 DJT - 1/16 6.69 GM - 11/16 60.63 INVX +2 9/16 22.94 IOM - 1/16 12.44 KLAC + 3/8 38.56 LU - 13/16 79.88 MMM -1 1/16 82.06 RTN.A + 15/16 49.31 COMS - 15/16 34.88

Day Month Year History FOOL +0.89% 1.35% 25.75% 235.60% S&P: -0.04% 1.57% 31.01% 111.70% NASDAQ: +0.34% -1.89% 21.64% 118.05% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 90.50 1144.35% 5/17/95 1960 Iomega Cor 1.28 12.44 871.37% 10/1/96 42 LucentTech 47.62 79.88 67.75% 9/9/97 290 Amazon.com 38.22 60.25 57.63% 8/12/96 130 AT&T 39.58 61.25 54.76% 8/11/95 125 Chevron 50.28 77.00 53.13% 8/12/96 110 Minn M&M 65.68 82.06 24.95% 4/30/97 -1170 *Trump* 8.47 6.69 21.03% 8/12/96 280 Gen'l Moto 51.97 60.63 16.65% 12/19/97 17 Raytheon 53.21 49.31 -7.32% 8/24/95 130 KLA-Tencor 44.71 38.56 -13.75% 6/26/97 325 Innovex 27.71 22.94 -17.22% 8/13/96 250 3Com Corp. 46.86 34.88 -25.58% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 32127.50 $29545.63 5/17/95 1960 Iomega Cor 2509.60 24377.50 $21867.90 9/9/97 290 Amazon.com 11084.24 17472.50 $6388.26 8/11/95 125 Chevron 6285.61 9625.00 $3339.39 8/12/96 130 AT&T 5145.11 7962.50 $2817.39 8/12/96 280 Gen'l Moto 14552.49 16975.00 $2422.51 4/30/97 -1170*Trump* -9908.50 -7824.38 $2084.13 8/12/96 110 Minn M&M 7224.44 9026.88 $1802.44 10/1/96 42 LucentTech 1999.88 3354.75 $1354.87 12/19/97 17 Raytheon 904.57 838.31 -$66.26 8/24/95 130 KLA-Tencor 5812.49 5013.13 -$799.37 6/26/97 325 Innovex 9005.62 7454.69 -$1550.93 8/13/96 250 3Com Corp. 11715.99 8718.75 -$2997.24 CASH $32678.33 TOTAL $167800.46








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.