Rule Breaker Portfolio

FOOL PORTFOLIO REPORT
(FOOL GLOBAL WIRE -- Friday, January 2, 1998)
by Tom Gardner (TomG@Fool.com)

ALEXANDRIA, VA (Jan. 2, 1998) -- As many of you know, the first trading day of the New Year brings with it the unit-trust rotations out of the previous Dogs of the Dow and into the new selections. Large institutions rotate enormous assets from one to t'other. And when big money talks, valuations change.

If you were listening to The Fools subbing in for Bob Brinker on ABC Radio last weekend, you heard us make the one day-trading recommendation we'll probably ever make:

"On January 2nd, look for stocks like AT&T,
Chevron, and General Motors to drop a few
bucks while others like International Paper,
Philip Morris, and Eastman Kodak should
rise."

Like a happy pup before its master, the market rolled over to our Foolish demands. Today, those Fool-Four stocks that headed for the door were flat, while -- by my calculations -- the new Fool Four rose 3.18%. Take a look at the numbers.

On the way out
AT&T, down $2 9/16 to $58 3/4
Chevron, up $15/16 to $77 15/16
3M, up $1 7/16 to $83 1/2
GM, up $1/4 to $61

On the way in
International Paper, up $2 1/16 to $45 3/16
Philip Morris, unchanged at $45 1/4
DuPont, up $11/16 to $60 3/4
Eastman Kodak, up $3 1/4 to $63 13/16

The Day's Performance
The Entry Door Foolish-Four: +3.18%
The S&P 500: +0.47%
The Exit Door Foolish Four: +0.002%

The Dogs on the way out underperformed the market by 0.5%; the Dogs on the way in outperformed the market by 2.6%. Now, let's imagine that, rather than buying and holding The Foolish Four for the standard rotation, you instead committed $10,000 to our little daytrade suggestion.

You'd have purchased these four stocks on Wednesday, December 31st, one minute before market close. Then today, at 3:59 PM you'd sell all four. At a $15 commission, you'd have spent $60 buying into the group. Then your $9,940 would have earned you 3.18% today, taking your account up to $10,310.92. Then selling the four stocks this afternoon, you'd have paid $60 back to your broker, leaving you with $10,250.92. Finally, let's assume that you'd get taxed on your $250.92 gain at 36%. Packaged all together, your gains on that Foolish daytrade were $160.58.

Not bad. Make of that what you will. But in our opinion, this is further evidence that the rewards of active trading don't justify the efforts. It's even more convincing when you recognize that the unit-trust flows are an easy, predictable read. The institutions are forced to telegraph their trades to the marketplace. It's not so easy to predict the direction of a basket of stocks on, say, April 22nd. Add to that the fact that AT&T, a strong stock of late, dropped today on news regarding the regional bells -- which wasn't predictable in the least, arguably.

For my time and money, I'll stick with the Foolish Four model held for many months. Different schools for different Fools, though, of course. It's opinion that makes a market. Another important opinion in this space regarding The Foolish Four Model is that we are holding our own four stocks for the full eighteen months (in this case, from August through to February), to earn the capital-gains tax reduction -- down from 28% to 20%. If you have questions about this, that and all the Foolishness on these four stocks that's fit to print is available over in our Daily Dow Report and on our Fool-Four message board.

Finally tonight, I'd like to direct your attention to a fantastic financial writer that I stumbled upon this past week, courtesy of a link to her work by Fool staffer TMF Nico. The writer's name is Virginia Postrel, and she writes on subjects ranging from why Boston's technology hub lost to Silicon Valley to why Apple's bid for a monopoly failed to why the battle in the world of booksellers (including Foolport holding Amazon.com). Very fine work. Click here: Virginia Postrel's Articles or head over to www.reason.com to read through them.

And now, truly finally.. . you can drop me a note any hour of the night or day over on my newly-named message folder: Tom Gardner's Place. If you have questions about personal finance, investing, questions about The Motley Fool, or you want to challenge my claims that Florida State is the best college football team in the land... drop me a note there.

Fool on -- and enjoy this back-to-back weekend. I can't believe it's Friday already. We'll be buying Spiders next week.

Tom Gardner, Fool

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TODAY'S NUMBERS
Stock Change Bid ---------------- AMZN -1 1/2 58.75 AOL - 7/8 89.63 T -2 1/2 58.75 CHV + 15/16 77.94 DJT + 1/2 7.19 GM + 3/8 61.00 INVX + 5/16 23.25 IOM - 1/16 12.38 KLAC +1 13/16 40.38 LU - 1/16 79.81 MMM +1 7/16 83.50 RTN.A +1 5/8 50.94 COMS +1 1/16 35.94

Day Month Year History FOOL -0.46% -0.46% -0.46% 234.06% S&P: +0.47% 0.47% 0.47% 112.70% NASDAQ: +0.71% 0.71% 0.71% 119.60% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 89.63 1132.32% 5/17/95 1960 Iomega Cor 1.28 12.38 866.49% 10/1/96 42 LucentTech 47.62 79.81 67.62% 8/11/95 125 Chevron 50.28 77.94 54.99% 9/9/97 290 Amazon.com 38.22 58.75 53.71% 8/12/96 130 AT&T 39.58 58.75 48.44% 8/12/96 110 Minn M&M 65.68 83.50 27.14% 8/12/96 280 Gen'l Moto 51.97 61.00 17.37% 4/30/97 -1170 *Trump* 8.47 7.19 15.13% 12/19/97 17 Raytheon 53.21 50.94 -4.27% 8/24/95 130 KLA-Tencor 44.71 40.38 -9.70% 6/26/97 325 Innovex 27.71 23.25 -16.09% 8/13/96 250 3Com Corp. 46.86 35.94 -23.32% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 31816.88 $29235.01 5/17/95 1960 Iomega Cor 2509.60 24255.00 $21745.40 9/9/97 290 Amazon.com 11084.24 17037.50 $5953.26 8/11/95 125 Chevron 6285.61 9742.19 $3456.58 8/12/96 280 Gen'l Moto 14552.49 17080.00 $2527.51 8/12/96 130 AT&T 5145.11 7637.50 $2492.39 8/12/96 110 Minn M&M 7224.44 9185.00 $1960.56 4/30/97 -1170*Trump* -9908.50 -8409.38 $1499.13 10/1/96 42 LucentTech 1999.88 3352.13 $1352.25 12/19/97 17 Raytheon 904.57 865.94 -$38.63 8/24/95 130 KLA-Tencor 5812.49 5248.75 -$563.74 6/26/97 325 Innovex 9005.62 7556.25 -$1449.37 8/13/96 250 3Com Corp. 11715.99 8984.38 -$2731.62 CASH $32678.33 TOTAL $167030.46








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.