Rule Breaker Portfolio

Fool Buy Announced
...on a record day, but for KLA
by Jeff Fischer
(JeffF@fool.com)

ALEXANDRIA, VA (July 1, 1998) -- Wow.

There's too much to fit into a column that must be written in thirty minutes (which is literally what I have today), so let's cover the big news concisely.

Internet stocks soared. Why? Netscape (Nasdaq: NSCP) announced that it is talking with major media companies about ways to strengthen its website. What we're seeing is, as Tom Gardner eloquently states, technology going mainstream. At first the Internet was for national defense and scientists. Then students began experimenting on it. Slowly America Online emerged. Now 20% of U.S. homes are using the Internet. Within three years, according to Bill Gates, about 60% of American homes will be online. Corporations see where the money will be and they want to be there to meet it.

The Fool Port has already met some of this money through early investment in the new medium. AOL and Amazon.com, love them or hate them, have made a mint for this portfolio. If both fall 70% tomorrow, the Fool will still be beating the market with the investments. The Fool Port -- a real-money example -- is showing that, once diversified in the Foolish Four, investing in younger companies that you know and love can help you to beat the market and money managers. There's no magic behind the philosophy -- except that it's Foolish.

In fact, it's The Motley Fool Investment Guide in a nutshell. If you don't want to buy individual stocks, buy an S&P 500 Index Fund (or Spiders). It beats 80% of mutual funds. If you want to buy stocks methodically in hopes of beating the S&P, buy the Foolish Four. Historically, it has doubled the S&P's 11% return. If you want to move beyond the Foolish Four, first base your portfolio on those four giant Dow stocks, and then sprinkle in small caps that you know and love (or Cash-Kings that you love). Finally, if you're really feeling Foolish, short a dog or two. That's the hot and cold of it. The decaffeinated version. That's what this portfolio is showing in action.

And it's been a beauty lately -- we've had both good and bad, and we take both hand-in-hand, but it's been a good 1998 so far.

Today the Fool Port broke records left and right. It rose 5.4%, topping 50% for the year and 400% for the first time in its history. The portfolio's modest $50,000 invested in August of 1994 is now worth, for the first time, a quarter of a million dollars. (That rolls off the tongue nicely.) And that's with all the big mistakes along the way -- the ATCTs, the INVXs, the COMSs, the selling of half our AOL about $70,000 ago. That's fine. The portfolio is meant to teach through both mistakes and achievements.

We have, of course, a new buy to announce today. Following yesterday's announcement that we're selling our Spider shares, today we announce the purchase of... a company with a $4 billion market cap that has been public since 1992, that has grown earnings 46% annually for the past five years, that has a 34% projected growth rate for the next five years, that is first in its niche with no close second, and that many of us patronize regularly... Starbucks.

For the complete buy report, please click here. It's a doozy, so I'm going to leave you with it. If you have questions after part two, feel free to e-mail us. If you find you're initially interested in the company, take the time to really decide for yourself. Starbucks isn't going anywhere.

Two quick things before I do as promised and leave you with the buy report...

First, it wouldn't be right to disappear without sharing that KLA-Tencor (Nasdaq: KLAC), now representing 1.1% of the Fool Port's holdings, reported after the market closed that fourth quarter earnings will be lower than expected. Revenue will decline 10% from last year. The company is reducing costs to adjust to lower sales. Not good news, but more of the same...

Finally, is too much going on in the Fool Port to keep up?

Beginning next week, whenever David and I write we'll be covering one Fool stock per day in-depth, beginning alphabetically, and sharing our current thoughts on the position. We'll work our way from Amazon.com to Trump Hotels, one per day. We'll do this at least quarterly in order to touch base on each holding. Also beginning next week, we'll have some guest columnists -- readers, Fools whom I've only met through the Internet, but who have great thoughts to share.

Have a Foolish night...

--Jeff Fischer

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Today's FoolWatch: all the latest in Fooldom.


07/01/98 Close
Stock Change Bid ---------------- AMZN +14 7/16 114.13 AOL +5 9/16 110.69 T - 3/8 56.75 DJT +1/4 7.31 DD + 2 3/8 77.06 XON +1 5/8 72.94 INVX - 1/16 12.94 IP + 5/16 43.31 IOM --- 5.88 KLAC + 1/16 27.75 LU +1 84.25 COMS - 7/16 30.25 TDFX - 1/16 17.00 SPY +1 5/16 114.63

Day Month Year History FOOL +5.44% 5.44% 50.47% 404.98% S&P: +1.30% 1.30% 18.36% 150.56% NASDAQ: +1.04% 1.04% 21.91% 165.83% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 110.69 2943.85% 9/9/97 580 Amazon.com 19.11 114.13 497.18% 5/17/95 1960 Iomega Cor 1.28 5.88 358.84% 10/1/96 84 LucentTech 23.81 84.25 253.87% 8/12/96 130 AT&T 39.58 56.75 43.39% 2/20/98 215 DuPont 59.83 77.06 28.79% 1/8/98 115 S&P Depos. 95.91 114.63 19.52% 2/20/98 200 Exxon 64.09 72.94 13.80% 4/30/97 -1170*Trump* 8.47 7.31 13.65% 2/20/98 270 Int'l Pape 47.69 43.31 -9.18% 1/8/98 425 3Dfx 25.67 17.00 -33.77% 8/13/96 250 3Com Corp. 46.86 30.25 -35.45% 8/24/95 130 KLA-Tencor 44.71 27.75 -37.94% 6/26/97 325 Innovex 27.71 12.94 -53.31% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 78588.13 $76006.26 9/9/97 580 Amazon.com 11084.24 66192.50 $55108.26 5/17/95 1960 Iomega Cor 2509.60 11515.00 $9005.40 10/1/96 84 LucentTech 1999.88 7077.00 $5077.12 2/20/98 215 DuPont 12864.25 16568.44 $3704.19 8/12/96 130 AT&T 5145.11 7377.50 $2232.39 1/8/98 115 S&P Depos. 11029.25 13181.88 $2152.63 2/20/98 200 Exxon 12818.00 14587.50 $1769.50 4/30/97 -1170*Trump* -9908.50 -8555.63 $1352.88 2/20/98 270 Int'l Pape 12876.75 11694.38 -$1182.38 8/24/95 130 KLA-Tencor 5812.49 3607.50 -$2204.99 1/8/98 425 3Dfx 10908.63 7225.00 -$3683.63 8/13/96 250 3Com Corp. 11715.99 7562.50 -$4153.49 6/26/97 325 Innovex 9005.62 4204.69 -$4800.93 CASH $11662.57 TOTAL $252488.95

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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.