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Rule Breaker Portfolio

Smellcohol Poisioning
Plus, Starbucks and Trump

by Jeff Fischer
(
TMFJeff@aol.com)

ALEXANDRIA, VA (Sept. 3, 1998) -- Some of our stocks are being priced by a stock market that's trading while under the influence of smellcohol.

Smellcohol is a little known affliction that befalls Homo sapiens when fear escalates. It manifests itself through the pores by producing a certain scent. In fact, the disease is the origin of the term, "I can smell fear." The real danger is that it's contagious. Once others begin to smell the growing fear, they too can fall under the influence of smellcohol and begin to make rash decisions while under its power.

Before long -- as most would-be investors fall under the influence -- trading becomes incredibly volatile, frenzied, fearful, and even nonsensical.

The largest known case of smellcohol poisoning occurred in October, 1987, when the influence of fear drove stocks down 23% in one day -- down to a price that, eleven years later, is 320% below current levels. That dramatic episode "smelled" some of oil, while the current epidemic reeks of vodka (assuming vodka had a smell) and, perhaps, fish and rice. Vodka meaning, of course, Russia. Fish and rice -- and please forgive these gross generalizations -- representing Asia.

Let's consider the recent catalyst for fear: Russia.

Russia is a country that adds so little to the U.S. economy that Holland's economy merits more of our concern. (So....) And then narrowing our concern in order to focus on what really matters -- an individual's stocks rather than the market as a whole -- it appears that the Fool Port is in a fair position. Let's consider.

Iomega, despite its penny stock price, is selling product in Holland. 3Com is as well. America Online has accounts in Holland. Amazon.com has sold products in over 200 countries -- probably including Holland. If any computers have been sold in Holland, Innovex has product there, too, as does 3Dfx. Lucent has Holland covered, yup. As for our Foolish Four giants -- yes, their business in Holland is clipping along. Oh sure, Holland accounts for less than 1% of our companies' total sales, but it's still a more worthwhile focus than Russia, a country that accounts for even less of this country's economy.

Still, this isn't meant to belittle the problem with Big Bad Fearful Russia (oh, that's right, the Cold War is over -- now all of those warheads are in the hands of random States and who knows who else, so we needn't fear Russia or call it "Bad" anymore), because Russia will impact several companies. In fact, on Monday Citicorp announced that it will lose $200 million on its operations in Russia this quarter. The company will still net a billion in income, however.

The main point: There's little that a Fool can do about the stock market's near-term obsessions and whims, however contrived they might be (Russia?), both to the downside and upside. The stock market is sometimes too optimistic, and other times too glum or driven by fear (smellcohol) in the near term. It's all part of investing for the long haul (as are economic fluctuations that are entirely unpredictable). If you sell due to these things, you're not a long-term investor. When you sell, Kenny Rogers appears at your door to sing "The Gambler." He was at my neighbor's house last night.

Today the Fool Port lost 2.5% while the Dow dropped a cool Ben Franklin (100) and the S&P declined 0.83%. The Nasdaq lost more, falling 1.3%. It's 22.5% from its high and the S&P is 17.5% below its peak.

When the stock market declines as much as it has over the past weeks, continued volatility is a given. Yet, after rising more than 20% annually each of the past three years, the S&P is again up 1.22% (before dividends) this year. If we end 1998 in positive territory (or even if we don't), what right does a long-term Fool have to complain?

Starbucks (Nasdaq: SBUX) is 47% below its high but management isn't wasting time complaining. Instead, it's focusing on the future and it's ready to roll. Coffee bean prices are 15% below their peak and Starbucks has locked in its coffee needs for most of fiscal 1999. Now, it just needs to sell, sell, sell. Today the Fool interviewed Mr. Howard Schultz, the CEO of Starbucks. The FoolAudio of the interview will be available on the Fool website tonight. The transcript should be available tomorrow.

Trump Hotels (NYSE: DJT) rose 35% on no news and double its average volume (though volume was still incredibly light, especially for a $3 stock). Even bricks bounce when dropped from high places. The Fool has gained 45% on the short. With high-interest debt strangling an already suffocating and slowing business, it's hard to imagine what drove today's upward spike.

Lucent Technologies (NYSE: LU) announced two new contracts in Asia worth $42 million. (The region still has some liquidity!) If you missed yesterday's Dueling Fools on other Fool Port holding, AT&T (NYSE: T), check it out.

Also, tonight the Boring Port discusses value investing versus growth investing. Elsewhere, Tom Gardner writes about searching for monoplies in Cash-King. Also, Drip Port addresses its two favorites for a banking investment, as well as Intel's gain and earnings from Campbell Soup. Finally, end the night with a song. Today's Fribble is Foolish lyrics to "That's Life."

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Bookmark Live Fool Port Quotes

09/03/98 Close
Stock Change Bid ---------------- AMZN -2 85.88 AOL -1 1/4 87.13 T - 5/16 51.81 DJT +1 3/16 4.56 DD - 13/16 56.13 XON - 3/16 63.94 INVX - 5/16 10.22 IP + 7/16 38.69 IOM - 1/8 3.56 KLAC -2 9/16 22.81 LU -1 1/4 77.88 SBUX -1 3/4 31.13 COMS -1 9/16 24.38 TDFX - 1/2 9.88

Day Month Year History Annualized FOOL -2.58% 2.39% 17.87% 295.57% 40.09% S&P: -0.83% 2.58% 1.22% 114.28% 20.54% NASDAQ: -1.32% 4.84% 0.10% 118.26% 21.09% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 87.13 2295.89% 9/9/97 580 Amazon.com 19.11 85.88 349.35% 10/1/96 84 LucentTech 23.81 77.88 227.09% 5/17/95 1960 Iomega Cor 1.28 3.56 178.23% 4/30/97 -1170*Trump* 8.47 4.56 46.13% 8/12/96 130 AT&T 39.58 51.81 30.91% 2/20/98 200 Exxon 64.09 63.94 -0.24% 2/20/98 215 DuPont 59.83 56.13 -6.20% 2/20/98 270 Int'l Pape 47.69 38.69 -18.88% 7/2/98 235 Starbucks 55.91 31.13 -44.33% 8/13/96 250 3Com Corp. 46.86 24.38 -47.99% 8/24/95 130 KLA-Tencor 44.71 22.81 -48.98% 1/8/98 425 3Dfx 25.67 9.88 -61.53% 6/26/97 325 Innovex 27.71 10.22 -63.12% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 61858.75 $59276.88 9/9/97 580 Amazon.com 11084.24 49807.50 $38723.26 4/30/97 -1170*Trump* -9908.50 -5338.13 $4570.38 10/1/96 84 LucentTech 1999.88 6541.50 $4541.62 5/17/95 1960 Iomega Cor 2509.60 6982.50 $4472.90 8/12/96 130 AT&T 5145.11 6735.63 $1590.52 2/20/98 200 Exxon 12818.00 12787.50 -$30.50 2/20/98 215 DuPont 12864.25 12066.88 -$797.38 2/20/98 270 Int'l Pape 12876.75 10445.63 -$2431.13 8/24/95 130 KLA-Tencor 5812.49 2965.63 -$2846.87 8/13/96 250 3Com Corp. 11715.99 6093.75 -$5622.24 6/26/97 325 Innovex 9005.62 3321.09 -$5684.53 7/2/98 235 Starbucks 13138.63 7314.38 -$5824.25 1/8/98 425 3Dfx 10908.63 4196.88 -$6711.75 CASH $12005.75 TOTAL $197785.22

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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.





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