Rule Breaker Portfolio

Fool Portfolio Report
Thursday, May 15, 1997

by Jeff Fischer (TMFJeff)


VIRGINIA BEACH, VA., (May 15, 1997) -- Around midnight last night we were reading the recent press releases regarding Trump Hotels. It was announced at 7:00 p.m. yesterday that Trump had lost its case against New Jersey, specifically against Atlantic City and Mirage Resorts.

The state is willing to pay $65 million to build a road that will lead to three new casinos, one owned by Mirage, as well as retail stores and restaurants. The new area is on a tract of land that forms a bay, while Trump's property is separate, on the mainland. TRUMP (NYSE: DJT) claims that the city is breaking a 1976 law which states that these funds should go to local citizens, rather than business. The judge ruled otherwise.

MIRAGE RESORTS (NYSE: MIR) was happy, but there was no smell of warm apple pie on the press release that the company sent to business wires. Grandma didn't write this press release.

If you have a minute, give Mirage's issued statement a quick read.

Mirage is upset about something -- something more than the lawsuit. Calls to Mirage to determine what Trump Hotels had done proved fruitless. For now, we'll enjoy the mystery of not knowing the reasons behind Mirage's following statements:

"For (Trump's) inexcusable and inappropriate conduct, there will most definitely be a day of reckoning. The conduct of Trump... threatens the welfare of the shareholders and the employees of the company. Mirage Resorts sympathizes with them (and believes) that the men chosen to lead the company have no understanding of their responsibilities or the rules of proper conduct."

The press release then directs Trump's board of directors to take a hard look at management before the company brings further harm to itself.

These heated statements came from a company -- Mirage -- that recently ranked second on Forbe's "Most Admired Firms" list. Mirage's CEO Steve Wynn and Donald Trump have always argued, but following a press release about a "day of reckoning," a person next expects an army of Mirage rollerbladers to storm the Trump Castle and let loose 700 armadillos in the lobby, throw Silly Putty at the walls in hopes of leaving oil spots, and then quickly rollerblade out the door and into the night.

It's getting that ugly.

Trump also appears to be out of favor in Atlantic City. The government wants to redevelop its casino industry -- the life-blood of its economy -- and so is willing to help Mirage, Boyd Gaming, and others set up shop, while Trump is left relying on its own cash. Trump's defense is to attack everyone involved, which further ostracizes his company.

Trump Hotels will immediately appeal the court's decision on the new highway funding, but it appears that the company is fighting a losing battle. Exactly what three new casinos surrounded by shops and restaurants may do to Trump's business is easy to speculate about, but only time will tell. The casinos won't be built until the year 2000 or so, but meanwhile, for at least the next two years Trump is expected to lose money. If Trump's desperation is any indication of the viability of its business, perhaps Atlantic City has good reason to support new casinos.

Intrigued conversation over Mirage's strong press release was the only sound as we walked to the local Seven Eleven store early this morning, on an empty street along a stretch of hotels, around 1 a.m.

Following that, the night passed quickly while doing research, and at dawn, as the earth turned and that giant levitating fire rounded the horizon, causing daylight, the thought was, "If a person floated above the sun in a hot air balloon, and could dump one bucket of water over it to extinguish it, how large would that one bucket need to be? And how does that relate to the stock market as a whole?"

Sleep came from 8 a.m. to nearly 1:00 in the afternoon.

During that time, stocks rose. The S&P gained 0.70% while the Nasdaq climbed 1.35%, continuing to show strength. The Fool beat the S&P, but couldn't keep up with the Nasdaq, gaining 0.91%. Currently the market is strong when economic numbers appear weak, as they have recently, because the fear of further interest rate increases subside. We'll see what the Fed does next week. Who cares, though, ten years from now.

3M (NYSE: MMM) made another 52-week high and is now up more than 42% since August. The company has a strong business model and management. 3COM (Nasdaq: COMS) continued to rebound, and has gained 58% from the $24 low touched just weeks ago. It's the second largest networker in the world. AMERICA ONLINE (NYSE: AOL) and KLA TENCOR (Nasdaq: KLAC) both rose above $50 again, and IOMEGA (NYSE: IOM) rose $1/2 to $17 7/8. Each company leads its industry.

Iomega announced a non-exclusive manufacturing deal with NEC CORP (NYSE: NIPNY). NEC joins a growing list of firms with the rights to manufacture and market Zip drives under the Zip name. NEC was founded in 1899, and had over $41 billion in sales last year. The company is headquartered in Tokyo.

There was little else happening today, unless we care to discuss the high-flying IPO of a bookseller ("Our patience will achieve more than our force" --- in the opinion of Edmund Burke.)

It's interesting to see that CISCO SYSTEMS (Nasdaq: CSCO), despite the steep slide of networking stocks, is now only 17% from its all-time high. It's instructive to note that ATC COMMUNICATIONS (Nasdaq: ATCT) has only gone down while the market has recovered -- and to consider why in hopes of not making the same type of purchase in the future. Hindsight is easy, though.

Well... the day is drawing to an end. I'd like to get outside and catch the sunlight before the other half of the world gets it. A final thought, a proverb:

"The greatest conquerer is he who overcomes the enemy without a blow."

Invest for the long-term.

Fool on!

Today's Daily Double -- learn why a stock doubled.
The New Daily Trouble! -- learn why a stock recently fell 50%.


TODAY'S NUMBERS
Stock Change Bid -------------------- AOL +1 3/4 50.13 T --- 32.88 ATCT + 1/8 4.00 CHV -1 1/4 70.88 DJT + 1/4 10.13 GM + 1/8 56.13 IOM + 1/2 17.88 KLAC +1 1/4 50.00 LU - 3/4 62.75 MMM +1 7/8 94.50 COMS + 3/8 38.13
Day Month Year History FOOL +0.91% 3.83% -0.48% 165.59% S&P: +0.70% 5.06% 13.65% 83.66% NASDAQ: +1.35% 7.36% 4.84% 87.95% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 17.88 609.33% 8/5/94 355 AmOnline 7.27 50.13 589.48% 8/12/96 110 Minn M&M 65.68 94.50 43.89% 8/11/95 125 Chevron 50.28 70.88 40.95% 10/1/96 42 LucentTech 47.62 62.75 31.78% 8/24/95 130 KLA Tencor 44.71 50.00 11.83% 8/12/96 280 Gen'l Moto 51.97 56.13 7.99% 8/12/96 130 AT&T 39.58 32.88 -16.94% 8/13/96 250 3Com Corp. 46.86 38.13 -18.64% 4/30/97 -1170 *Trump* 8.47 10.13 -19.56% 10/22/96 600 ATC Comm. 22.94 4.00 -82.56% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 17794.38 $15212.51 5/17/95 980 Iomega Cor 2594.53 17517.50 $14922.97 8/12/96 110 Minn M&M 7224.44 10395.00 $3170.56 8/11/95 125 Chevron 6285.61 8859.38 $2573.77 8/12/96 280 Gen'l Moto 14552.49 15715.00 $1162.51 8/24/95 130 KLA Tencor 5812.49 6500.00 $687.51 10/1/96 42 LucentTech 1999.88 2635.50 $635.62 8/12/96 130 AT&T 5145.11 4273.75 -$871.36 4/30/97 -1170*Trump* -9908.50 -11846.25 -$1937.75 8/13/96 250 3Com Corp. 11714.99 9531.25 -$2183.74 10/22/96 600 ATC Comm. 13761.50 2400.00-$11361.50 CASH $49020.02 TOTAL $132795.52








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.