Rule Breaker Portfolio

Comfortably Above
...an all-time Foolish high!
by Nico Detourn
(TMFNico@aol.com)

SANTA CLARA, CA (June 17, 1998) -- I knew when I went to bed last night that I'd be writing today's Fool Port. A high honor, indeed, though perhaps a little like being sent into oncoming traffic with nothing but a Fool's cap and a calculator. What would the day bring? What would I write about?

Little did I know that I'd have my lead handed to me on a silver platter. By morning, the news was buzzing with reports that AT&T (NYSE: T) had reached out to touch America Online (NYSE: AOL), only to be rebuffed. Talk about being saved by the bell, Ma.

Word of the failed pairing came courtesy of a Wednesday article in London's Financial Times. Citing sources close to both companies, the newspaper reported that several weeks ago AT&T chairman Michael Armstrong made a tentative offer to AOL which was "comfortably above" the online giant's market capitalization at the time. The report has AOL CEO Steve Case, and COO Robert Pittman, giving AT&T a "no thanks" within the last few days. Whether AOL's brain trust were mulling over the deal, or merely testing the leak-worthiness of the company's conference room is unknown. But given that AOL already sits comfortably above the rest of the online world, the rejection of the offer came as little surprise.

Which is not to say it didn't produce excitement.

With the market's overall tone set by news of the United States' action to help raise the Japanese yen from its eight-year low against the U.S. dollar, the mere idea of an AT&T takeover of AOL poured fuel on the recently re-ignited Internet sector. The stocks of both companies, AOL in particular, jumped at the open. With AT&T's major interest in the online medium being taken as a sign of validation, other Internet stocks caught AOL's tailwind, found a cruising altitude, and stayed aloft all day.

Naturally, all this created quite a stir throughout Fooldom, what with America Online and its Fool Port sibling, Amazon.com (Nasdaq: AMZN), often seen as representing both the best and worst of the controversial -- but oddly fascinating -- group of Internet companies. Fools in our AOL folder -- who these days are a generally bullish bunch, as TMF Jeff noted in yesterday's Fool Port -- voiced virtually unanimous opinion that AOL did the right thing in hanging up on the proposed AT&T deal. Readers in the Amazon folder -- who veer toward the bearish, to say the least -- voiced equally unanimous amazement at that stock's dare-devil antics. All in all, an interesting study in contrasts. Click in, and see what other Fools are saying.

All this added up to a good day for the Fool Portfolio. With AOL and Amazon.com each gaining about $5.00, the Fool Portfolio gained 2.99%, easily beating the S&P's 1.79% gain. Just six days ago, David Gardner rang the Triple Chime for Amazon.com, the stock having risen three-fold for the Fool Port. In absolute record time, today the Fool Port is pulling out the Quadruple Chime and ringing it four times. (Shhhh.... listen....) Yes, our position in Amazon has now quadrupled. We may never see a stock move from a triple to a quadruple so quickly again.

It was also a historic day for the Fool Portfolio, which closed 12% above -- comfortably above -- its previous all-time high, set back on May 4. Of course, good as it is to savor winning days like this, it is still but one day in the life of a Fool and her portfolio. And between now and... whenever... there will be many more days. Some like today, many hopefully better, but no doubt some far worse. Fact is, good as today was, it was a mixed day for the Fool Port. Our most recent addition, 3Dfx Interactive (Nasdaq: TDFX) fell hard, over $3.00, on truly ugly volume, but without any discernable news to account for the move. Our Fool news staff called the company, but 3Dfx reported that there is, well, nothing to report. The stock is currently down about 30% since the Fool Port purchased 425 shares last January.

Declines like that are not much fun. 3Dfx is not the only stock weighing down the Fool Port. In the context of the total portfolio, though, such under-performers are not the calamities they might otherwise be. The trick is keeping it in perspective. One way of doing that -- anyone feel a segue coming on? -- is to not get overly emotional about our investments. And by pure coincidence, the Fool's Dow Guru Robert Sheard will be discussing this very thing at an Online Book Signing for his book, The Unemotional Investor (Simon & Schuster, 1998), in The Motley Fool's auditorium. The live chat event (on AOL) is this Thursday evening, from 9pm to approximately 9:45pm. It promises to be informative and fun, so why not check it out? (If you'd like your book signed but can't attend the event, you can still order a book to be signed from now through the event.)

See ya on the boards, Fools!

-- Nico Detourn

[Related message boards: Amazon.com I America Online ]

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Today's FoolWatch: all the latest in Fooldom.


06/17/98 Close
Stock Change Bid ---------------- AMZN +5 9/16 79.00 AOL +5 94.00 T +1 1/16 63.00 DD +2 5/16 74.81 DJT + 1/8 7.88 XON +1 7/16 71.00 INVX - 1/8 13.63 IP +1 44.56 IOM + 1/16 6.38 KLAC - 13/16 27.19 LU + 9/16 74.44 COMS - 15/16 24.63 TDFX -3 9/16 17.94 SPY +2 9/32 111.47

Day Month Year History FOOL +2.99% 13.19% 30.41% 337.65% S&P: +1.79% 1.49% 14.08% 141.51% NASDAQ: +1.33% -0.14% 13.12% 146.66% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 94.00 2484.95% 5/17/95 1960 Iomega Cor 1.28 6.38 397.89% 9/9/97 580 Amazon.com 19.11 79.00 313.38% 10/1/96 84 LucentTech 23.81 74.44 212.66% 8/12/96 130 AT&T 39.58 63.00 59.18% 2/20/98 215 DuPont 59.83 74.81 25.03% 1/8/98 115 S&P Depos. 95.91 111.47 16.23% 2/20/98 200 Exxon 64.09 71.00 10.78% 4/30/97 -1170*Trump* 8.47 7.88 7.01% 2/20/98 270 Int'l Pape 47.69 44.56 -6.56% 1/8/98 425 3Dfx 25.67 17.94 -30.12% 8/24/95 130 KLA-Tencor 44.71 27.19 -39.19% 8/13/96 250 3Com Corp. 46.86 24.63 -47.45% 6/26/97 325 Innovex 27.71 13.63 -50.83% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 66740.00 $64158.13 9/9/97 580 Amazon.com 11084.24 45820.00 $34735.76 5/17/95 1960 Iomega Cor 2509.60 12495.00 $9985.40 10/1/96 84 LucentTech 1999.88 6252.75 $4252.87 2/20/98 215 DuPont 12864.25 16084.69 $3220.44 8/12/96 130 AT&T 5145.11 8190.00 $3044.89 1/8/98 115 S&P Depos. 11029.25 12818.91 $1789.66 2/20/98 200 Exxon 12818.00 14200.00 $1382.00 4/30/97 -1170*Trump* -9908.50 -9213.75 $694.75 2/20/98 270 Int'l Pape 12876.75 12031.88 -$844.88 8/24/95 130 KLA-Tencor 5812.49 3534.38 -$2278.12 1/8/98 425 3Dfx 10908.63 7623.44 -$3285.19 6/26/97 325 Innovex 9005.62 4428.13 -$4577.50 8/13/96 250 3Com Corp. 11715.99 6156.25 -$5559.74 CASH $11662.57 TOTAL $218824.23

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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.