Rule Breaker Portfolio

<THE RULE BREAKER PORTFOLIO>
What Happened to Fool Port?

Break On!
Volatility. Plus, earnings. Evel Knievel. More.

by Jeff Fischer (TMFJeff@aol.com)

Alexandria, VA (Jan. 14, 1999) -- If the past two weeks are any indication, we're in for a roller coaster, see-saw, whiplash, bronco bucking, hat throwin' 1999. At this rate, the new year is on track to top 1998's record volatility.

Today the market indices took a tumble for whatever reason you wish to ascribe: Clinton, Brazil, rainy weather in New York, Harry Jones, online traders; "whaddever." Unless you were about to cash out of your stocks, you didn't truly lose anything, because money is "a blessing that is of no advantage to us excepting when we part with it." (As defined by Ambrose Bierce's The Devil's Dictionary.)

Hmmmm.

Hey...

Actually, a Fool disagrees. Money is security when it isn't being used, and it represents unlocked possibility and exciting potential even when dormant. (As defined by The Fool's Dictionary, due to publish in 2002 by Fool & Schuster, Inc.)

Today...

Today we lost paper money to the tune of $I DIDN'T ACTUALLY COUNT IT, as the portfolio toppled 3.2% due to losing stocks like America Online, Amazon, and @Home -- all three disgraceful investments. Or so the Wise report whenever these stocks fall more than a few dollars, splashing up headlines that read "Internet Stocks Plunge!" The headlines never read accurately. That would be: "Amazon declines 6% after rising 200% in two months."

Right now...

Right now we're in the thick of things; the swim; the rollin' end to the 1990s; the big 1999; another year like this won't come along until 2999. Unless Amgen or one of its sisters bails us out, we won't be seeing that one. On the cusp of 2000, if we don't spend this year being Foolish we'd miss out on a once-in-a-1000 year opportunity. Be Foolish about money. Be more Foolish about your day-to-day.

"1999."

It has a ring, eh? I have the feeling that we won't care whether the stock market ends up or down this year; "whaddever." Meanwhile, any of the thousand bearish comments that you heard over the past ten years were WRONG. Flat out WRONG. The S&P has gained 19% annually since 1988, nearly double its historical 11% average.

Thanks goes to TMF Movie who e-mailed a slew of great stats today, including the fact that only 10% of mutual funds beat the market over this ten-year period. Flip that. It means that the passive S&P 500 index beat 90% of actively managed mutual funds for the past ten years. That's a lot of hard work by the Wise down the drain; all for naught; in a losing proposition -- except for all the fees bled from unfortunate investors.

The "thick of things" includes earnings. We'll have earnings reports from several of our Rule Breakers in the coming weeks. Behold:


Date     Co.       Estimate
1/20     @Home     -$0.06
1/20     Lucent     $0.99
1/22     Amazon    -$0.19
1/22     Iomega     $0.05
1/27     3Dfx       $0.05

Iomega (NYSE: IOM) is expected to report its first profitable quarter in nearly a year (hey, the big Foolish competition is actually between Iomega and 3Dfx: which will report higher earnings?!), while Lucent (NYSE: LU) should report record results and our Internet companies should lose money. Profit ain't the aim right now. Growth is. But they're losing less money than in the past, at least in @Home's (Nasdaq: ATHM) case. It will probably lose about $10 million (it recently raised $200 million with debt, by the way), lower than its previous six quarters of losses (which averaged $13 million). The company should be profitable in 2000.

Here's why. "Ramp."

@Home is ramping its business like Evel Knievel before a jump over 50 stacked cars. Our company ended 1997 with 50,000 subscribers. It ended '98 with 330,000, above estimates by 20 grand. At the end of '97, it had 2.7 million homes essentially ready for its service. It now has 59 million. And the company's recent deal with AT&T (NYSE: T) is promising. Even without it, ADSL technology doesn't have the reach to challenge @Home in due time. First mover. Brand name. Market penetration. You name it. @Home is AOL on speed.

America Online (NYSE: AOL) is moving forward on cable-speed access, too. Maybe the two can share the market -- excellent. Read about AOL's head honcho in today's Foolish special. Meanwhile, for great discussion on competing technologies and @Home following yesterday's Rule Breaker column, visit the @Home message board.

Trump Hotels (NYSE: DJT) announced that it will acquire Flamingo Hilton Riverboat Casinos in Kansas City. Not sure why. The casino had lower earnings before income taxes et. al. to the tune of $3 million less last quarter, according to Hilton's (NYSE: HLT) recent 10-K. And it's losing money. Seems like it'll only add more weight to an already heady avalanche over at Trump. Bravo. In other acquisitions, Starbucks (Nasdaq: SBUX) recently shared it's buying a specialty tea company and the stock bounced on the news. We learned that tea was a growing focus last fall.

I'm going to write about valuation theories and the book due from James Glassman and Kevin Hassett that I mentioned last week (it's due late this year; November or so) the next chance I get, but not today. Still mulling over it.

Find out what Harry Jones is reading tonight. (Perhaps he'll read Rule Breakers, Rule Makers later this year.)

Break on, and Fool on!

01/14/99 Close
Stock  Change    Bid 
 ---------------- 
AMZN  -9 1/2  138.50
AMGN  -4      105.00
AOL   -1 3/4  144.50
T     -2 11/16 82.13
ATHM  -3 1/8  102.63
DJT   +  1/4    4.56
DD    -2 3/16  54.88
XON   -  3/4   69.75
IP    -  9/16  44.06
IOM     ---     9.00
LU    +1 1/16 105.50
SBUX  +  1/32  52.75
TDFX  -  1/8   12.25

 
                   Day   Month    Year  History  Annualized 
      R-BREAKER  -3.27%   8.56%   8.56%  989.64%   71.17%
        S&P:     -1.80%  -1.39%  -1.39%  177.14%   25.79%
        NASDAQ:  -1.73%   3.84%   3.84%  216.15%   29.57%
 Note:  Yearly, historical and annualized returns for the 
S&P include dividends

    Rec'd    #  Security     In At       Now      Change
   8/5/94  1100 AmOnline       1.82    144.50    7849.61%
   9/9/97  1320 Amazon.com     6.58    138.50    2005.11%
  5/17/95  1960 Iomega Cor     1.28      9.00     602.90%
  10/1/96    84 LucentTech    23.81    105.50     343.13%
  8/12/96   130 AT&T          39.58     82.13     107.50%
  12/4/98   450 @Home Corp    56.08    102.63      83.00%
  4/30/97 -1170*Trump*         8.47      4.56      46.13%
 12/16/98   290 Amgen         85.75    105.00      22.45%
  2/20/98   200 Exxon         64.09     69.75       8.83%
   7/2/98   235 Starbucks     55.91     52.75      -5.65%
  2/20/98   270 Int'l Pape    47.69     44.06      -7.61%
  2/20/98   215 DuPont        59.83     54.88      -8.29%
   1/8/98   425 3Dfx          25.67     12.25     -52.27%

    Rec'd    #  Security     In At     Value      Change
   9/9/97  1320 Amazon.com  8684.60 182820.00  $174135.40
   8/5/94  1100 AmOnline    1999.47 158950.00  $156950.53
  12/4/98   450 @Home Corp 25236.13  46181.25   $20945.12
  5/17/95  1960 Iomega Cor  2509.60  17640.00   $15130.40
  10/1/96    84 LucentTech  1999.88   8862.00    $6862.12
 12/16/98   290 Amgen      24867.50  30450.00    $5582.50
  8/12/96   130 AT&T        5145.11  10676.25    $5531.14
  4/30/97 -1170*Trump*     -9908.50  -5338.13    $4570.38
  2/20/98   200 Exxon      12818.00  13950.00    $1132.00
   7/2/98   235 Starbucks  13138.63  12396.25    -$742.38
  2/20/98   270 Int'l Pape 12876.75  11896.88    -$979.88
  2/20/98   215 DuPont     12864.25  11798.13   -$1066.13
   1/8/98   425 3Dfx       10908.63   5206.25   -$5702.38

                              CASH  $39332.55
                             TOTAL $544821.43 

</THE RULE BREAKER PORTFOLIO>

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