Rule Breaker Portfolio

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

Earnings are a comin'
Plus, Goofy analysts

by Jeff Fischer (TMFJeff@aol.com)

Chicago, IL (Jan. 15, 1999) -- The Rule Breaker Portfolio had a relatively quiet Friday as it gained a mere 1.39% versus bounces of 3.14% and 2.56% for the Nasdaq and S&P, respectively. While the past five days saw the Rule Breakers gain almost 10% on Monday alone, followed by a rapid evaporation of nearly 8% of the portfolio's assets on Tuesday, the net weekly move is not nearly as dramatic:

For the week:

Nasdaq        +0.16%
S&P 500       -2.50%
Rule Breaker  -5.23%

The Rule Breaker portfolio is still up over 10% on the year (10.07% to be exact), but this week has shown that the year-to-date figure can easily flip directions in a matter of hours given these volatile times.

I know Jeff published the following numbers yesterday, but I think they are worth repeating. Next Wednesday we will yet again be in the thick of earnings season. This time of year the reporting season tends to be a bit longer since December is also the end of the fiscal year for many companies. Instead of counting beans for just three months of activity, most companies must also disclose their numbers for the full year.

How long it takes for companies to count their beans and report back varies widely, of course. In any case, here's the important dates and numbers to remember for the next two weeks:


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

Many of the other companies in the portfolio, such as Amgen (Nasdaq: AMGN), should be reporting earnings in the next couple of weeks, but we don't have exact dates for them just yet. Click back in the near future and we will make sure to publish the information as we get it.

I even have a small calendar sitting next to my desk in which I scribe the earnings estimates and reporting dates for the companies I follow. These notes sit alongside my personal reminders to "get milk" and "change litter box." When it all boils down, you only really get new financial data about a company four times a year, which is why keeping an eye on earnings dates is a good idea.

Of course, many of the companies in this particular portfolio do not trade at their current levels because of their wildly positive earnings. Quite the opposite, in fact. It's interesting to note that the Rule Breaker's two most successful positions, America Online (NYSE: AOL) and Amazon.com (Nasdaq: AMZN), have essentially no earnings. I say "essentially" because AOL actually does have positive trailing profits, but they are so small as to be almost inconsequential. Did you realize AOL has a trailing PE ratio of 500x? Oh my! (Tongue firmly placed in cheek, of course.)

It's not that earnings are unimportant, because they are. It's just that many people seem to put too much weight in yesterday's earnings and not tomorrow's profits. In Rule Breaker-land we like to look as far into the future as possible when valuing our stocks.

Amazon certainly does not have any earnings today, but what about five years from now? Or ten years? Twenty years? We're betting that the company's excellent positioning and volume growth will, eventually, bring a river of profits to Amazon.

FOOL FLASH FOOL FLASH FOOL FLASH FOOL FLASH

Amazon's CEO, Jeff Bezos, will be on Dave and Tom's weekly radio show tomorrow. So if you're in a town where the syndicated show is broadcast, tune in!

END OF FOOL FLASH

Scanning over the headlines today I find little that really gets the blood pumping. I see an analyst at a very Wise firm has started coverage of Amazon with a "hold" rating. Hmmm... Someone 'splain to me how one can go from having no position to a "hold" position. Don't you have to "buy" or "strong buy" before you can "hold?" Analysts' rating systems can be quite goofy sometimes.

Speaking of Goofy (the dog), I even saw one firm both downgrade and upgrade Disney (NYSE: DIS) in the same day yesterday! This analyst went from "Short-Term Buy, Long-Term Neutral" to "Short-Term Neutral, Long-Term Buy."

Huh?

In other news, Trump (NYSE: DJT), the portfolio's lone short position, announced yesterday that the company was acquiring the Flamingo Hilton Riverboat Casino near Kansas City, Missouri. The big news here is that this is basically no big news. At its current run-rate, the used riverboat should add a bit less than 5% to the company's total sales.

I have yet to see the exact terms of the transaction, but I doubt Hilton, now operating under the name Park Place Entertainment (NYSE: PPE), let it go for cheap. In other words, it will certainly add to Trump's already impressive mound of debt, making the story appear to be neutral to the company's fortunes. Wall Street also seems to be thoroughly apathetic about the deal as Trump closed a down $5/16 to $4 1/4 on below-average volume.

Finally, for those interested in learning more about who's at the helm of AOL, make sure to check out one of our special features this week -- A short biography of Steve Case. Like what you've read? Want to see your CEO profiled? Never again to click another Fool hyperlink? Let us know!

One quick reminder -- the markets are closed on Monday due to the Martin Luther King, Jr., Holiday. I know Harry and Irv will put the extra time to good use.

Have a great weekend, Fools!

01/15/99 Close
Stock  Change    Bid 
 ---------------- 
AMZN  +1 7/8  140.38
AMGN  +3 7/8  108.88
AOL   +2 1/8  146.63
T     +2 1/8   84.25
ATHM  -  5/8  102.00
DJT   -  5/16   4.25
DD    +1 3/4   56.63
XON   +1 5/16  71.06
IP    +  15/16 45.00
IOM     ---     9.00
LU    +4 11/16110.19
SBUX  -  1/4   52.50
TDFX  +  1/8   12.38

 
                   Day   Month    Year  History  Annualized 
      R-BREAKER  +1.39%  10.07%  10.07% 1004.80%  71.65%
        S&P:     +2.56%   1.14%   1.14%  183.92%   26.45%
        NASDAQ:  +3.14%   7.09%   7.09%  226.06%   30.45%
 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    146.63    7966.51%
   9/9/97  1320 Amazon.com     6.58    140.38    2033.60%
  5/17/95  1960 Iomega Cor     1.28      9.00     602.90%
  10/1/96    84 LucentTech    23.81    110.19     362.82%
  8/12/96   130 AT&T          39.58     84.25     112.87%
  12/4/98   450 @Home Corp    56.08    102.00      81.88%
  4/30/97 -1170*Trump*         8.47      4.25      49.82%
 12/16/98   290 Amgen         85.75    108.88      26.97%
  2/20/98   200 Exxon         64.09     71.06      10.88%
  2/20/98   215 DuPont        59.83     56.63      -5.36%
  2/20/98   270 Int'l Pape    47.69     45.00      -5.64%
   7/2/98   235 Starbucks     55.91     52.50      -6.10%
   1/8/98   425 3Dfx          25.67     12.38     -51.79%

    Rec'd    #  Security     In At     Value      Change
   9/9/97  1320 Amazon.com  8684.60 185295.00  $176610.40
   8/5/94  1100 AmOnline    1999.47 161287.50  $159288.03
  12/4/98   450 @Home Corp 25236.13  45900.00   $20663.87
  5/17/95  1960 Iomega Cor  2509.60  17640.00   $15130.40
  10/1/96    84 LucentTech  1999.88   9255.75    $7255.87
 12/16/98   290 Amgen      24867.50  31573.75    $6706.25
  8/12/96   130 AT&T        5145.11  10952.50    $5807.39
  4/30/97 -1170*Trump*     -9908.50  -4972.50    $4936.00
  2/20/98   200 Exxon      12818.00  14212.50    $1394.50
  2/20/98   215 DuPont     12864.25  12174.38    -$689.88
  2/20/98   270 Int'l Pape 12876.75  12150.00    -$726.75
   7/2/98   235 Starbucks  13138.63  12337.50    -$801.13
   1/8/98   425 3Dfx       10908.63   5259.38   -$5649.25

                              CASH  $39332.55
                             TOTAL $552398.30 

</THE RULE BREAKER PORTFOLIO>

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