Rule Breaker Portfolio

<THE RULE BREAKER PORTFOLIO>

WWW as Hippie Peace Guy?
Plus, AOL and @Home

by Jeff Fischer (TMFJeff)

ALEXANDRIA, VA (March 15, 1999) -- About one-third of Americans use e-mail on a regular basis, and all of them are mailing the same jokes back and forth to one another. Early in this century we had WWI; near the middle, we suffered WWII. To end it, we have WWW.

Our most advanced century (and what new century isn't the most advanced?) was also our most war-torn (and what new century isn't?). However, 2000 and beyond is promising. The key is to get computers and Internet access into every strife-filled nation.

Get the world indoors and behind computer screens. Get them addicted to e-mail and the Internet. Let them play out their differences online; or, more predictably, let any differences melt into the sameness that cyberspace provides. Unsavory biases will dissipate and be forgotten. Much more important to everyone will be your interests, your beliefs, your thoughts, as well as how many positive ratings you get on Fool message boards and at eBay. People with similar interests will cotton to one another and all will be happy.

Almost all, anyway.

In the dark recesses of cyberspace, the usual tyrants will scheme horrid acts to play on the world. They'll be planning with thousands of miles between one another, however, and they won't ever have the gumption, in the end, to pull themselves away from the Web -- the WWW that is -- to meet somewhere in the physical world, with physical bodies, and actually carry out a raid, a bombing, or a dreaded shaving cream incident. (Airfare prices are rising, after all.) Instead, through the wire, they'll opt for strictly electronic espionage.

That will prove easier said than done. Security is high on any network worth crunching. Frustration will ensue. There are too many interesting things to do online. (There are 170 items for sale on eBay related to "jester" alone, for example.) Plans for electronic espionage will taper and fall by the wayside. In its wake, international terrorists will realize they can make a fortune by selling what is commonplace in their country to those "Americans on eBay." Otherwise distracted, the world will be at peace. Capitalism will prevail.

It's that easy. Rather than spend billions on bombers, the U.S. should spend billions on monitors.

The Rule Breaker. Of course, nothing positive and enduring comes easy, including this portfolio's performance. Mr. RB gained another 4-something% this Monday on the hard work of AOL, Amazon, and eBay -- all New Economy investments. AOL is up 11,000% in less than five years. Buying AOL wasn't easy in 1994, however, as Tom and David can remind us. Most people claimed that it was overvalued and problematic and a large competitor would bury it. Purchasing Amazon (up over 2,000% in less than two years) wasn't easy, either. It was our most controversial purchase to date.

This portfolio may make investing look easy (especially lately), but it's taken a good deal of contrarian decisions, mixed with opportunity that was present at the right time, and the courage to seize an opportunity alongside all of its risks. Plus, we won't forget that the portfolio has had serious downturns and will again. Just wait until New Economy (or Internet) companies experience another slide, as they surely will. Although, not today.

America Online (NYSE: AOL) rose over 5% to a new high following word that its Netscape (Nasdaq: NSCP) transaction was cleared for take off. Worth about $100 billion, AOL has become the portfolio's heavyweight ballast, shaming runner-up DuPont (NYSE: DD) and its $66 billion in market value. In fact, Caterpillar (NYSE: CAT) and Goodyear (NYSE: GT) are worth $24 billion combined, so all three of these Dow giants together are worth less than AOL alone.

How can this be? Can this possibly make sense?

Sure it can. The market is essentially saying that it sees more growth ahead for AOL than for the others, and it is trying to account for the growth (and the subsequent value created) right now.

Recent news has involved Internet service providers and the spread of high-speed access (DSL, cable, etc). What this means in the "negative column" for AOL and for @Home (Nasdaq: ATHM) isn't much. Instead, it validates the importance of emerging services like @Home. The market will be large enough for many companies and AOL and @Home are both first movers with leading brandnames to get them (and keep them) in leading positions. Plus, @Home has access to TCI's 13 million subscribers right off the bat, while America Online already has 16 million subscribers that it can move toward high-speed and/or TV access. AOL's initiative is "AOL Anywhere," and that includes AOLTV. The company will grow far beyond its "telephone line access" business.

Starbucks (Nasdaq: SBUX) splits 2-for-1 on March 22 after the market closes, for those who have been asking. In more meaningful areas, our own Warren Gump (TMFGump) took a look at DuPont's acquisition of Pioneer Hi-Bred International, which was announced today. See his column titled "DuPont Harvests Pioneer." Also, today's Daily Double is on Biogen: a Rule Breaker?

Finally, Fools are talking about online access, specifically AOL and @Home, on the message boards. If you're interested, see the highlighted thread. Be Foolish and enjoy!

What's up with Harry Jones today?

03/15/99 Close
Stock  Change    Bid 
 ---------------- 
AMZN  +5 5/8  138.94
AMGN  +1 5/8   76.63
AOL   +5 3/8  101.50
ATHM  +2 1/8  115.56
DJT     ---     4.50
CHV   -  5/16  84.38
CAT   +  3/4   45.44
DD    -1 1/2   56.25
GT    +  5/16  51.50
IOM   +  1/4    5.50
SBUX  +  5/8   60.69
TDFX  -  1/2    13.44
EBAY  +14 13/16  156.81

 
                   Day   Month    Year  History  Annualized 
      R-BREAKER  +4.19%  12.98%  28.32% 1187.96%  74.13%
        S&P:     +0.98%   5.57%   6.67%  198.74%   26.81%
        NASDAQ:  +2.10%   6.27%  10.89%  237.62%   30.22%

Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    101.50   11067.96%
   9/9/97  1320 Amazon.com     6.58    138.94    2011.76%
  5/17/95  1960 Iomega Cor     1.28      5.50     329.55%
  12/4/98   450 @Home Corp    56.08    115.56     106.07%
 12/16/98   580 Amgen         42.88     76.63      78.72%
  2/26/99   300 eBay         100.53    156.81      55.99%
  4/30/97 -1170*Trump*         8.47      4.50      46.86%
   7/2/98   235 Starbucks     55.91     60.69       8.55%
  2/23/99   180 Chevron       79.17     84.38       6.58%
  2/23/99   290 Goodyear T    48.72     51.50       5.72%
  2/23/99   300 Caterpilla    46.96     45.44      -3.25%
  2/20/98   260 DuPont        58.84     56.25      -4.41%
   1/8/98   425 3Dfx          25.67     13.44     -47.65%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 223300.00  $221300.53
   9/9/97  1320 Amazon.com  8684.60 183397.50  $174712.90
  12/4/98   450 @Home Corp 25236.13  52003.13   $26767.00
 12/16/98   580 Amgen      24867.50  44442.50   $19575.00
  2/26/99   300 eBay       30158.00  47043.75   $16885.75
  5/17/95  1960 Iomega Cor  2509.60  10780.00    $8270.40
  4/30/97 -1170*Trump*     -9908.50  -5265.00    $4643.50
   7/2/98   235 Starbucks  13138.63  14261.56    $1122.94
  2/23/99   180 Chevron    14250.50  15187.50     $937.00
  2/23/99   290 Goodyear T 14127.38  14935.00     $807.63
  2/23/99   300 Caterpilla 14089.25  13631.25    -$458.00
  2/20/98   260 DuPont     15299.43  14625.00    -$674.43
   1/8/98   425 3Dfx       10908.63   5710.94   -$5197.69

                              CASH   $9924.87
                             TOTAL $643978.00

Note: The Rule Breaker Portfolio was launched on August 5, 1994, with $50,000. Additional cash is never added, all transactions are shared and explained publicly before being made, and returns are compared daily to the S&P 500 (including dividends in the yearly, historic and annualized returns). For a history of all transactions, please click here.

</THE RULE BREAKER PORTFOLIO>

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