Rule Breaker Portfolio

<THE RULE BREAKER PORTFOLIO>

YTD Performance
Is 3Dfx's lead sustainable

by Paul Larson (TMF Parlay)

CHICAGO, IL (April 9, 1999) -- The Rule Breaker portfolio continued its record-breaking ways this spring Friday and trotted to a 1.24% gain against daily gains of 0.33% and 0.76% for the S&P and Nasdaq, respectively. For the week the numbers look like this:

Rule Breaker: +7.75%
S&P 500: +4.22%
Nasdaq: +4.00%

More impressively, the year-to-date figures look like this:

Rule Breaker: +73.23%
Nasdaq: +18.26%
S&P 500: +10.01%

With 9 out of 10 mutual funds losing to the S&P year in and year out, I've got to wonder how many mutual funds can claim the type of performance seen by this portfolio. I would venture to guess the number is somewhere between zero and none. What's really startling is the fact that we are only at the beginning of April! These are truly special times, and these numbers are simply extraordinary. We fully expect to beat the S&P (that's our goal), but these types of returns are beyond any Fool's wildest dreams.

Today, before earnings season starts in earnest, I thought it would be interesting to see how each of the Rule Breakers has performed since the beginning of the year. Now, of course, not all these stocks were part of the portfolio at the beginning of the year, but let's track all their performances since January 1 just to be consistent. Here's how each of the stocks has performed year-to-date:

           1/1/99      Today  1999 YTD performance
@Home $74.25 $172.63 132.5% eBay $79.63 $183.38 130.3% AOL $80 $159.50 99.4% Amazon $106 $182.88 72.5% Amgen $52.31 $78.06 49.2% 3Dfx $12.63 $17.56 39.0% Starbucks $28.06 $32.38 15.4% Chevron $82.94 $94.00 13.3% DuPont $53.06 $58.81 10.9% Trump $3.75 $4.06 8.3% Caterpillar $46 $48.75 6.0% Goodyear $50.44 $51.19 1.5% Iomega $7.31 $4.88 -33.2%

(All numbers have been adjusted for splits.)

Not surprisingly, those that had absolutely stellar years last year such as America Online (NYSE: AOL) and Amazon (Nasdaq: AMZN) have continued to break all the rules and maintain their momentum skyward. On the other hand, those that floundered last year, such as Iomega (NYSE: IOM) have continued with anemic performances. I'm beginning to think that the concept of inertia applies not only to physics but to the companies and stocks as well. Letting the winners run while not throwing good money after bad has worked remarkably well for this portfolio.

While still relatively cool when looked at in the longer term, one of the hottest performers of late has been 3Dfx (Nasdaq: TDFX). It was only three weeks ago that the stock was trading at $11 1/2, yet today it closed all the way up at $17 9/16 for over a 50% gain. The company just released its newest video accelerator, VooDoo3, which has gotten rave reviews thus far. I put myself on the "call list" at the local Babbages so that they would give me a ring when the product came in, and they buzzed me earlier this week to let me know they had a few cards in stock. They also made the point that they were selling fast. Bad news for those who want the newest computer gaming toy, but quite good news for those who hold 3Dfx's stock.

Jeff said yesterday about 3Dfx that, "The one certainty investors have now is that the company is a Rule Breaking leader." While there is no doubt that the VooDoo3 is the fastest card available on the market today, the company seems, at least to this Fool, to be lacking the "sustainable" portion of its current lead.

3Dfx is in direct competition with nVidia (Nasdaq: NVDA) and S3 Inc. (Nasdaq: SIII) as well as indirectly racing with the much larger ATI Technologies (Nasdaq: ATYT). All three companies are set to roll out even faster chips and cards than the VooDoo3 by the end of the summer. 3Dfx may have the lead today, but history has shown that sustaining that lead is an extremely difficult task. It is not much of a stretch to imagine nVidia recapturing the lead later this year as the leapfrogging in the video accelerator market continues. Will the computer gaming community fall in behind 3Dfx and make the VooDoo line "standard," or will the market's desire for a particular video product continue its intense yet extremely short demand cycles? I'm thinking it's the latter, but would love to hear your thoughts on the Rule Breaker message board.

There wasn't much other news for a Fool to get excited about on this Friday. Although I did come across an interesting article regarding eBay (Nasdaq: EBAY). It seems that the company's founders gave up 13.8 million shares of the company's stock back in the summer of 1997 in exchange for a $1.5 million loan. Imagine being those bankers! It's not that often you can loan out money and get a return of over 1600x back in less than two years. Amazing, no? There's one return even the Rule Breakers can't hold a candle to!

Have a wonderful and Foolish weekend.

-Paul Larson

What's up with Harry Jones today?

04/09/99 Close
Stock  Change    Bid 
---------------- 
AMZN  +3 7/8  182.88
AMGN  -1 1/16  78.06
AOL   -1      159.50
ATHM  +10 3/16 172.63
DJT   +  1/16   4.06
CHV   +  1/4   94.00
CAT   +  1/8   48.75
DD    -  9/16  58.81
GT    -1 3/16  51.19
IOM   -  1/16   4.88
SBUX  +  1/2   32.38
TDFX  +1 7/16   17.56
EBAY  +11 5/8 183.38

 
                   Day   Month    Year  History  Annualized 
      R-BREAKER  +1.24%   8.99%  73.23% 1638.71%  84.17%
        S&P:     +0.33%   4.82%  10.01%  207.70%   27.17%
        NASDAQ:  +0.76%   5.33%  18.26%  260.06%   31.52%

    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    159.50   17449.65%
   9/9/97  1320 Amazon.com     6.58    182.88    2679.58%
  5/17/95  1960 Iomega Cor     1.28      4.88     280.74%
  12/4/98   450 @Home Corp    56.08    172.63     207.82%
  2/26/99   300 eBay         100.53    183.38      82.41%
 12/16/98   580 Amgen         42.88     78.06      82.07%
  4/30/97 -1170*Trump*         8.47      4.06      52.03%
  2/23/99   180 Chevron       79.17     94.00      18.73%
   7/2/98   470 Starbucks     27.95     32.38      15.81%
  2/23/99   290 Goodyear T    48.72     51.19       5.08%
  2/23/99   300 Caterpilla    46.96     48.75       3.80%
  2/20/98   260 DuPont        58.84     58.81      -0.05%
   1/8/98   425 3Dfx          25.67     17.56     -31.58%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 350900.00  $348900.53
   9/9/97  1320 Amazon.com  8684.60 241395.00  $232710.40
  12/4/98   450 @Home Corp 25236.13  77681.25   $52445.12
  2/26/99   300 eBay       30158.00  55012.50   $24854.50
 12/16/98   580 Amgen      24867.50  45276.25   $20408.75
  5/17/95  1960 Iomega Cor  2509.60   9555.00    $7045.40
  4/30/97 -1170*Trump*     -9908.50  -4753.13    $5155.38
  2/23/99   180 Chevron    14250.50  16920.00    $2669.50
   7/2/98   470 Starbucks  13138.63  15216.25    $2077.63
  2/23/99   290 Goodyear T 14127.38  14844.38     $717.00
  2/23/99   300 Caterpilla 14089.25  14625.00     $535.75
  2/20/98   260 DuPont     15299.43  15291.25      -$8.18
   1/8/98   425 3Dfx       10908.63   7464.06   -$3444.56

                              CASH   $9924.87
                             TOTAL $869352.68
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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