<THE RULE BREAKER PORTFOLIO>
3Dfx on a Rampage
A day for cupholders everywhere
By David Gardner (MotleyFool)
ALEXANDRIA, VA (April 13, 1999) -- The Rule Breaker Portfolio (off 0.92%) dropped with -- actually, slightly more than -- the market today (both major indices were off about a half percent). Amazon.com lost six bucks, @Home lost seven, and eBay three. On the other hand, we had a major surprise move from 3Dfx (Nasdaq: TDFX) today, which is our focus in tonight's RB recap.
But before we do, how 'bout our Foolish Four stocks? Caterpillar up $3 3/8, Goodyear up a buck -- on a down day. The Foolish Four portfolio has gained 3%+ for two days in a row -- click in there for more details on our "investing on autopilot" strategy.
Now, let's begin talking about 3Dfx by correcting some inaccurate information: We reported this week in this space that earnings are due out Friday. However, due to the company's merger with STB Systems (Nasdaq: STBI), 3Dfx will report earnings in mid-May, not this Friday. That report will show the company's quarter ended April 30.
So was there some big original equipment manufacturer (OEM) announcement today? Did Dell announce that Voodoo graphics boards are now standard in every Dell computer sold? Nope. Maybe some OEM announcements are on the horizon (who knows? not me), and the stock is reacting ahead of time. Stocks have a funny way of doing that. Then again, maybe that'll never happen, and instead there are eight other different reasons why 3Dfx rose $3 1/2, or 20%, to close at $21 1/4. The stock traded over 3.3 million shares today, and now looks like a good market-beater for the year. 3Dfx was at $11 1/2 as recently as March 26th.
So okay, I confess to having spent too much of my day today hangin' out with my 3Dfx Foolish homies, over at the TDFX message board. There it has been customary to refer to yourself as a "cup holder." What does this mean? Well, it's a legend -- so there are a few different versions.
JayC101 explains: "A long time ago I mentioned an event named 'the 3Dfx cup,' which was a virtual NASCAR race [a computer game competition]. So some wise guy took that and said what we all need is a 3Dfx cup to protect us from the constant kicks this stock is dealing out. It sort of took off after that. It's not a real cup."
Could the company be paying homage to our community joke? As Cipr0 writes, "In the May edition of Maximum Magazine, there is a two-page spread of a penalty kick in a real soccer match. There is a fan standing in the penalty kick wall covering his family jewels. He is wearing a 3Dfx T-shirt. Small paragraph in the bottom right corner telling what 3Dfx is and why you need it."
But now for something completely different, BeLom states, "Many messages ago, someone mentioned that they had obtained a rare promotional 3Dfx cup holder. Since then it has come to represent the 'faithful' and/or battered [long-term investor]. I don't own one but I feel myself among them."
So do I! Regardless of the origin.
Since our fateful purchase of 3Dfx stock on January 8, 1998, we cupholders have watched the stock lose 17.2% of its value in a fine bull market -- the only loser at present in the Rule Breaker portfolio. (That's at present, of course -- we have had many losers historically and will have many more in future. For a complete record of every transaction ever made on our portfolio, see our Rule Breaker transaction history.)
A month ago, I provided my take on 3Dfx, acknowledging its status as our biggest loser (it was off 45% at that point) and stating firmly that we intended to hold the stock. So far, so good. If you're not familiar with the radical Rule-Breaking shift the company's managers enacted last December, make sure you click into that report for the brief summary and explanation. I love risk, and I love risk-takers, and CEO Greg Ballard and team took a big risk to reinvent themselves as a company, with a new business model. As a shareholder, I'm hoping my intuition about Ballard & Co. is right.
AceKewl put it more succinctly on our message board today: "I love the 'all-or-nothing' approach of the management. This is the type of company I find it fun to invest in."
I grant you, though -- it's never that fun to lose money. (If TDFX were to manage to hit $26, BreakerPort trivia fans will note, we'll have no more losing positions in the portfolio.)
Over the past month, 3Dfx has deployed a new television branding campaign (on MTV, South Park, and other spots with a similar targeted demographic) with what I consider to be an ingenious, creative, and humorous message. Each of the ads (there are three now) shows an up-close picture of the company's 3D chip, and asks "What could we do with a chip that performs 100 billion operations a second?" followed by dramatic music and a montage of rich imagery showing how this is a chip that can change the world, that will solve economic problems and extend our life expectancy, etc. etc. -- until about 45 seconds in, the narrator suddenly stops everything and announces "But then we thought: HEY, we could use it for GAMES!" At which point, all the rich fulfilling images collapse into chaos to be replaced by action games and rock music and the 3Dfx logo.
"I Love the Internet Reason #946" is that you can actually watch these ads, if you have a speedy connection to the Internet and a QuickTime or RealVideo player. Just click here to view my favorite present ad campaign.
Do funny ads lead to rising stock prices? Not ultimately, although the effort to build the brand is evidently appreciated by the market. (As Fools, we believe in the power of the brand, which is why it's Rule-Breaking attribute number five.)
ElderRaven has explained the stock this way: "My speculation is that the run-up is due to the removal of uncertainty. 3Dfx took a gamble, cut its ties to customers, and put itself in a do-or-die situation. For a while, there was a great deal of uncertainty, and this was priced into the stock. With the successful launch of Voodoo 3, retailers are claiming the best [graphics] card presale ever, and a great deal of this uncertainty has been mitigated. 3Dfx did not die, they executed. As such, our multiple expands. Life is good."
Life HAS been good over the past month or so, with this the best stock in our portfolio. How will things play out? Stay tuned. It's a fascinating story whatever happens. It'll be an even more enjoyable one if this company whose product I personally use and love turns into a market-beating stock over the only term that matters: the LONG term.
A word or two before I go...
Tomorrow, I'll report on my day at the New York Stock Exchange (NYSE), where as an Individual Investor Advisory committee member I shared your concerns with ways we can improve the NYSE.
On Saturday, for any Fool who loves golf or charity in the Washington, D.C. metropolitan area, we at Fool HQ will be offering a Golf with the Fools! shoot-out competition for the benefit of Tim Aycock, an employee of The Motley Fool who is undergoing treatment for cancer. I'll be there myself in the morning, and look forward to meeting anyone who'd like to join us. The event is open to ALL, so bring your friends! Click here to read more about it (and if you can't make it, donations are gladly accepted).
-- David Gardner, April 13, 1999
Day Month Year History Annualized R-BREAKER -0.92% 8.64% 72.67% 1633.08% 83.78% S&P: -0.65% 4.93% 10.13% 208.02% 27.13% NASDAQ: -0.59% 4.94% 17.82% 258.73% 31.33% Rec'd # Security In At Now Change 8/5/94 2200 AmOnline 0.91 159.25 17422.14% 9/9/97 1320 Amazon.com 6.58 178.38 2611.18% 5/17/95 1960 Iomega Cor 1.28 5.00 290.50% 12/4/98 450 @Home Corp 56.08 182.00 224.53% 12/16/98 580 Amgen 42.88 75.88 76.97% 2/26/99 300 eBay 100.53 172.88 71.97% 4/30/97 -1170*Trump* 8.47 4.44 47.60% 2/23/99 180 Chevron 79.17 94.50 19.36% 2/23/99 300 Caterpilla 46.96 54.75 16.58% 7/2/98 470 Starbucks 27.95 32.00 14.47% 2/23/99 290 Goodyear T 48.72 52.13 7.00% 2/20/98 260 DuPont 58.84 60.81 3.35% 1/8/98 425 3Dfx 25.67 21.25 -17.21% Rec'd # Security In At Value Change 8/5/94 2200 AmOnline 1999.47 350350.00 $348350.53 9/9/97 1320 Amazon.com 8684.60 235455.00 $226770.40 12/4/98 450 @Home Corp 25236.13 81900.00 $56663.87 2/26/99 300 eBay 30158.00 51862.50 $21704.50 12/16/98 580 Amgen 24867.50 44007.50 $19140.00 5/17/95 1960 Iomega Cor 2509.60 9800.00 $7290.40 4/30/97 -1170*Trump* -9908.50 -5191.88 $4716.63 2/23/99 180 Chevron 14250.50 17010.00 $2759.50 2/23/99 300 Caterpilla 14089.25 16425.00 $2335.75 7/2/98 470 Starbucks 13138.63 15040.00 $1901.38 2/23/99 290 Goodyear T 14127.38 15116.25 $988.88 2/20/98 260 DuPont 15299.43 15811.25 $511.82 1/8/98 425 3Dfx 10908.63 9031.25 -$1877.38 CASH $9924.87 TOTAL $866541.75Note: 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>