Rule Breaker Portfolio

Fool To Sell SPY
June 30, 1998


**This trade is being made under the regular portfolio policy, namely, once The Fool announces an intention to trade, that trade will be made within the next WEEK, as opposed to the next day. For more detail, please read the "New Trades" section of the Fool Portfolio.**

Selling

Standard & Poor's Depositary Receipts
AMEX: SPY
Type: Type: S&P 500 Index Trust

Price: $113 5/16

TRADE: Selling 115 shares (currently $13,000)

Overview
Our investment in S&P 500 Spiders has been allllllll (eight L's) good...

After the Fool Port lost to the S&P 500 last year by a smidge -- for the first time ever -- mainly because the portfolio had over $20,000 on the sidelines for eight months, we made certain we wouldn't make the same mistake twice. Because we believe in the ultimate benefit of always being invested in the stock market, we plan to invest excess Fool Port cash in the S&P 500 whenever we're busy looking for new investments but far from a decision. Sometimes the search for a new stock can take a few years. In this case, it took six months.

Swoosh!

Yes, it's been six months since the Fool Port announced that it was buying Spiders. It's been an incredibly fruitful six months. Since our January 8 purchase of SPY, the S&P and our mirror shares have gained 18% before taxes. That's nothing to shake a Fool cap at. Now our $11,000 investment in SPY is worth over $13,000 as we prepare to cut the thread.

Why We're Selling Our Spiders
There can only be one reason...

Our Spider buy report said, "We're at least temporarily putting the portfolio's cash into the S&P 500 -- simple and Foolish." The only reason that we're now removing the cash from the S&P is to invest it in a stock that we think can beat it. Our sale has nothing to do with the valuation of the market or any hocus-pocus like that; it has everything to do with where we're putting the money instead.

We'll share the new Fool Port buy tomorrow, Wednesday July 1, after the market closes. (We're still polishing the "buy report.") Suffice it to say, nearly everyone has heard of this company, a majority of readers have likely patronized it or tried its products, and there is currently nothing like it in the Fool Port. Its name won't shock anyone. A more appropriate response might be, "Well, why didn't you buy it earlier?"

Our hope is that this new investment will topple the S&P 500's return over the years. If not, you'll know it. The Fool Port bought 3Dfx (Nasdaq: TDFX) on the same day that it purchased shares of Spiders. Since then, SPY is up over 18% and 3Dfx has lost 33%. Ouch. We believe in 3Dfx, but so far the market has punished us for not believing in the S&P more. To date, this serves to remind us that often the S&P is a better investment than individual stocks and, for many people, it's enough of an investment for a lifetime. On that note...

AMEX and Its SPY
We'll probably visit the Spider again

On a typical day, SPY is the most heavily traded ticker symbol on the American Stock Exchange, and for good reason. The shares make it easy and inexpensive to invest in the S&P 500.

Simply buy shares of SPY through a discount broker and -- boom! -- you're fully invested in the country's leading 500 companies for as long as you own the shares. And you needn't even check the shares. Whatever the market does, SPY does as well. It's that easy. In fact, everyone's bank account should by default invest any money not needed for at least five years into something like SPY, rather than having it sit and earn 2% interest; the market on average has grown 11% per year, and SPY with it.

When the Fool Port again has a meaningful amount of uninvested cash, we'll probably sink it into Spiders if we don't have an individual stock in our sights. Yes, we'll likely return to the Spider's lair some day. For more information on Spiders, please see the Fool buy report. For complete details, please visit www.amex.com (the shares are referenced there as SPDRs).

We'll be parting with our SPY shares within the next five business days. Tomorrow after the market closes we'll announce our new buy -- the stock that we hope can beat Spidey at its own game. That investment will be made within the five business days following its announcement. The new shares will be purchased with the proceeds from the Spider sale (sans taxes).

We thank the Spiders for a decidedly unfrightening ride. Fool on!