Rule Breaker Portfolio

<THE RULE BREAKER PORTFOLIO>

Booting Up AOL
Tooling Down Amazon

By Nico Detourn (TMF Nico)

SILICON VALLEY, CA (June 25, 1999) -- One of the most exciting things about Rule-Breaking companies is their ability to challenge our understanding of just what it is they are. The companies we know today can be different companies tomorrow. Their names, which typically are synonymous with their globally recognized brands, don't change too often. But it can take some time before our old perceptions of the companies catch up with the new realities. And following or investing in Rule Breakers will keep us on our toes as unfolding events inevitably lead us to see familiar companies, sometimes entire industries, in a new light.

It can be difficult to know how important particular events are as they are unfolding. Still, this past week was rich in what at least appear to be significant developments for some of the Rule Breaker portfolio's most dynamic companies. Those companies are, of course, America Online (NYSE: AOL), Amazon.com (Nasdaq: AMZN), and eBay (Nasdaq: EBAY), and Excite@Home (Nasdaq: ATHM.) Their individual stocks have seen better days, and weeks, than this. So has the RB port overall, as the numbers at the bottom of the page will show. But a week does not an investment make. And as industry leaders -- no, make that, industry definers -- the week found these companies racing head-long into the very future they help create. That is, after all, what the best Rule Breakers do best.

As the largest provider of Internet services, it's not surprising America Online was somehow involved with the week's most wide-ranging news. On Monday, the company announced a partnership with Hughes Electronics (NYSE: GMH) to market AOL's high-speed (broadband) service, AOL-Plus, to subscribers of Hughes' DirecTV and DirecPC satellite services. The announcement was the latest in AOL's unfolding broadband strategy. What made the announcement especially intriguing, though, is that instead of using the familiar PC, 'Net surfers will go online using a set-top box and TV.

The coming of non-PC devices such as the set-top box have long been anticipated. Tuesday brought further evidence of their arrival when AOL announced that its members would have access to their e-mail using 3Com's (Nasdaq: COMS) PalmPilot handheld computer, with wider access to AOL's services eventually made available on the popular devices.

This move away from the familiar PC as the center of the online universe is one reason PC makers are scrambling to form relationships, perhaps even merging, with Internet service providers. AOL was also part of that sub-theme this week through reports that it is planning to market a super low-cost AOL-branded PC that would boot directly into the online service without the familiar Windows or Macintosh operating systems.

Would an AOL PC mean that AOL had entered the PC business? And are the PC makers really about to enter the online services business? Where do we draw the boundaries between these industries? Or can we? These are the kinds of questions that Rule-Breaking companies and industries regularly toss in our path. Perplexing, yes. At the same time, it can be Foolishly exciting if we approach these questions as opportunities to peer into and invest in -- actually grab a piece of -- the future in advance of its arrival.

Amazon.com also regularly tosses out questions of what it is and what it will be next. Helping to answer those questions will be Amazon's new president, and its first-ever chief operating officer, Joseph Galli. Galli comes to Amazon from Black & Decker, where he was president of its Worldwide Power Tools and Accessories unit. Though Amazon's Jeff Bezos said that Galli is "as obsessed as we are about the customer experience," a power tools background isn't what we might have expected. But then, it can be hard to know what to expect from Amazon.

Widespread speculation that Amazon would enter the toy-selling biz was temporarily interrupted this week by rumors it was negotiating to acquire online software company Beyond.com. Those rumors remain nothing but, and investing on the basis of rumor is of course not advised. The idea that Amazon would be adding a software store to its growing collection is not a new one, though. No matter what the outcome of this particular rumor, it does raise questions worth thinking about, such as how far the company can expand its offerings, and whether it would acquire an existing company or build its own fully Amazon-branded store. These are just some of the questions being debated in the Amazon message board, where your answers, questions, and point of view is always welcome.

With Amazon having partnered with the legendary Sotheby's last week, this week it was eBay's turn to expand its auction services which it did by acquiring www.alando.de, Germany's largest person-to-person trading community. alando.de's members will eventually have access to the full eBay community when the site begins operating under the eBay name -- a global brand for a global community.

Finally, though the week didn't hold anything for Excite@Home quite as dramatic as entering a completely new industry, it did introduce a compelling new feature to the Excite portal site. Excite Voice Chat allows Excite users to talk to each other, individually or in groups, from wherever you are to anywhere else in the world they've got an Internet connection -- including your trading mates at alando.de! And there's something Exciting about that. Also exciting is that Excite@Home, through its partnerships with AT&T (NYSE: T) and other cable companies, is at the center of some of the most important developments shaping the future of telecommunications and the online medium. And if you're interested in keeping on top of that, head over the company's message board where the analysis runs 'round the clock.

Have a great and Foolish weekend!

Nico

06/25/99 Close
Stock  Change    Bid 
------------------ 
AMGN  +  1/4     55.94
AMZN  -3 7/16   110.19
AOL   -3 9/16   103.00
ATHM  -1 1/2     51.50
CAT   -  3/8     58.63
CHV   -1 1/2     90.13
DD    +  3/16    66.31
DJT   +  1/16     4.44
EBAY  -6 1/8    136.00
GT    -1         55.63
IOM   -  1/4      4.56
SBUX  -1 1/4     35.50
TDFX  -  7/16    15.44


             Day     Month  Year   History   Annualized 
      R-BREAKER  -2.83% -11.30%  18.71% 1091.49%   66.03%
        S&P:     -0.04%   1.03%   7.58%  201.19%   25.31%
        NASDAQ:  -0.05%   3.32%  16.42%  254.45%   29.55%


    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    103.00   11233.00%
   9/9/97  1320 Amazon.com     6.58    110.19    1574.77%
  5/17/95  1960 Iomega Cor     1.28      4.56     256.33%
  12/4/98   900 Excite@Hom    28.04     51.50      83.67%
  4/30/97 -1170*Trump*         8.47      4.44      47.60%
  2/26/99   300 eBay         100.53    136.00      35.29%
 12/16/98   580 Amgen         42.88     55.94      30.47%
   7/2/98   470 Starbucks     27.95     35.50      26.99%
  2/23/99   300 Caterpilla    46.96     58.63      24.83%
  2/23/99   290 Goodyear T    48.72     55.63      14.18%
  2/23/99   180 Chevron       79.17     90.13      13.84%
  2/20/98   260 DuPont        58.84     66.31      12.69%
   1/8/98   425 3Dfx          25.67     15.44     -39.86%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 226600.00  $224600.53
   9/9/97  1320 Amazon.com  8684.60 145447.50  $136762.90
  12/4/98   900 Excite@Hom 25236.13  46350.00   $21113.87
  2/26/99   300 eBay       30158.00  40800.00   $10642.00
 12/16/98   580 Amgen      24867.50  32443.75    $7576.25
  5/17/95  1960 Iomega Cor  2509.60   8942.50    $6432.90
  4/30/97 -1170*Trump*     -9908.50  -5191.88    $4716.63
   7/2/98   470 Starbucks  13138.63  16685.00    $3546.38
  2/23/99   300 Caterpilla 14089.25  17587.50    $3498.25
  2/23/99   290 Goodyear T 14127.38  16131.25    $2003.88
  2/23/99   180 Chevron    14250.50  16222.50    $1972.00
  2/20/98   260 DuPont     15299.43  17241.25    $1941.82
   1/8/98   425 3Dfx       10908.63   6560.94   -$4347.69

                              CASH   $9924.87
                             TOTAL $595745.18
 
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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