Rule Breaker Portfolio

<THE RULE BREAKER PORTFOLIO>

Good News, Bad News
...and Odd News

By Paul Larson (TMF Parlay)

CHICAGO, IL (August 20, 1999) -- It was one of those fairly quiet summer Fridays around Fooldom. Lots of folks were on vacation, and trading volumes in most of the Rule Breaker stocks were below normal levels. The portfolio gained a market-beating 2.02% on the day as well as winning the blue ribbon for the week. The three largest movers in the portfolio today: eBay (Nasdaq: EBAY) was up 8.1%, Amazon (Nasdaq: AMZN) was up 6.9%, and Iomega (NYSE: IOM) was down 4.6%. Interesting enough, there was good, bad, and odd news coming from this group.

First, the good news....

Amazon announces "Purchase Circles"

While many may not view today's announcement from Amazon as earth-shattering, I think it goes a long way in proving exactly the type of potential Amazon has for being the premier e-tailer in the next millennium.

Amazon today announced the introduction of its Purchase Circles. The press release describes the new feature as follows: "Working with a customer base of 10.7 million, Amazon.com's Purchase Circles feature analyzes zip codes and domain names from book, music, and video purchases. Then, it aggregates this anonymous sales data and applies an algorithm that constructs bestseller lists of items that are more popular with each specific group than with the population at large. The result is thousands of Purchase Circles, listing the top 10 videos, music, and books bought online by groups organized as companies, education, geography, government, and organizations."

Sounds pretty cool, no? Frankly, it's exactly the type of thing I would expect from Amazon. This is precisely the kind of personalized marketing and cross promotion that I think has explosive potential on the Internet, and there are few better companies than Amazon to spearhead it.

Right now, Amazon is doing little more than displaying the information as an interesting way for users to explore the vast amount of demographic information the company is constantly accumulating. But in the future, look for Amazon to truly leverage this awesome amount of marketing intelligence, the scale of which only the recent technologies of e-commerce have allowed.

Either way, check out Amazon's Purchase Circles. Like I said, they're pretty cool.

And now, the bad news....

Iomega's CEO resigns. Again.

The revolving door that is the executive offices at Iomega took another spin last night. After the bell yesterday, the company announced that its CEO and president, Jody Glore, was resigning effective August 31. Glore said that he was leaving the post for "personal reasons" and to take a vacation with his family.

For those keeping score at home, Glore was at the helm of Iomega for little more than 10 months. Glore replaced interim president and CEO Jim Sierk, who in turn had replaced Kim Edwards in March of 1998. Edwards was the CEO that brought Iomega back from the dead with the Zip product. In any case, Glore was in power for a comparatively short time, and it looks like Iomega will be able to claim that it has had four different CEOs over the past two years.

The CEO position was not the first to be vacated this year as Scott Flagg, Iomega's former COO, announced his retirement this past June. In recent months, Iomega has also had to put in place a new CFO, treasurer, and a whole slew of various vice presidents. Ouch.

Seeing so many executives jump ship and/or get the boot in short order has to give investors pause. Without mentioning the company's products, it should be fairly obvious that Iomega is in a great deal of internal turmoil. Why are so many executives leaving? It's a question that few (if any) can answer. Is it because the executives see dire straits ahead for the USS Iomega, or is it truly because of personal and professional reasons? For this portfolio's sake, hopefully it is the latter.

For those who may be looking at the Iomega position in this portfolio and wondering about the position's severe and chronic case of atrophy, a few thoughts. First, Iomega is such a small fraction of the portfolio today that it almost wouldn't matter if the stock continued to sink. Consider this: If Iomega were to go to zero on Monday, the Rule Breaker portfolio would only lose 1.3% of its value, and the annualized return of the portfolio would still be right around 60%. On one hand, it's scary to think that Iomega used to make up half of the portfolio's value. On the other, the position's overall meaning to the portfolio today is minuscule.

What should the Rule Breaker portfolio do with Iomega? Should Iomega be held in the hopes of a turnaround and return to profitability? Or should the dog be shown the door and the funds invested in a company that is breaking more rules? Your thoughts are always appreciated on the Rule Breaker Message Board.

Finally, the odd news....

Iridium shares offered on eBay

Today, an investor put up for auction 1,300 shares of the bankrupt satellite phone company Iridium (Nasdaq: IRIDQ) on the eBay site. The investor was seeking a minimum bid of $6500, or about $5 per share. You see, trading in Iridium's stock has been halted for about a week ever since the bankruptcy of the company was announced. For a story about the event, click here.

Unfortunately, eBay has elected to take the auction down while questions about securities laws and the legality of this type of transaction are answered. Not that this is exactly a new line of business for eBay or something that will really affect eBay's stock, but it does illustrate the immense scope of what can potentially be bought and sold with eBay as well as the awesome creativity of some investors.

Enough news....

Have a wonderful summer weekend, Fools.

-Paul Larson
Weekly returns:        
Rule Breaker         +3.89%
S&P 500              +0.67%
Nasdaq               +0.40%






Rule Breaker Portfolio

8/20/99 Closing Numbers
 Ticker   Company   Dly Pr Chg   Price 
AMGN  AMGEN INC                    13/16   $80.06
AMZN  AMAZON.COM                   5/16   $113.44
AOL  AMERICA ONLINE               -1 1/16   $94.94
ATHM  AT HOME CORP CL A            7/16   $37.69
CAT  CATERPILLAR INC              Unch.   $60.31
CHV  CHEVRON CORP                 9/16   $95.06
DD  DU PONT (EI) DE NEMOURS      -3/16   $72.19
DJT  TRUMP HOTELS & CASINO RES   -1/16   $4.69
EBAY  EBAY INC                     1/4   $123.00
GT  GOODYEAR TIRE & RUBBER CO   -9/16   $56.63
IOM  IOMEGA CORP                  -3/16   $3.88
SBUX  STARBUCKS CORP               Unch.   $20.50
TDFX  3DFX INTERACTIVE             -7/16   $14.75

  Day Week Month Year
To Date
Since
7/5/94
Annualized
Rule Breaker .61% .72% -28.59% 1.02% 917.89% 57.26%
S&P 500 .98% .67% .59% 8.74% 199.44% 23.86%
S&P 500(DA) .94% .64% .57% 8.89% 214.08% 25.02%
NASDAQ 1.03% .50% .37% 20.78% 276.40% 29.51%
DJIA 1.25% 1.16% 4.18% 20.90% 203.92% 24.22%

 Trade Date   # Shares   Ticker   Cost/Share   Price   LT % Val Chg 
  8/5/94  2860AOL    0.912  $94.94  10,311.44%
  9/9/97  320AMZN    9.617  $113.44  1,079.53%
  5/17/95  1960IOM    1.280  $3.88  202.63%
  12/16/98  580AMGN    42.889  $80.06  86.67%
  4/30/97  -1170DJT    8.469  $4.69  44.65%
  2/23/99  300CAT    46.964  $60.31  28.42%
  2/20/98  260DD    58.844  $72.19  22.68%
  2/26/99  300EBAY    100.527  $123.00  22.36%
  2/23/99  180CHV    79.169  $95.06  20.07%
  2/23/99  290GT    48.715  $56.63  16.24%
  7/2/98  470SBUX    27.955  $20.50  -26.67%
  12/4/98  450ATHM    56.080  $37.69  -32.80%
  1/8/98  425TDFX    25.667  $14.75  -42.53%

 Trade Date   # Shares   Ticker   Cost   Value   LT $ Val Ch 
  8/5/94  2860AOL    $2,607.91  $271,521.30  $268,913.30
  9/9/97  320AMZN    $3,077.49  $36,300.00  $33,222.51
  12/16/98  580AMGN    $24,875.50  $46,436.25  $21,560.75
  2/26/99  300EBAY    $30,158.00  $36,900.00  $6,742.00
  5/17/95  1960IOM    $2,509.63  $7,595.00  $5,085.37
  4/30/97  -1170DJT    ($9,908.16)  ($5,484.38)  $4,423.79
  2/23/99  300CAT    $14,089.25  $18,093.75  $4,004.50
  2/20/98  260DD    $15,299.44  $18,768.75  $3,469.31
  2/23/99  180CHV    $14,250.50  $17,111.25  $2,860.75
  2/23/99  290GT    $14,127.38  $16,421.25  $2,293.88
  7/2/98  470SBUX    $13,138.63  $9,635.00  ($3,503.63)
  1/8/98  425TDFX    $10,908.63  $6,268.75  ($4,639.88)
  12/4/98  450ATHM    $25,236.13  $16,959.38  ($8,276.75)
  Cash: $11,220.50  
  Total: $507,746.80  



Note
The Fool Portfolio was launched on August 5, 1994, with $50,000. It was renamed the Rule Breaker Portfolio in October 1998. The investing strategy began with the first investments of the Fool Port and has evolved with time and experience. In July 2001, the portfolio began adding $12,500 each quarter (We missed Jan. 2002, so we added $25,000 in April 2002). We skip a quarter if we have enough uninvested cash or cash available in stocks we would prefer to sell to make new investments. All transactions are shared and explained publicly before being made, and returns are compared in each week's column to the S&P 500 (including dividends where noted) and the Nasdaq composite. For a history of all transactions, please click here.