Rule Breaker Portfolio

<THE RULE BREAKER PORTFOLIO>

(Almost) Labor-free Strategies
Plus, another crazy eBay auction

By Paul Larson (TMF Parlay)

CHICAGO, IL (September 4, 1999) -- Today was a rockin' good day to end the last trading day of summer. (Yes, I know summer doesn't officially end for another three weeks, but I always consider Labor Day "the end.") The Fool Port sprinted forward 5.33% on the day, outpacing the market's impressive gains of 3.98% and 2.89% respectively for the Nasdaq and S&P.

The cause for the spike? There was evidence released that inflation may actually be lower than some economists had expected, causing many to speculate that the Federal Reserve will keep interest rates steady for a while instead of continuing with its rate hikes. In other words, yadda yadda yadda.

This isn't to belittle the omnipresent effect interest rates have on our companies and the market. Many of our Rule Breaking stocks are valued so highly because of expected large cash flows in "out" years. If inflation were to tick up and interest rates to rise, next year's dollars would be worth less in today's terms. And when you discount cash flows back from five years out (and further), the adverse effects of increased rates is multiplied.

So yes, interest rates are important, but we're Fools and don't pretend to have a clue where they're really headed. Predicting rates is almost as tough (if not tougher) than trying to predict where the stock market is headed. We've found keeping an eye on the fundamental performance of our companies is a much more useful undertaking than overemphasizing the importance of external factors.

Newsflash! Newsflash! (not)

You know how there are slow news days in the traditional media? When your 11:00 p.m. local television news (or 10:00 p.m. news, if you're in Chicago like myself) leads off with a story such as "Mayor's dog taken to the vet to get claws clipped!" Or, "Park District accidentally mows flowers!" When such "human-interest" stories are the best the investigative reporters can come up with, you know it's a slow news day.

You might be able to guess today was a slow news day in the Rule Breaker portfolio.

The most significant piece of news related to our companies today was word that last night eBay (Nasdaq: EBAY) halted yet another bizarre auction. It's not certain if it was a prank or not, but someone tried to auction off a human kidney. The auction reportedly read as follows:

"Fully functional kidney for sale. You can choose either kidney. Buyer pays all transplant and medical costs. Of course only one for sale, as I need the other one to live. Serious bids only."

Before eBay pulled the plug, bids reached as high as $5.7 million. It's anyone's bet whether the bids or the auction itself were real, but it certainly does make one think. Either way, the company decided to take no chances with the auction since trafficking human organs is a federal felony. So add kidneys (and livers, toes, and brains) to the growing list of things you can't sell at eBay. And you can also add kidneys to the list of strange things, such as shares of bankrupt Iridium (Nasdaq: IRIDQ) and someone's virginity, that recently listed at the site.

Long story short, you can sell just about anything at eBay, as long as it is legal.

Before signing off and enjoying a long weekend away from work (markets are closed on Monday), I thought I'd quickly touch on two very Foolish investment strategies that are decidedly labor-free.

1) S&P 500 index fund

Imagine being able to play golf and get par on every single hole. The S&P 500 index fund is the investing equivalent to shooting par without any practice. This portfolio has used the index fund's country cousin, the Spiders (AMEX: SPY), on occasion when looking to put money to work in the market without having companies to invest in identified, and may very well use them again in the future.

For more information on index investing, click here.

2) Foolish Four

The Foolish Four has to be the easiest investment strategy next to index investing. Ten minutes a year and you too could be using this method that has soundly trounced the market averages for literally decades. This portfolio, as well as Tom, Matt, and the posse over in Rule Maker land use the strategy as an anchor to the riskier (but potentially more rewarding) strategies of investing in Rule Breakers and Rule Makers.

The current batch of Foolish Four companies in this portfolio have performed quite well since they were purchased (or held over, in the case of DuPont) late in February. Check it out:
              Price at 2/23/99    Today       Change
Caterpillar       $46.964         $59.19      +26.0%   
DuPont            $53.50          $66.13      +23.6%
Goodyear          $48.715         $57.38      +17.8%
Chevron           $79.169         $93.69      +18.3%

        (This information is always available 
             by scrolling down this page.)
Don't believe the Foolish Four works? Check out the real-money Foolish Four portfolio here, which is today soundly beating all of the other portfolios in the Fool for 1999. Regardless, for investors looking for an extremely easy investment strategy to follow, the Foolish Four is one of your best bets.

Have a wonderful and Foolish holiday weekend!

-Paul Larson






Rule Breaker Portfolio

9/3/99 Closing Numbers
Ticker Company Dly Pr Chg Price
AMGNAMGEN INC11/16$86.38
AMZNAMAZON.COM29/32$62.44
AOLAMERICA ONLINE9/16$96.81
ATHMAT HOME CORP CL A7/8$40.94
CATCATERPILLAR INC5/16$59.19
CHVCHEVRON CORP11/16$93.69
DDDU PONT (EI) DE NEMOURS5/16$66.13
DJTTRUMP HOTELS & CASINO RESUnch.$4.69
EBAYEBAY INC12 1/16$133.50
GTGOODYEAR TIRE & RUBBER CO-3/16$57.38
IOMIOMEGA CORP1/16$3.50
SBUXSTARBUCKS CORP1$23.25
TDFX3DFX INTERACTIVEUnch.$10.75

  Day Week Month Year
To Date
Since
8/5/94
Annualized
Rule Breaker 5.33% -.80% 3.50% 19.74% 1,104.05% 63.18%
S&P 500 2.89% .67% 2.79% 10.41% 196.08% 23.81%
S&P 500(DA) 2.75% .63% 2.66% 10.50% 210.34% 24.97%
NASDAQ 3.98% 3.05% 3.79% 29.66% 294.78% 31.03%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
8/5/942200AOL0.917$96.8110,456.37%
9/9/972640AMZN3.188$62.441,858.82%
5/17/951960IOM1.280$3.50173.35%
12/16/98580AMGN42.889$86.38101.39%
12/4/98900ATHM28.040$40.9446.00%
4/30/97-1170DJT8.469$4.6944.65%
2/26/99300EBAY100.527$133.5032.80%
2/23/99300CAT46.964$59.1926.03%
2/23/99180CHV79.169$93.6918.34%
2/23/99290GT48.715$57.3817.78%
2/20/98260DD58.844$66.1312.37%
7/2/98470SBUX27.955$23.25-16.83%
1/8/98425TDFX25.667$10.75-58.12%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
8/5/942200AOL$2,017.62$212,987.50$210,969.90
9/9/972640AMZN$8,415.03$164,835.00$156,420.00
12/16/98580AMGN$24,875.50$50,097.50$25,222.00
12/4/98900ATHM$25,236.13$36,843.75$11,607.63
2/26/99300EBAY$30,158.00$40,050.00$9,892.00
4/30/97-1170DJT($9,908.16)($5,484.38)$4,423.79
5/17/951960IOM$2,509.63$6,860.00$4,350.37
2/23/99300CAT$14,089.25$17,756.25$3,667.00
2/23/99180CHV$14,250.50$16,863.75$2,613.25
2/23/99290GT$14,127.38$16,638.75$2,511.38
2/20/98260DD$15,299.44$17,192.50$1,893.06
7/2/98470SBUX$13,138.63$10,927.50($2,211.13)
1/8/98425TDFX$10,908.63$4,568.75($6,339.88)
  Cash: $11,675.98  
  Total: $601,812.90  



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.