Rule Breaker Portfolio

Rule Breaker Portfolio

The Liquid Dowry

By Rick Aristotle Munarriz (TMF Edible)

MIAMI, FL (September 13, 1999) -- Reflecting on David's I Own the Water meeting with Donald Trump, my mind drifts back to what could have been their first chance encounter...

It was the summer of 1996. I was covering the Grand Opening of the first Rainforest Cafe (Nasdaq: RAIN) in Walt Disney World. Paul Larson (TMF Parlay) and I had spent the past few days soaking in the event, interviewing the executives and hosting an auditorium online chat the night before. When we needed a break, Paul joined my family at the park.

Anyway, the week concluded with an invitation-only celebration and Paul and I were there with dozens of media types and corporate heavies. Trump, who at the time was expecting the restaurant chain to open a unit at his Taj Mahal resort in Atlantic City, was there. My family was late. David's flight was late. Paul, who later that night would plant the seeds to be brought on as the Fool's Gaming Host, was in casino-loving heaven. We were there wedged between Trump to our left and Lyle Berman to our right.

After the press got its fill of sound bites, they went off to meet their deadlines. The party was about to begin. Trump, in attendance with Marla Maples and their young daughter, decided to pass on the festivities and take their child for her first visit to the Magic Kingdom. As they were heading out, my wife and son arrived. In a place full of adults, my son and Trump's daughter were the only toddlers around.

They passed one another, staring at each other in a throwback to childhood innocence. My mind went in a different direction. Meet. Marry. Multiply. Her father's company owns the water. Don't let the opportunity evaporate.

But the memory lingers longer than the moment. The Trumps went off to ride Peter Pan and David arrived just as the appetizers were bursting out of the kitchen.

Destiny is kind, sometimes. David effectively shorted Trump Hotels & Casino (NYSE: DJT) nine months later. I doubt a casual introduction would have influenced David past the fundamentals. No handshake is heavier than debt. Blood red ink is thicker than water -- regardless of who eventually lays claim to it.

As for my son, who will turn just six next month, I better let time and fate serve as his matchmakers. Jeff effectively pondered the 2 1/2 Year Trump Relationship on Friday when we officially covered the short position. Why should I ponder about a relationship between a pair of 2 1/2 year olds?

As for me, tonight, I bring you a heartbreaker of a market day. Weakness in our online workhorses, America Online (NYSE: AOL) and eBay (Nasdaq: EBAY), led the way down to a 4.2% decline. The S&P 500 was set back 0.6% while the tech-nervous Nasdaq gave up 1.5% of its index value.

As for America Online, it got the "You've Gotta Bail!" treatment in Barron's over the weekend. A hedge fund manager wasn't exactly impressed with insiders selling four million shares recently. Keep in mind, the company has more than a billion shares outstanding. Still, what fun would a short covering rally be without shorts.

The manager, Seabreeze Partners' Doug Kass, feels the stock could lose half its value as the company faces pricing pressure in the future from charitable upstarts. Let's put this into perspective. Even if AOL were to tumble below $50, that would only be taking the stock back to where it was in December. If Kass were to project a single-digit share price for AOL that would only take it back another year. Hey, AOL is volatile, even with what many figured would be S&P 500 stability this year. But what are the odds of AOL doubling over the year ahead and Kass making the same argument? Implying today's price is a fair price?

Anyway, the whole "free Internet" argument as a death knell for AOL baffles me. AOL was never the cheapest as it ran circles around the competition. This wasn't the service of choice for 20 million bargain-hunters. It was simply the best. Unique immediate content that inspired unique immediate community is not something an aspiring ISP can provide.

The real kicker here is that someone concerned with AOL's pricing structure would bring up the free access revolution in the first place. What is subsidizing fee-free online connections? Advertising. Doesn't that vindicate AOL's business model? Sure, AOL's next price move might be lower rather than higher, but if that continues to add subscribers is advertising going to suffer? AOL announced this morning that 900,000 newbies will join up this quarter. Profit projections of $0.13 a share are in line with the analysts. Only a third of the domestic Internet market has been tapped and the world is full of virgin topsoil.

Is America offline? No. Are the multi-million dollar sponsorship deals showing any hint of hooking up with abatement? No. So, what's the worry here? Nobody really owns the water. Let the world sample the free water fountains. They will still thirst for Coke. Let them delight at finding free television weeklies bundled in the local Sunday papers. They will still thumb through TV Guide.

Besides, am I the only one who sees the fallacy in these government cheese ISPs? They are relying on ad space to offset access costs. Now, ask yourself this: if you had a product to sell and had a finite supply of ad dollars, where would you turn? Would you go with AOL or would you go where the demographics have been weaned off disposable income to the point where $20 for convenient monthly access is passed over?

I've never seen a billboard on a water fountain, and I say that with some degree of authority. After all, my son almost inherited the water.

-- Rick Aristotle Munarriz






Rule Breaker Portfolio

9/13/99 Closing Numbers
Ticker Company Dly Pr Chg Price
AMGNAMGEN INC-1/2$87.06
AMZNAMAZON.COM-3 3/16$63.31
AOLAMERICA ONLINE-6 3/16$90.13
ATHMAT HOME CORP CL A-2 1/16$37.75
CATCATERPILLAR INC11/16$59.44
CHVCHEVRON CORP-2 3/16$93.69
DDDU PONT (EI) DE NEMOURS3/4$68.50
EBAYEBAY INC-10 1/16$147.94
GTGOODYEAR TIRE & RUBBER CO3/16$55.44
IOMIOMEGA CORP1/16$3.38
SBUXSTARBUCKS CORP1/8$22.00
TDFX3DFX INTERACTIVE5/8$9.94

  Day Week Month Year
To Date
Since
8/5/94
Annualized
Rule Breaker -4.15% -4.15% 1.47% 17.38% 1,080.39% 62.12%
S&P 500 -.56% -.56% 1.80% 9.35% 193.22% 23.44%
S&P 500(DA) -.56% -.56% 1.80% 9.93% 207.48% 24.59%
NASDAQ -1.46% -1.46% 3.85% 29.74% 295.01% 30.85%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
8/5/942200AOL0.917$90.139,727.17%
9/9/972640AMZN3.188$63.311,886.27%
5/17/951960IOM1.280$3.38163.59%
12/16/98580AMGN42.889$87.06103.00%
2/26/99300EBAY100.527$147.9447.16%
12/4/98900ATHM28.040$37.7534.63%
2/23/99300CAT46.964$59.4426.56%
2/23/99180CHV79.169$93.6918.34%
2/20/98260DD58.844$68.5016.41%
2/23/99290GT48.715$55.4413.80%
7/2/98470SBUX27.955$22.00-21.30%
1/8/98425TDFX25.667$9.94-61.28%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
8/5/942200AOL$2,017.62$198,275.00$196,257.40
9/9/972640AMZN$8,415.03$167,145.00$158,730.00
12/16/98580AMGN$24,875.50$50,496.25$25,620.75
2/26/99300EBAY$30,158.00$44,381.25$14,223.25
12/4/98900ATHM$25,236.13$33,975.00$8,738.88
5/17/951960IOM$2,509.63$6,615.00$4,105.37
2/23/99300CAT$14,089.25$17,831.25$3,742.00
2/23/99180CHV$14,250.50$16,863.75$2,613.25
2/20/98260DD$15,299.44$17,810.00$2,510.56
2/23/99290GT$14,127.38$16,076.88$1,949.50
7/2/98470SBUX$13,138.63$10,340.00($2,798.63)
1/8/98425TDFX$10,908.63$4,223.44($6,685.19)
  Cash: $5,954.23  
  Total: $589,987.10  



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.