Rule Breaker Portfolio

Rule Breaker Portfolio
It's a Motley World
So here's a motley report

By David Gardner

ALEXANDRIA, VA (Nov. 3, 1999) -- A motley report today.

Hey, using that word -- "motley" -- reminds me to define it, first. Because although it's a critical part of our name, we spend much more time talking about Folly and Foolishness than motley. So tonight, let's talk motley.

In a lot of peoples' minds, "motley" means ragtag and rebellious. We may trace this misunderstanding to the popularity of the rock band The Motley Crue, which many people knew as a rag-tag, rebellious, raucous band. So what did the average person conclude? Well, that the term "motley" must mean something like that, like the band's attitude.

But let's return to the roots of the word. "Motley" dates from the 14th century, where it was first used in England to refer to woolen fabric of mixed colors often worn as a garment by professional court jesters, or Fools. The "Motley" in our "Motley Fool" does not mean rag-tag or rebellious, even if we occasionally exhibit these tendencies as a company or community or as individuals. The parti-colored garments worn by Fools is what motley is.

What motley means to me, in the context of our practical approach to business and to life, is a variegated approach to living. A motley life consists of one part financial management, one part outdoor recreation, one part family, one part work, one part community service, one part self-service, one part early mornings, one part late nights. One part whimsy. A few other parts, too. You get the idea. Those who spend all their waking hours doing a single thing (say, hunched over a computer daytrading) are not living motley.

We live in a motley world. We should be leading motley lives. And tonight, you have a motley report.

Let's start out with a quick look at the numbers. So OK, the Rule Breaker Portfolio tacked up a gain of about one percent, doubling today's S&P 500 gain but coming in slightly below the Nasdaq. For the year of 1999, we are presently perched in the #2 poll position, having returned upwards of 35% in this volatile market year. That places us behind the Nasdaq, at present, and well ahead of the S&P 500. You can keep up with The Motley Fool's Hall of Portfolios anytime by bookmarking this page.

I'd like to express an apology tonight to those who've waited for a new Rule Breaker pick over the past several weeks. Several weeks ago, Jeff and I let on that we were in a selection process that would conclude shortly. The truth is, it did. In fact, I could tell you (though I can't) right now what our next two portfolio entrants are; Jeff and I have known them for more than a month. So why haven't the moves been made?

We haven't had time to write them up.

"WHAT?! You idiots have the next two investments in mind -- have, for weeks -- and you haven't done anything about it?" Yep.

Here's why. We are busier than we thought we would be. Jeff is writing all sorts of analysis for all of Motley Foolery, most prominently the Internet Report but also heaps of other stuff. I have spent the lion's share of my time working on growing our business, which has been quite demanding and probably ultimately more important than writing up the next Rule Breaker selection immediately. Does that mean I've forgotten my fellow Fools who come to this space for daily sustenance and an idea or two? Not at all. Remember that if our stock selection is good, buying our next stock last month as opposed to today or three months from now really isn't urgent. Remember that we're buying businesses.

Anyway, we have need of help, in case you haven't inferred that yet. If you're interested in applying for a full-time job as a Rule Breaker portfolio writer and co-manager, just click on to http://jobs.fool.com and click on the Community Writer/Analyst link, and apply today. We're looking for a few good Fools....

So to tie up that loose end, at some point in the next several weeks, Jeff and I will complete these reports and execute these moves. Meanwhile, we'll continue keeping our eyes open, looking for the next great Rule Breaker company beyond those two!

As this is a motley report, I'll switch gears and ask if anyone else out there is rooting for Microsoft to win the case brought against it by the Justice Department? The more I think about it, the sillier the whole thing is. My thoughts are well summed up by Robert Levy in this article printed in the Seattle Times on Monday. Levy begins, "Welcome to the post-modern world of high-tech antitrust, where big is once again bad, lofty profit margins are a wake-up call to government regulators, executives are brought to heel for aggressively worded e-mails, pricing too high is monopolistic, pricing too low is predatory, propping up politically wired competitors is the surreptitious aim, bundling products that consumers want is illegal, and successful companies are rewarded by dismemberment." The rest of his short editorial is worth a read.

Also worth a read tonight is a short series of articles detailing Warren Buffett's present thinking about the stock market. Buffett is a giant of our time in so many ways -- whether you're talking about the wealth he's created for himself and for others, or you're talking about the influence he's had on the financial world at large through his independent thinking. Given this, it's always worth listening to the guy, whether or not you want to agree with everything he's saying.

Here's a link to the article. Among his contentions are two: (1) He guesses that the average annualized return for the stock market over the next 17 years will be about 6%, and (2) his observation that the best investments will be made (over this or any period) in "the products or services that have wide, sustainable moats around them."

Please note that the second attribute of the Rule Breaker company, which must be shared by every Rule Breaker or it ain't a Rule Breaker, is "sustainable advantage." We're looking for the world's top dogs and first-movers in the most important, emerging industries (attribute #1). But if they don't have a "sustainable advantage," we're not going to invest in them. We define sustainable advantage in this context as something that lasts 2-3 years at a minimum. (It can be hard to project much further, in the world of technology.) Preferably, though, we'd like to be able to visualize that advantage lasting 2-3 decades. Nothing is that certain in any industry of global business today, of course, but our fifth attribute (brand) is probably the single biggest creator of sustainable advantage. So these Rule Breaker attributes work in concert.

Anyway, read the Buffett thing, will you? Get smarter about investing by learning from the best thinkers -- which means clicking OUT of this report and reading WB.

Thank you all for lots of great notes coming out of last night's report, as to "Why You Read This."

To close this motley report, I'll point to one of my favorite posts in Fooldom this past week, written by GeoGoddess on our golf message board. A golf message board? In Fooldom? ABSOLUTELY. It's one of my favorite message boards, and if you're a golfer I hope you'll click that red heart and add it to your Favorite Boards, too. So much great stuff about the game of golf, the thinking that goes into the game, and (in this post's case), the life that surrounds the game, and surrounds us all.

Fool on!






Rule Breaker Portfolio

11/3/99 Closing Numbers
Ticker Company Dly Pr Chg Price
AMGNAMGEN INC-2 1/2$78.56
AMZNAMAZON.COM-5/8$65.81
AOLAMERICA ONLINE3/8$139.50
ATHMAT HOME CORP CL AUnch.$38.38
CATCATERPILLAR INC9/16$56.63
CHVCHEVRON CORP5/16$89.06
DDDU PONT (EI) DE NEMOURSUnch.$61.94
EBAYEBAY INC-4 3/16$127.06
GTGOODYEAR TIRE & RUBBER CO-13/16$38.44
IOMIOMEGA CORP1/8$3.00
SBUXSTARBUCKS CORP-7/16$26.63
TDFX3DFX INTERACTIVE1/8$10.56

  Day Week Month Year
To Date
Since
8/5/94
Annualized
Rule Breaker 1.44% .98% .88% 36.88% 1,276.44% 64.80%
S&P 500 .53% -.59% -.59% 10.23% 195.58% 22.94%
S&P 500(DA) .53% -.59% -.59% 10.80% 209.84% 24.04%
NASDAQ 1.57% 2.09% 2.09% 38.12% 320.52% 31.48%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
8/5/942200AOL0.917$139.5015,110.99%
9/9/972640AMZN3.188$65.811,964.70%
5/17/951960IOM1.280$3.00134.30%
12/16/98580AMGN42.889$78.5683.18%
12/4/98900ATHM28.040$38.3836.86%
2/26/99300EBAY100.527$127.0626.40%
2/23/99300CAT46.964$56.6320.57%
2/23/99180CHV79.169$89.0612.50%
2/20/98260DD58.844$61.945.26%
7/2/98470SBUX27.955$26.63-4.76%
2/23/99290GT48.715$38.44-21.10%
1/8/98425TDFX25.667$10.56-58.85%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
8/5/942200AOL$2,017.62$306,900.00$304,882.40
9/9/972640AMZN$8,415.03$173,745.00$165,330.00
12/16/98580AMGN$24,875.50$45,566.25$20,690.75
12/4/98900ATHM$25,236.13$34,537.50$9,301.38
2/26/99300EBAY$30,158.00$38,118.75$7,960.75
5/17/951960IOM$2,509.63$5,880.00$3,370.37
2/23/99300CAT$14,089.25$16,987.50$2,898.25
2/23/99180CHV$14,250.50$16,031.25$1,780.75
2/20/98260DD$15,299.44$16,103.75$804.31
7/2/98470SBUX$13,138.63$12,513.75($624.88)
2/23/99290GT$14,127.38$11,146.88($2,980.50)
1/8/98425TDFX$10,908.63$4,489.06($6,419.56)
  Cash: $5,954.23  
  Total: $687,973.90  



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.