Rule Breaker Portfolio
Amazon: The New Colossus

Amazon has taken a big hit in the "dot-com meltdown," but it has fared far better than many others. As the top dog, its business has continued to perform quite well. Yesterday's Q3 results may have brought Amazon around a corner, though many challenges await.

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By David Gardner
October 25, 2000

. . . Give me your tired, your poor
Your huddled equities yearning to breath free,
The wretched refuse of your teeming markets.
Send these, the homeless, tempest-tossed, to me.
I lift my lamp beside the golden opening bell.

Our epigraph for today's column reads very similarly to Emma Lazarus's sonnet "The New Colossus," a portion of which is inscribed on the plinth of the Statue of Liberty. Those words above, or something very like them, have represented an inspirational beacon welcoming and warming those who for decades have traveled an ocean or two to immigrate into the United States. Today I invoke a rejiggered version of Emma Lazarus's words as a welcoming and warming beacon to those who have shared, along with us, the risk and pain of being an (Nasdaq: AMZN) shareholder through the "dot-com meltdown."

It is as true of this period of American business history as it is ANY chapter of business history: Many tried, and few will succeed. I continue to believe will be one of those who emerge from the "wretched refuse" of dot-com paper shares and create tangible value over the coming years.

This ain't This ain't

But this isn't your father's WalMart (NYSE: WMT), either.

Following Yahoo! (Nasdaq: YHOO), eBay (Nasdaq: EBAY), America Online (NYSE: AOL), and, a host of second-, third-, and eventually fourth-tier copycats threw up websites, raised money, blew it on advertising, and confirmed for us their third- or fourth-tier status by eventually scurrying back whence they came.

The process continues. What will be left are the sustainable enterprises that, ironically and not coincidentally, were for the most part the first-movers. The others (in Amazon's space that's eToys, CDNow, etc.) enjoyed a similar multiple to the top dogs for a while, but with a shift in the marketplace's demands -- now for probable profitability, rather than market share or "eyeballs" or "clicks" -- the tide receded quickly and left many in the sand. Though is down from $113 to below $32 as of this writing -- about a quarter of its high -- eToys as one example is down from $86 to $4 -- one twentieth of its high.

There was certainly too much venture capital for a while (which is a good problem to have, if you're going to have problems), and extremely low interest rates, which drove up the valuation of everything. Now that everything's down 50% or more, only a few true-blue entities maintain a market cap or heft that is at all worth noticing.

Heck, at least eToys still has a market cap of about half a billion. Many of its follow-on peers are but a fraction of that, if they're still in business.

Yes, for a long time there were many "huddled equities," arriving in boatloads across the good Ocean of Hope. They had heard the story of riches; they had already mapped the Seven Cities of Gold; they were prepared to take the risks necessary to enter this New World, this New Economy. Today, most are truly tired and poor, huddled, all yearning for someone to notice or validate them.

As I gazed at's third-quarter operating results, released late yesterday, I didn't really know what the market would make of them. We have watched what was a 20-bagger for this portfolio decline to -- as of yesterday's close -- a return of nine times our money in three years. It hasn't always been rational, in either direction. Hey, nine times your money in three years is nothing to sneeze at -- in fact, it's one of the best investments we've ever made. But given the risk we took to purchase Amazon, and given how much higher it has been in the past, these shares have certainly looked "homeless, tempest-tossed." What is now evident today is that's report of lower-than-expected losses and higher-than-expected revenues is a story that Wall Street needed to hear, wanted to hear.

That's evident because there were no leaks, as sometimes seems to accompany surprises, so we see a pristine view of the sentiment regarding the quarterly report. Amazon declined about a half point yesterday below $30, with the wraps clearly left on the announcement. Today, up some 8% as of this writing, it appears may have turned a corner. Not "The Corner." Amazon has many, many challenges before it still, primarily to demonstrate that it can actually profit from its redoubtable brand name and present base of 25 million e-commerce customers. But this is not and never has been a "made-in-the-shade" automatic moneymaker as an investment -- just as still has yet to make money.

But the story of a company that broke the rules, flew its large craft spectacularly high into the very riskiest thin air, and (this is the part yet unknown) managed to land the thing halfway around the globe later on and justify a market cap in the tens of billions (the market cap is $11 billion today) -- that story looks a little more believable this morning.

With The New Colossus, we lift our lamps.

(A good quick summary of Amazon's quarterly numbers comes from this posting by HowardRoark via our discussion board. Also, play along with me in Election Folly 2000, our TV companion game to who's going to win and, as important, how the networks will cover it. One last thing to check out this week: our upcoming Roadmap to Retirement Online Seminar. It's never too early to start!)

-- David Gardner, October 25, 2000


Rule Breaker Portfolio

10/25/00 as of ~8:30:00 PM EDT

Ticker Company Price
Daily Price
% Change
AMGNAMGEN INC(2.75)(3.85%)68.63
AOLAMERICA ONLINE(1.00)(2.08%)47.02
ATHMAT HOME CORP CL A(0.50)(4.94%)9.63
EBAYEBAY INCUnchg.Unchg.54.06

  Day Week Month Year
To Date
Rule Breaker(2.00%)(0.81%)(15.09%)(32.86%)991.22%46.79%
S&P 500(2.38%)(2.29%)(4.98%)(7.10%)197.75%19.15%
S&P 500 (DA)(2.27%)(2.19%)(4.77%)(6.80%)212.01%20.05%

Trade Date # Shares Ticker Cost/Share Price Total % Ret *

Trade Date # Shares Ticker Total Cost Current Value Total Gain *

* Our long term totals include both our realized and unrealized gains. For instance, we have sold portions of AOL and Amazon in the past, and those realized gains are included in our total returns for these stocks.

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.