RULE MAKER PORTFOLIO

<THE RULE MAKER PORTFOLIO>

2,000 Percent Ago

By Tom Gardner

ALEXANDRIA, VA (June 30, 1999) -- To err is human -- a pure, uncompromisable truth. No one can avoid that endless string of errors that made and makes us human. The dropped china bowl, the birthday forgotten, a thoughtless remark, the mishit tennis ball, three dollars short at the grocery counter, and a month without a card or phone call to 90-year-old grandparents.

We fail. We occasionally do that which we shouldn't and neglect what needs doing. Plates stack up in the sink. The lawn is uncut. No one took out the trash last week. All the hampers are full. There are seventy-five unread notes in the e-mailbox. The alarm clock was set to P.M., not A.M. And the someone who left a half-eaten sandwich, now covered with ants, on the kitchen counter was me.

We fail so often that English can't create synonyms fast enough for us. A trip, slip, a bungle, blooper, a blunder. Mistakes, errors, misjudgments, screw ups, oversights, miscues. Botched, muffed, goofed, blew, choked, flubbed. Bobbling, bumbling, messing up, fumbling. Misguided, confused, deluded, erroneous, off base, and just plain wrong.

Our errors come in every shape and size, some trivial, others so large in consequence, they make mountains out of our regret. And, of course, among the greatest of all our mistakes is the tendency to overlook our own shortcomings (while noting those of others) just long enough to repeat them, twice or more. Failure once is often enough some form of success, would you agree? But the same failure twice and more is just failure.

With that as our backdrop, we come to you this week to confess our investment mistakes -- the ones that we've repeated. Augustine was sainted for this. We're just looking for the benefits of, through public confession, maybe helping you to avoid our gaffes. Mine today is painful, simple to grasp, nearly unforgettable -- and, for me, now represents a core part of the shunnable Conventional Wisdom in the financial world.

Four years after selling Microsoft in 1990, due to my concern about the rich valuation of its stock (not, that is, concern about its future business prospects), I dialed up my telebroker to place a trade. It was autumn, 1994. I'd researched, bought, and for four months held a company that had done very well in a flat market. With 25% returns, I smirked at the short-term capital gains taxes, pressed "1" to sell a security... then typed in four letters.

C-S-C-O.

- Tom Gardner, Fool

06/30/99 Close
Stock Change    Bid
AXP   +2 11/16  130.13
CHV   +1 3/8     95.06
CSCO  +2         64.50
EK    -1 11/16   67.75
GM    +1 7/8     66.00
GPS   +1 5/8     50.38
INTC  +  1/4     59.50
KO    +  13/16   62.00
MSFT  +2 3/16    90.19
PFE   +3 11/16  108.50
SGP   +2 15/16   52.63
TROW  +1 1/16    38.38
XON   +  3/16    77.13
YHOO  +12 1/4   172.25


                  Day     Month  Year    History
        R-MAKER  +2.80%   8.64%  13.74%  43.92%
        S&P:     +1.58%   5.45%  12.25%  38.83%
        NASDAQ:  +1.65%   8.71%  22.48%  62.48%

Rule Maker Stocks

    Rec'd    #  Security     In At       Now    Change
    2/3/98   48 Microsoft     39.13     90.19   130.46%
   6/23/98   68 Cisco Syst    29.21     64.50   120.85%
    5/1/98 82.5 Gap Inc.      22.91     50.38   119.85%
   2/13/98   44 Intel         42.34     59.50    40.54%
   2/17/99   16 Yahoo Inc.   126.31    172.25    36.37%
    2/3/98   22 Pfizer        82.30    108.50    31.84%
   5/26/98   18 AmExpress    104.07    130.13    25.04%
    2/6/98   56 T. Rowe Pr    33.67     38.38    13.96%
   8/21/98   44 Schering-P    47.99     52.63     9.65%
   2/27/98   27 Coca-Cola     69.11     62.00   -10.28%

Foolish Four Stocks

    Rec'd    #  Security     In At     Value    Change
   3/12/98   20 Exxon         64.34     77.13    19.88%
   3/12/98   15 Chevron       83.34     95.06    14.06%
   3/12/98   20 Eastman Ko    63.15     67.75     7.29%
   3/12/98   17 General Mo    72.41     66.00    -8.85%

Rule Maker Stocks

    Rec'd    #  Security     In At     Value    Change
    2/3/98   48 Microsoft   1878.45   4329.00  $2450.55
   6/23/98   68 Cisco Syst  1985.95   4386.00  $2400.05
    5/1/98 82.5 Gap Inc.    1890.33   4155.94  $2265.61
   2/13/98   44 Intel       1862.83   2618.00   $755.17
   2/17/99   16 Yahoo Inc.  2020.95   2756.00   $735.05
    2/3/98   22 Pfizer      1810.58   2387.00   $576.42
   5/26/98   18 AmExpress   1873.20   2342.25   $469.05
    2/6/98   56 T. Rowe Pr  1885.70   2149.00   $263.30
   8/21/98   44 Schering-P   2111.7   2315.50   $203.80
   2/27/98   27 Coca-Cola   1865.89   1674.00  -$191.89

Foolish Four Stocks

    Rec'd    #  Security     In At     Value    Change
   3/12/98   20 Exxon       1286.70   1542.50   $255.80
   3/12/98   15 Chevron     1250.14   1425.94   $175.80
   3/12/98   20 Eastman Ko  1262.95   1355.00    $92.05
   3/12/98   17 General Mo  1230.89   1122.00  -$108.89

                              CASH     $70.09
                             TOTAL  $34628.22

Note: The Rule Maker Portfolio began with $20,000 on February 2, 1998, and it added $2,000 in August 1998 and February 1999. Beginning in July 1999, $500 in cash (which is soon invested in stocks) is added every month.

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