Emergence of Rule Breakers
The Fool Port Going Forward
by Jeff Fischer (TMFJeff@aol.com)
ALEXANDRIA, VA (Nov. 4, 1998) -- Having opened its doors with $50,000 on August 5, 1994, four years and three months later the Fool Port is valued at $285,000, up 471% against the S&P's record-strong advance of 144% over the same period.
$235,000 has been earned, on paper, in 51 months. In a savings account, the Fool Port's money would have earned less than $4,000.
It didn't require mountains of Wisdom to whoop the stock market (and the professionals!). Nobody at Fool HQ rose at 4:00 a.m. each morning to read The Wall Street Journal and study stock charts. It also didn't require perfect decision-making. The Fool Port has made more mistakes than its had grand slams -- but it's the few grand slams that matter. You don't remember every time that Reggie Jackson struck out at the plate. (Strike three! the ump yells.) Instead, you remember all the home runs that Reggie slugged in one World Series game. (Remember the Reggie candy bar? So, where's the McGwire Bar?)
The Fool Port began as a real-money example with the intention of proving that anyone -- even two English majors without financial backgrounds -- can wallop the market by buying and holding stock in companies they understand and greatly admire, and that are growing under the direction and vision of strong management. There is no magic formula or Wise economic figures that will bring you investing success: there are great companies and there is time; time that is needed to allow great investments (i.e., great companies) to grow.
Alongside the Fool Port, one of the Motley Fool's earliest online offerings were the 13 Steps to Investing Foolishly. Had the Fool never added additional content following these two features, the Foolish message and the results would still be equally strong: with a little education, you are the best person to manage your finances. You can do better for yourself than any fee-charging professional, a professional who is trying to make a living him or herself and who naturally has that in mind, first and foremost.
The Fool gained 3.97% today on the back of its leading stocks, America Online and Amazon.com. The Fool has gained 3,755% on its 1994 investment in America Online (NYSE: AOL). $2,580 invested in AOL on 8/5/94 is now worth $99,533. Unfortunately, most of America doesn't know that wealth like this can be created on the stock market. Much of America still believes that in order to invest in the market at all ("the stock market, how risky!") you need to be extremely savvy, Wise, courageous, and you need to actively trade in and out of the market based on complicated economic reports.
This simply isn't true, and the Fool Port is a perfect example -- an example that much the opposite is true. If you know family or friends who still believe the stock market is a gambling machine, or that wealth is only built by actively trading in and out of holdings, or that you shouldn't invest in the stock market at all because it's too risky -- please point them to the 13 Steps to Investing Foolishly. And please tell them to check out the Fool Port, because nothing "out of reach" is taking place here.
The second-largest holding in the portfolio is Amazon.com (Nasdaq: AMZN). The stock's valuation is as controversial as AOL's valuation used to be in 1994, 1995, 1996.
What you quickly notice about these two winning investments is that both are newer companies, both are leading in a dynamic new industry that each have gone a long way to create, and both have always been ridiculed along the way. These are, in two words (David Gardner's words): Rule Breakers. And before the year is over, the Fool Port is going to be titled the Rule Breaker Port. (To see what constitutes a Rule Maker -- with a capital "M" -- please visit the Cash-King Portfolio.)
By the end of this month, we'll roll out exactly what we look for in finding Rule Breaking stocks like AOL and Amazon. The old buy reports for each company explain why we bought them, but it's through their purchase and watching them grow that, eventually, one realizes what the companies did correctly early on and what qualities they possess. Then we're able to look for these qualities in other emerging companies. The qualities that Rule Breakers must possess include being the "top dog and first-mover in an important, emerging industry." A Rule Breaker must also possess a "sustainable advantage due to momentum, patent protection, visionaries, or inept competitors."
Those are just two criteria quoted from David Gardner's half of the Fool's next book, Rule Breakers, Rule Makers (due from Simon & Schuster in January).
The Fool Port is changing its name because: 1) It alone doesn't represent the many different ways that one can invest Foolishly, so it doesn't deserve the encompassing name of "Fool Port" anymore -- it used to be the only portfolio on the Fool, and 2) The Rule Breaker name is more descriptive as to what we're doing here going forward. This portfolio will be the most aggressive (it always has been) on the Fool. The aim is to maximize returns (after taxes) by investing in Rule Breaking companies (and keeping the Foolish Four as a base, and mixing in a few shorts). This isn't much different at all from what we've been doing, and it doesn't supersede past Foolish philosophies -- it just better defines what we're doing.
If we recognized the Rule Breaking principles earlier, perhaps we would have bought Starbucks long before 1998. We might have bought Yahoo!, too. And we wouldn't have bought several of the losers that we hold -- they're not Rule Breakers. (That's not to say that we might not have bought larger losers!) Going forward, however, with Rule Breaking principles in place by the end of November, we'll all be spotting and discussing possible Rule Breakers every year in this portfolio and on the Fool message boards. It'll be exciting for experienced investors and a great education for everyone. And potentially the rewards will continue to surmount. (For more on Rule Breaking, please see David's past columns.)
Today America Online continued to rise (touching its all-time high) following a strong last quarter and news of a 2-for-1 stock split due this month. A split essentially means little, but the stock market always views a split as a positive sign from management. The Fool Port experienced strength across the board, but AOL accounted for much of today's advance.
Innovex (Nasdaq: INVX) was also strong, up 17% on hopes that the disk drive industry is recovering. Supposedly, CNBC said it's the hottest sector right now. Hmm. A few months ago CNBC all but broadcast that it was the coldest. Anyway, Innovex will share quarterly and annual results on November 10. Fourteen cents per share in earnings is anticipated. Today's Lunchtime News discussed the disk drive sector. Iomega (NYSE: IOM) also continued its ascent, perhaps representing some short covering now, not just the recent news.
To close, do you know about our Fools and Their Money area? It has everything from how to buy a car, to Fool insurance, to investing for your kids, to paying for college, to retirement. Also, for everything on the Fool website, bookmark this awesome site map. Note the tabs atop the page linking to everything your Foolish heart might desire.
Finally, voting for the next companies that Drip Port should study is only open one more day. Read the column and cast your vote if you haven't.
DELIVER - Get Fool Portfolio Nightly Reports
delivered straight to your e-mailbox every evening!
Today's FoolWatch: all the latest in Fooldom.
Day Month Year History Annualized FOOL +3.97% 6.44% 70.27% 471.43% 50.71% S&P: +0.70% 1.82% 15.28% 144.04% 23.36% NASDAQ: +1.96% 2.95% 16.13% 153.21% 24.44% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 140.19 3755.08% 9/9/97 580 Amazon.com 19.11 129.81 579.26% 5/17/95 1960 Iomega Cor 1.28 8.00 524.80% 10/1/96 84 LucentTech 23.81 86.50 263.32% 8/12/96 130 AT&T 39.58 60.19 52.07% 4/30/97 -1170*Trump* 8.47 5.94 29.89% 2/20/98 200 Exxon 64.09 72.00 12.34% 2/20/98 215 DuPont 59.83 59.38 -0.77% 2/20/98 270 Int'l Pape 47.69 45.31 -4.99% 7/2/98 235 Starbucks 55.91 46.81 -16.27% 8/13/96 250 3Com Corp. 46.86 34.88 -25.58% 8/24/95 130 KLA-Tencor 44.71 32.44 -27.45% 6/26/97 325 Innovex 27.71 17.44 -37.07% 1/8/98 425 3Dfx 25.67 14.25 -44.48% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 99533.13 $96951.26 9/9/97 580 Amazon.com 11084.24 75291.25 $64207.01 5/17/95 1960 Iomega Cor 2509.60 15680.00 $13170.40 10/1/96 84 LucentTech 1999.88 7266.00 $5266.12 4/30/97 -1170*Trump* -9908.50 -6946.88 $2961.63 8/12/96 130 AT&T 5145.11 7824.38 $2679.27 2/20/98 200 Exxon 12818.00 14400.00 $1582.00 2/20/98 215 DuPont 12864.25 12765.63 -$98.63 2/20/98 270 Int'l Pape 12876.75 12234.38 -$642.38 8/24/95 130 KLA-Tencor 5812.49 4216.88 -$1595.62 7/2/98 235 Starbucks 13138.63 11000.94 -$2137.69 8/13/96 250 3Com Corp. 11715.99 8718.75 -$2997.24 6/26/97 325 Innovex 9005.62 5667.19 -$3338.43 1/8/98 425 3Dfx 10908.63 6056.25 -$4852.38 CASH $12005.75 TOTAL $285713.63