Reinventing a World
Seeing Possibility Over Pitfall

by Jeff Fischer (TMFJeff@aol.com)

ALEXANDRIA, VA (Nov. 10, 1998) -- Do surgeons, despite seeing what makes a body work every day, still marvel at "life?" Probably they do so even more than most of us. Here at the Fool, I sometimes feel the same in relation to stocks: despite seeing the Fool's philosophy play out successfully every passing year, months like this one are still a wonder to behold, even though they probably shouldn't be. After all, it's only logical that investing your money in quickly growing, industry leading companies will grow your investment in-kind.

"Grow up with the country!" was proclaimed 100 years ago. Now the statement might be, "Grow up with cyberspace." The Rule Breaking Fool Port is doing just that.

Yesterday, the portfolio's $2,500 investment in America Online (NYSE: AOL) surpassed a value of $100,000. Amazon.com (Nasdaq: AMZN) is striving to do the same, today rising near its July 6th, 1998 closing high of $139 1/2, but ending the day at $131. The stock began the year at $29 3/4. America Online began 1998 at $44 13/16. Both stocks have gained $100 this year. Winning this year's parade to date, Yahoo! (Nasdaq: YHOO) began January at $33 and today crossed $180.

(I'm looking forward to Alan Abelson's 1998 review. He went through 1997 writing snide warnings that AOL was ridiculously valued. If only the Barron's journalist would support his statements with analysis. First, though, he might have to admit that he incorrectly analyzes situations by consistently being a Wise skeptic above all else. I haven't read his column this year, however, so he might have admitted his errors by now.)

This portfolio's forthcoming Rule Breaker principles go far to identify companies that embrace sea change first, or that strive to create new industries and put the old standbys to test. David offered the first Rule Breaker principle yesterday.

When it comes to redefining industries, Amazon.com's CEO Bezos -- an open-minded, forward thinking fellow who sees possibility in open situations rather than pitfalls -- provided insight into his thinking in an article in this Sunday's Washington Post. Online commerce is an opportunity to make retailing personal again, as it was decades ago in the age of small mom and pop shops that knew your name and knew what you liked to purchase.

Computers have the ability to determine what you might like, as we've already seen from Amazon's recommendation lists. Bezos wants to take this several steps further, addressing all kinds of products. Knowing what movies you admire, a computer can show you toys or watches, or other products, that you might like, too. Knowing where Bezos wants to take his company, will the stock advance anyway when the sale of videos, for example, becomes formal? When the music store opened, the stock gained despite the anti-climatic nature of the news.

One benefit that Internet companies offer investors that many public businesses do not is the ability to watch them improve and grow almost in real time. It's fascinating. By being online, it's easy to spot which Internet companies are working the hardest and adding the most. Yahoo! has built its offerings in public view -- adding new features almost daily -- more quickly than the competition. Amazon is doing this as well. Like Microsoft, the rush for online companies is to get features "to market." Get people to use your features and begin relying on them, and then improve them consistently.

On day one Amazon was a relatively scrappy site selling books. A few years later, along with dozens of incrementally added features, we saw it add music sales. Soon we'll see it add video and software categories. You can watch online companies flower or stagnant by visiting them frequently. Amazon, as we know it now, is probably a far cry from what the site will be next year. Amazon will likely offer twice as many product categories by the end of 1999, and it will have several new features, many of which will strive to increase purchases per account.

But note that I'm not claiming Internet stocks to be overpriced or underpriced -- that's a subject the Wise amply covers (usually scoffing at prices until finally, as in AOL's case, kicking themselves in the rear and flooding the market with positive sentiment years later). Valuing these things now is a near-term game and we're investors for the long term.

In open situations such as the Internet, placing a value on companies this early is not only very difficult but incredibly presumptuous. Amazon.com is synonymous with online retailing. Arguing that eventually the company could sell thousands of product categories obliterates the already old bear argument that Amazon is only a low-margin bookseller. The stock market looks forward to possibilities rather than dwelling on the present, a truth that clashes horribly with skeptics and time-sensitive short sellers.

In news, Amazon was upgraded to a "strong buy" rating by DLJ. Of more substance, yesterday Innovex (Nasdaq: INVX) announced earnings of $0.13 per share, matching Zacks estimates. The company is shipping 1.5 million units of its HIF technology a week, which is low when compared to competing technology shipped by Hutchinson (Nasdaq: HTC). Also of concern, Innovex shared in its July 22nd, third quarter conference call that its new FSA technology would be ready by the end of fiscal 1998 and ship in volume early next year. Now the company believes it will ship by quarter three of next year.

Innovex's fourth quarter conference call replay can be heard at 1-800-633-8284. The authorization code is 1638913. Currently, the company is expected to grow earnings 20% next year, to $1.27 per share.

3Dfx (Nasdaq: TDFX) rose on news that Hightech Suppliers introduced the world's first 3Dfx Voodoo2 board with high-quality resolution TV output for $199. You can order this kickin' toy here: http://www.hsdirect.com/. Also, Iomega's (NYSE: IOM) Clik! mobile drive won Popular Science Magazine's Best of What's New Award. Clik! should be available from Iomega this quarter. We'll be lookin' to grab one and give it a test run.

If you wish to discuss any of the Fool Port's companies at any time, please visit their respective message boards on the Fool Website, at http://boards.fool.com. I have each Fool Port stock listed as a "Favorite" and I check these boards each day. David is out there every day, too. If you have questions, we're happy to try to answer them. You shouldn't have to wait three weeks, for example, to read thoughts in this column on a Fool Port, Rule Breaking holding. Instead, meet us on the boards! (This portfolio will have its own message board as well soon, after our Rule Breaking principles are all presented. That board will be for discussing the portfolio's philosophies.) See you out there.

Fool on!

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Bookmark Live Fool Port Quotes

11/10/98 Close

Stock Change Bid ---------------- AMZN +4 7/8 131.75 AOL + 7/16 144.88 T -1 63.25 DJT --- 5.69 DD -2 5/8 59.25 XON -1 7/8 70.13 INVX -1 1/4 14.88 IP + 3/16 45.94 IOM - 3/8 7.63 KLAC - 3/16 35.19 LU + 7/16 88.81 SBUX + 3/8 46.75 COMS -1 3/16 33.50 TDFX +1 7/8 16.00
Day Month Year History Annualized FOOL +0.55% 8.03% 72.82% 479.98% 51.00% S&P: -0.17% 2.69% 16.26% 146.13% 23.51% NASDAQ: +0.25% 5.32% 18.80% 159.05% 25.00% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 144.88 3883.98% 9/9/97 580 Amazon.com 19.11 131.75 589.40% 5/17/95 1960 Iomega Cor 1.28 7.63 495.51% 10/1/96 84 LucentTech 23.81 88.81 273.03% 8/12/96 130 AT&T 39.58 63.25 59.81% 4/30/97 -1170*Trump* 8.47 5.69 32.84% 2/20/98 200 Exxon 64.09 70.13 9.42% 2/20/98 215 DuPont 59.83 59.25 -0.98% 2/20/98 270 Int'l Pape 47.69 45.94 -3.68% 7/2/98 235 Starbucks 55.91 46.75 -16.38% 8/24/95 130 KLA-Tencor 44.71 35.19 -21.30% 8/13/96 250 3Com Corp. 46.86 33.50 -28.52% 1/8/98 425 3Dfx 25.67 16.00 -37.66% 6/26/97 325 Innovex 27.71 14.88 -46.32% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 102861.25$100279.38 9/9/97 580 Amazon.com 11084.24 76415.00 $65330.76 5/17/95 1960 Iomega Cor 2509.60 14945.00 $12435.40 10/1/96 84 LucentTech 1999.88 7460.25 $5460.37 4/30/97 -1170*Trump* -9908.50 -6654.38 $3254.13 8/12/96 130 AT&T 5145.11 8222.50 $3077.39 2/20/98 200 Exxon 12818.00 14025.00 $1207.00 2/20/98 215 DuPont 12864.25 12738.75 -$125.50 2/20/98 270 Int'l Pape 12876.75 12403.13 -$473.63 8/24/95 130 KLA-Tencor 5812.49 4574.38 -$1238.12 7/2/98 235 Starbucks 13138.63 10986.25 -$2152.38 8/13/96 250 3Com Corp. 11715.99 8375.00 -$3340.99 1/8/98 425 3Dfx 10908.63 6800.00 -$4108.63 6/26/97 325 Innovex 9005.62 4834.38 -$4171.25 CASH $12005.75 TOTAL $289992.25

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