We Sell
What is genius?

by David Gardner (DavidG@fool.com)

Genius is nothing but a greater aptitude for patience.
--Georges Louis Leclerc de Buffon (1707-1788)

ALEXANDRIA, VA (Dec. 1, 1998) -- As any regular reader knows by now, The Rule Breaker portfolio (a.k.a. The Fool Portfolio) announced a bunch of sells last week. Today, in Foolish fashion -- having announced what we were going to do BEFORE we go on to do it -- those sales went through. They were executed toward the late afternoon, good enough to get some of the better values of the day, though we did sell Amazon for 6 bucks less than it closed. Here's the skinny:

Sold   140  AMZN  $203 5/8   $8       
Sold   320  AOL    $89 3/16  $8
Sold   325  INVX   $16 3/16  $8
Sold   130  KLAC   $34       $8
Sold   250  COMS   $43       $8

You'll note, if you didn't already know, that we sold minority (20%) stakes of our profitable Amazon.com and America online holdings, and all of our unprofitable ownership of Innovex, KLA-Tencor, and 3Com. In the case of those latter, we did so because we believe we've found a better place for our money. (We will be putting out a new buy announcement at some point in the next week or so.) In the case of AOL and Amazon, they remain our two favorite stocks for the long term. So our sales had nothing to do with our long-term beliefs in those two (both remain our biggest holdings in the portfolio), but rather with our desire to balance the Rule Breaker port a bit more.

As of now, AOL and Amazon represent 52% of our holdings. Before today, they were about 69% of our holdings. By selling, we can now deploy those monies in new additional stocks whose long-term prospects we like. And if and when we find more of those, we may sell off more of our AOL and Amazon, rebalancing further. That will depend on (1) how they do in the first place, and (2) what we find as we scour the world further for Rule Breakers.

Those things said, it's worth reiterating that we like our favorite stocks to represent substantial slices of our overall pie. The Foolish way to invest is, of course, only to allow stocks to GROW INTO substantial portions of your overall portfolio -- we would never artificially inflate a stock's value to our future by buying a huge amount of it relative to what else we owned, or (God forbid) continually adding new monies to a loser that was going down the drain.

By allowing your winners to run, you are essentially allowing nature to run its course; you are giving your best decisions a chance to make you look the best. You're taking credit where it was due, due to YOU from the day you bought. By allowing AOL and Amazon.com to appreciate sufficiently to become 69% of our overall holdings, that's exactly what we've done. It's one of the best investing lessons of all, and is really only truly effective when demonstrated. Sure, we could've "told" you about this, but by actually doing it as we run our own portfolio within full public view, the lesson is that much more helpful.

It's a lesson that both the brokerage industry and the mutual funds industry hate -- they do NOT want you to find this out.

We're being naughty even mentioning it.

AOL is now a 49-bagger for us. We certainly don't expect to get many of these in a lifetime. Fortunately, it doesn't take much more than two or three to make you rich. Returns of this magnitude are the province only of long-term buy-and-hold investors who exhibit patience and discipline, buying good companies Foolishly. (Traders need never apply.) I wrote above that you are letting "nature run its course" with these investments, and I just used the word "patience," there. Both of these are most apropos given our epigraph for today. (Look at the top of the report again.) Buffon himself, treater of "genius" as mere patience, was a French naturalist!

Today saw our portfolio rise 3.84%, beating the market nicely to start December. Starbucks (Nasdaq: SBUX) rose almost 4 bucks, following the announcement after market close yesterday of its monthly same-store sales numbers. These were up 6% over the same month in the previous year. It's been quite a ride for our Starbucks shares since our early July purchase at $56. At one point, this stock had lost almost half its value, touching below $30 in September. So it's good to see Starbucks back over $50 once again. I'm tempted to say that you can't keep a good man down, but that is BLATANTLY UNTRUE because this is a stock, not a man. So perish the thought.

ScubaFool noted for us on the Starbucks message board that Lehman Brothers today raised its price target on the stock to $67. Ahhhhhhh. That makes our $56 purchase look a bit better.

Long term, Starbucks looks like such a keeper...

I had hoped tonight to introduce another principle (number five) of our Rule Breaker portfolio management, but I ran outta time. So look for that tomorrow. What I can let you know is that for the first time ever, this portfolio now has its own message board! You can click into that via this link. I hang out there lots, so please feel free to drop by and say hello. You can save that message board along with any other to your Favorite Boards list simply by clicking on its red heart toward the top of the screen. (If you have any further questions about that, just drop us a note now or anytime in future at Help@fool.com.)

Speaking of helpful things to know about, have you ever had a question about some news item or story on some stock, going a way's back? My own brother, currently holed up on some island in Florida, sent me a message today saying, "Wasn't Gabelli touting Trump a year ago?"

This refers to famous money manager Mario Gabelli, frequent guest in the media venues of the Wise, he of the Gabelli fund family with a grand total of ZERO funds beating the stock market over any round-number period (one-, three-, five-year periods, you name it -- though I am told that Gabelli Global Telecom is winning year-to-date -- phew!).

Anyway, here's where you go to answer such questions: our message boards! On the bottom strip of every screen is a button bar, one of whose options is "Search." If you've never tried it, try it. I just went to our DJT board, hit "Search," typed in "Gabelli" in the Message Body field, and had it search that message board only. Lo and behold, 24 instances came up. There you can read all about how Gabelli lapped up over a million shares of the stock in the summer of '97 (in the face of our own short sale, by the by) -- a fact that was often used as the linchpin to the argument as to why one should OWN the stock. Ouch, Mario. Anyway, that's all a fun way to let you know about the message board search technology. You can go back a few years on many interesting stocks and get that blast-from-the-past info you were wondering about.

OK, then... to close.

Goodbye to thee, 3Com, KLA-Tencor, and Innovex. You left us the poorer, but we nevertheless wish you well on your journey, fellow pilgrims.

-- David Gardner, December 1, 1998

Order your copy of David and Tom Gardner's new book, Rule Breakers, Rule Makers, in advance. This Simon & Schuster beauty doesn't arrive until January, but you can reserve your copy today! The first half of the epic book, on Rule Breakers, elucidates the Fool Port's investment style; the second half, on Rule Makers, further explains Cash-King investing.

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12/1/98 Close

Stock Change Bid ---------------- AMZN +17 1/2 209.50 AOL +2 89.75 T --- 62.19 DJT - 3/16 4.88 DD -1 57.88 XON -3 1/4 71.75 IP + 3/4 44.19 IOM - 1/8 7.56 LU +2 3/8 88.50 SBUX +3 15/16 50.06 TDFX - 7/16 12.38
Day Month Year History Annualized FOOL +3.84% 3.84% 114.98% 621.47% 57.95% S&P: +0.94% 0.94% 21.04% 156.24% 24.32% NASDAQ: +2.79% 2.79% 27.61% 178.25% 26.71% Rec'd # Security In At Now Change 8/5/94 1100 AmOnline 1.82 89.75 4837.56% 9/9/97 440 Amazon.com 19.74 209.50 961.42% 5/17/95 1960 Iomega Cor 1.28 7.56 490.63% 10/1/96 84 LucentTech 23.81 88.50 271.72% 8/12/96 130 AT&T 39.58 62.19 57.13% 4/30/97 -1170*Trump* 8.47 4.88 42.44% 2/20/98 200 Exxon 64.09 71.75 11.95% 2/20/98 215 DuPont 59.83 57.88 -3.27% 2/20/98 270 Int'l Pape 47.69 44.19 -7.35% 7/2/98 235 Starbucks 55.91 50.06 -10.46% 1/8/98 425 3Dfx 25.67 12.38 -51.79% Rec'd # Security In At Value Change 8/5/94 1100 AmOnline 1999.47 98725.00 $96725.53 9/9/97 440 Amazon.com 8684.60 92180.00 $83495.40 5/17/95 1960 Iomega Cor 2509.60 14822.50 $12312.90 10/1/96 84 LucentTech 1999.88 7434.00 $5434.12 4/30/97 -1170*Trump* -9908.50 -5703.75 $4204.75 8/12/96 130 AT&T 5145.11 8084.38 $2939.27 2/20/98 200 Exxon 12818.00 14350.00 $1532.00 2/20/98 215 DuPont 12864.25 12443.13 -$421.13 2/20/98 270 Int'l Pape 12876.75 11930.63 -$946.13 7/2/98 235 Starbucks 13138.63 11764.69 -$1373.94 1/8/98 425 3Dfx 10908.63 5259.38 -$5649.25 CASH $89444.18 TOTAL $360734.12


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