<THE RULE BREAKER PORTFOLIO>
What Happened to Fool Port?
Plus, the next Rule Breaker purchase
by David Gardner (DavidG@fool.com)
Alexandria, VA (Dec. 15, 1998) -- The Rule Breaker Portfolio -- and in some key senses, our overall approach to Life -- continued to flourish in market trading Tuesday, as our assets appreciated another 4.12% in value. The S&P 500 rose 1.90% and the Nasdaq surpassed that, up 2.33%. The market was very strong today, about as strong today as it was weak yesterday. And in fact, today was the first up move for the Dow Jones industrials following five consecutive daily drops.
The reasons behind those bad moves are supposedly a combination of worries about fourth-quarter earnings and about the President being impeached later this week. Of course, a primary reason behind the market's move up today was positive sentiment about fourth-quarter earnings (attributed primarily to General Electric announcing it was comfortable with estimates). So if you're a journalist, it appears that you can always fall back on reporting that any given market day's moves came down to shifting earnings sentiment, sentiment which is, of course, exactly in line with however the market moved.
I'm not blaming anyone for this, by the way. I suppose I'm just asserting that explanations of daily moves are always inherently simplistic and reductionistic. Yes, we all want to know WHY something that happened, happened. It's a natural human curiosity. However, let's not take too seriously the explanations we read in market recap articles; within 24 hours, you frequently find yourself reading information that directly contradicts what you read the day before.
Anyway, you're in no danger of reading anything like that in this space! We're more interested in what our companies are doing, following the exploits of some of the most amazing movers and shakers in the business world and society itself. Our ultimate focus is of course on how to beat the stock market with minimum effort and maximum effect. As you well know by now, we believe that involves Breaking Rules.
And hey, we are tonight announcing the anointing of a new Rule Breaker! It's a company that is fairly large and well-known, that has been a stellar performer over the past decade already, but that has long, long legs (we think) to run through the coming decades profitably for its shareholders. Plus, the products and the whole business focus are just inherently cool, earthshaking, and beneficial to the world at large. So if you haven't already encountered the full report for this new Rule Breaker, click here to do so. And keep in mind that the stock will inevitably open UP a few bucks tomorrow morning because of the sheer number of people copying our moves. Thus, we may or may not buy tomorrow (we have five days each time to do so).
By the way, given that our efforts are to teach people to think for themselves, make their own decisions, and not follow others' advice blindly, you may think we find it dispiriting to see each new portfolio pick bounce up at market open the next day. If you do think this, you would be wrong. You see, we are at once flattered by the attention and confidence, while at the same time pretty much unconcerned by the jumps. Why? Because we're in it for the long term, so we don't care much whether we have to pay a few bucks more. Also, who's buying? You might think it's just our base consumer readership, average people like you and me spread around the country. But I'm frequently talking to mutual fund managers, brokers, and other people who manage large amounts of money who are tapped directly into www.fool.com for long periods throughout the day. They'd never admit in public, of course, that they're putting their clients into Rule Breaker stocks because they read about them at The Motley Fool, but it's obviously happening. So consider again just who is buying...
And never be under any illusion that we're as good as our numbers look, or that we don't pick lots of losers. Those dicta will remain in play for years to come.
Amazon.com (Nasdaq: AMZN) rose $20 1/2 today, to $242 3/4. That's a solid new high for the stock, now a 12-bagger for us. No news in particular, and I know it's getting boring reporting just how great this investment has been, and how significant for our portfolio. But dem's da berries, and a living reminder once again of just exactly how Rule-Breaking investing works. Indeed, our new book should go a long way toward showing that moves like Amazon's are not completely unjustified, utterly removed from any historical precedent.
In fact, it's just the opposite: This is only the latest in a long historical tradition of Rule-Breaking and revolutionary companies making amazing stock moves, often in advance of full market penetration or even profitability. What may in many ways wind up being Amazon's most direct ancestor, Wal-Mart, made very similar moves, looking "overvalued" all the way up from its coming public in 1970 (with $44 million in sales that year, by the way). It's wound up being the best stock, period, over the past 30 years.
In no way am I saying Amazon will repeat that long-term success! Nothing repeats in exactly the same way, and I simply don't know for sure how Amazon.com will play out over the next two decades. What I am saying is that Amazon's early success on the public markets is not a sign of a market gone mad, as the conventional thinkers and the Wise have been saying throughout the course of this 1129.88% move upward.
They have missed the boat. Again.
Amazon is obviously benefiting from many different factors, though one in particular has to be the wave of interest at this moment in e-commerce holiday gift buying. This might be the year we all look back at in forty years and say, "Y'know, Sammy," -- Sammy being our grandson or great-grandson, depending on how old we are -- "THAT was the year that Internet electronic commerce first really boomed." And you can just see the humorous condescension AND bemusement in little Sammy's eyes as he tries to imagine what the world could ever have been like without e-commerce -- to think that YOU actually lived through such a period! You old fogey.
We got nice $3 gains in both AOL and @Home as well, today.
It's nice to see Starbucks (Nasdaq: SBUX) on the mend. There is a true Rule Breaker that I haven't lost confidence in, even after it was halved from our purchase price. Hey, we're still down on the investment. But do I think we'll look back five years from now and see that despite all this we bought a market-beater? You better believe it. We pays our money, we takes our chances.
And we're wrong frequently, too. Poor 3Dfx (Nasdaq: TDFX) hasn't worked out so far -- in fact, it's half the price we paid on January 8 of this year. Today, 3Dfx rose only $1/16, trying to bounce back from a huge hit yesterday following its surprising announcement that it will acquire STB Systems (Nasdaq: STBI), the graphic-board manufacturer. The move significantly changes our company's future business model, introducing a risk of failure that the market doesn't like.
But it's also a pretty daring and gutsy move that may play to the company's benefit. Essentially, 3Dfx believes it has won the consumer's heart with its brand name (most of all) and its technological superiority, and now it is looking to cash in big-time by making its products directly itself. Will this work? The market doesn't seem to think so, at least at the moment. As an investor, I'm going to continue biding my time in this stock, curious to find out. What do you think? Join our excellent discussion of 3Dfx at our 3Dfx message board.
Finally, I'm really enjoying our ongoing discussion of the Rule Breaker Portfolio on the message board by that name, and encourage any interested new Fool to join in, following and contributing to the discussion. If you're new to The Fool, just hit the red heart at the top of that message board to add it to your Favorite Boards list, putting yourself just one click away now and forevermore. Finally, if you're new to our Web site, go directly to Jail and do not collect $200 if you haven't yet set up your My Fool page! It's your own distinctive page which shows your portfolio and your favorite message boards, dynamically updated 24 hours a day, 7 days a week. For those like me who camp out in Fooldom, it's the bomb! Check it out at:
-- David Gardner, December 15, 1998
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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 Rule Breaker's investment style; the second half, on Rule Makers, further explains Cash-King investing.
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Day Month Year History Annualized R-Breaker +4.12% 10.87% 129.54% 670.35% 59.70% S&P: +1.90% -0.07% 19.83% 153.67% 23.79% NASDAQ: +2.33% 3.23% 28.16% 179.46% 26.57% Rec'd # Security In At Now Change 8/5/94 1100 AmOnline 1.82 92.75 5002.60% 9/9/97 440 Amazon.com 19.74 242.75 1129.88% 5/17/95 1960 Iomega Cor 1.28 7.00 446.70% 10/1/96 84 LucentTech 23.81 96.06 303.49% 8/12/96 130 AT&T 39.58 69.25 74.97% 4/30/97 -1170*Trump* 8.47 4.19 50.55% 12/4/98 450@Home Corp. 56.08 68.69 22.48% 2/20/98 200 Exxon 64.09 74.00 15.46% 7/2/98 235 Starbucks 55.91 51.19 -8.45% 2/20/98 215 DuPont 59.83 53.88 -9.96% 2/20/98 270 Int'l Pape 47.69 42.19 -11.54% 1/8/98 425 3Dfx 25.67 13.00 -49.35% Rec'd # Security In At Value Change 8/5/94 1100 AmOnline 1999.47 102025.00 $100025.53 9/9/97 440 Amazon.com 8684.60 106810.00 $98125.40 5/17/95 1960 Iomega Cor 2509.60 13720.00 $11210.40 10/1/96 84 LucentTech 1999.88 8069.25 $6069.37 12/4/98 450@Home Corp. 25236.13 30909.38 $5673.25 4/30/97 -1170*Trump* -9908.50 -4899.38 $5009.13 8/12/96 130 AT&T 5145.11 9002.50 $3857.39 2/20/98 200 Exxon 12818.00 14800.00 $1982.00 7/2/98 235 Starbucks 13138.63 12029.06 -$1109.56 2/20/98 215 DuPont 12864.25 11583.13 -$1281.13 2/20/98 270 Int'l Pape 12876.75 11390.63 -$1486.13 1/8/98 425 3Dfx 10908.63 5525.00 -$5383.63 CASH $64208.05 TOTAL $385172.61
</THE RULE BREAKER PORTFOLIO>