<THE RULE BREAKER PORTFOLIO>
What Happened to Fool Port?
The Ultimate Rule Breaker
...it's yet another "A"
by Jeff Fischer (TMFJeff@aol.com)
Paris, France (Dec. 22, 1998) -- Nine days remain in 1998 and the Rule Breaker Portfolio continues its rise unabated. The richest reward possibly gained from this, by all of us, is the lesson that it continually teaches: You and I can absolutely wallop the highly paid professionals and beat the stock market by investing Foolishly.
Today our severe market-beating continued. The port added 1.7% as the major indices that we compete against were flat or down. There's no secret to this portfolio's performance; no active trading; no crystal ball; no chart reading. We're simply investing in promising new companies that are leading the charge on new business fronts. Any Fool can do this. That, I humbly remind, is the entire premise on which the Motley Fool is built.
Today's significant news arrived after the stock market closed: America Online (NYSE: AOL) will be added to the S&P 500 index. The stock has gone up $21 to $138 during after-hours trading on this "validation." America Online is the first Internet-based company to be added to, arguably, the most revered investment index in the world. Monumental indeed. But actually, the Foolish take on this might be that already most S&P 500 companies have a presence -- if they don't do business outright -- on the Internet. As David Gardner argues, the distinction of being an Internet company will soon not offer any distinction at all. That said, we aren't complete party-stoppers. Being added to the S&P 500 is a great achievement for any company -- whatever its business -- so bravo AOL!
Today lacked other meaningful news, so we have the opportunity to opine on: The Ultimate Rule Breaker.
There's speculation on Wall Street over which company will acquire the prestigious ticker symbol of "A." The current owner, Astra AB, will surrender the symbol upon its merger with Zeneca Group. The International Herald Tribune is toying with the idea of Amazon.com (Nasdaq: AMZN) filling in the big shoes. No matter which company gets it, if we were to assume that any entity could possess a ticker symbol, we'd grant the "A" to what we'll call the Ultimate Rule Breaker.
So what is it? Let's run our pick through the Rule Breaker ringer, through which we run all potential Rule Breakers...
# 1 Top dog and first mover in an important and emerging industry
What emerging industry isn't important? All emerging industries that promise to grow and last are important to varying degrees. Having said that, wherever there is an emerging industry, the Ultimate Rule Breaker is involved. It is the top dog and first mover in the industry of modern capitalism itself.
#2: Sustainable advantage gained through business momentum, patents, visionary leadership, or inept competitors
Assuming that I just revealed (already) exactly who or what the Ultimate Rule Breaker is, let's continue to put it through the paces.
Does it have a sustainable advantage? Yes. Rich in both natural and human resources, the Ultimate Rule Breaker is leading the world financially and leading the world in business. It was first on the block to embrace the Internet, having created it, and it is profiting most from it. Its technology is driving the world and shaping its course. And it has patents. Oh boy, does it have patents! It also arguably has the most visionary business leaders on the planet.
Who does it compete against? The Ultimate Rule Breaker has hundreds of inept competitors who are, unfortunately, mired in struggle or lack -- by far -- all of the resources that it possesses. Though other countries have and can challenge it at times, increasingly it is beginning to appear that, for our lifetime, this Rule Breaker could maintain and even expand its brisk lead, pauses and occasional slowdowns not withstanding.
Finally, the Ultimate Rule Breaker has great momentum: it's growing even while entire other continents on the world have shrinking economies. And it's providing the foundation on which much of the world's future will be built -- from telecom equipment, to global satellite networks, to the beverages and foods that the world consumes.
#3: Good management and smart backing
Although the Ultimate Rule Breaker has recently been embarrassed by its political leaders, its business leaders and managers are beyond compare. And its political leaders actually are, too, believe it or not. Largely letting business grow unfettered, the Ultimate Rule Breaker's politicians have embraced the Internet (as just one example) and are allowing it to grow essentially tax-free and uncensored. This certainly isn't the policy in many parts of the world. Even France doesn't allow for private high-security networks that the government wouldn't be able to investigate.
The Ultimate Rule Breaker also reports all of its operations openly and freely with any interested parties. Its president holds an annual "conference call" that is broadcast on every television and radio station and reprinted everywhere. It reports its earnings and losses regularly, and it shares very specific details on its business performance every single week (if not day), from house building statistics to crop yields and prices. In fact, it largely provides its overall strategy and "business plan" to the public -- something perhaps no other Rule Breaker does. Finally, it offers an open and free society, one where anyone can speak his or her mind without persecution, and one where anyone can become a leader.
Who backs it? Everyone who buys a government bond or a Treasury bill or even U.S.-based equities. Who else? Everyone who opts to live in the U.S. and pay taxes, and everyone in the world who buys U.S. products or uses U.S. services. Essentially, anyone who uses the Internet or picks up a phone is backing U.S. inventions and U.S. business to some degree. Everyone who buys a Coca-Cola or Pepsi contributes to the Ultimate Rule Breaker's economy and the well-being of its people.
#4: Strong past price appreciation measured by relative strength of 90 or more
The Ultimate Rule Breaker has a relative strength of 99. It has outperformed 99% of all others in the world. Only a few oil-rich countries have greater material wealth per capita (higher "earnings per share").
#5: The greater the consumer brand, the better
You can't walk 100 yards in any major city in the world without seeing something branded by this Ultimate Rule Breaker, whether it be a man in a Nike shirt, a woman slurping a Diet Coca-Cola, or -- common in many countries -- people actually wearing USA-branded clothing. Its "brand" is the strongest in the world. Every conscious person knows it. It is known everywhere, and in most places it is revered and even dreamt of as "the better way" to live. This reputation is what every Rule Breaker strives for. Yet, as with any powerful brand, it is also disliked by millions.
#6: A significant media constituent has recently called it overvalued
Public television in France would be lost without the ability to propagate its love/hate relationship with the United States. France's television and its newspapers have spent the last week criticizing the U.S. for the attack on Iraq. When it isn't doing that, it frequently reports on the number of shooting fatalities in the U.S., or the country's various high rates of crime. Some of France's most purposeful documentaries on the United States make a point to show footage of the poorest areas of North America's largest cities time and again. In fact, France can sometimes be to America what Barron's (and especially Alan Abelson) has been to Internet stocks: irrationally negative, while ignoring all of the positives.
France is far from alone in calling the U.S. "overvalued," however. Many of the world's Middle Eastern countries spent the weekend tearing down, ripping up, and burning U.S. flags. If they could short the United States of America, they would be shorting it until the cows and goats and horses and sheep and the dog came home.
The United States of America certainly qualifies as the Ultimate Rule Breaker.
Are You a Rule Breaker?
Are you a Rule Breaker in Life? Is your country? Much as one might love it, France isn't. America Online seems to be the easiest and quickest Internet connection in France, having advantages over Wanadoo, the country's other leading service provider. Iomega banners are plastered all over the metro system, and 3Dfx, Iomega, and U.S. Robotics dominate computer store windowspace and shelves (not to mention Microsoft and Intel, of course). Then there's Coca-Cola, McDonald's, IBM... yes, Amgen, too, and perhaps Starbucks soon. If Napoleon were here, he'd have his hands full of invaders, all of them Rule Breakers at one time, if not still now.
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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 +1.70% 32.61% 174.56% 821.42% 66.02% S&P: +0.06% 3.43% 24.02% 162.56% 24.65% NASDAQ: -0.80% 8.79% 35.06% 194.51% 27.96% Rec'd # Security In At Now Change 8/5/94 1100 AmOnline 1.82 122.75 6653.04% 9/9/97 440 Amazon.com 19.74 322.38 1533.29% 5/17/95 1960 Iomega Cor 1.28 7.81 510.16% 10/1/96 84 LucentTech 23.81 102.31 329.74% 8/12/96 130 AT&T 39.58 73.31 85.24% 4/30/97 -1170*Trump* 8.47 4.00 52.77% 12/4/98 450@Home Corp. 56.08 68.06 21.37% 12/16/98 290 Amgen 85.75 103.00 20.12% 2/20/98 200 Exxon 64.09 74.94 16.93% 7/2/98 235 Starbucks 55.91 50.94 -8.89% 2/20/98 215 DuPont 59.83 54.19 -9.44% 2/20/98 270 Int'l Pape 47.69 42.75 -10.36% 1/8/98 425 3Dfx 25.67 12.00 -53.25% Rec'd # Security In At Value Change 9/9/97 440 Amazon.com 8684.60 141845.00 $133160.40 8/5/94 1100 AmOnline 1999.47 135025.00 $133025.53 5/17/95 1960 Iomega Cor 2509.60 15312.50 $12802.90 10/1/96 84 LucentTech 1999.88 8594.25 $6594.37 12/4/98 450@Home Corp. 25236.13 30628.13 $5392.00 4/30/97 -1170*Trump* -9908.50 -4680.00 $5228.50 12/16/98 290 Amgen 24867.50 29870.00 $5002.50 8/12/96 130 AT&T 5145.11 9530.63 $4385.52 2/20/98 200 Exxon 12818.00 14987.50 $2169.50 7/2/98 235 Starbucks 13138.63 11970.31 -$1168.31 2/20/98 215 DuPont 12864.25 11650.31 -$1213.94 2/20/98 270 Int'l Pape 12876.75 11542.50 -$1334.25 1/8/98 425 3Dfx 10908.63 5100.00 -$5808.63 CASH $39332.55 TOTAL $460708.68
</THE RULE BREAKER PORTFOLIO>