<THE RULE BREAKER PORTFOLIO>

Running to @Home?
Or will Road Runner stay on third base?

by Jeff Fischer (TMFJeff)

ALEXANDRIA, VA (March 23, 1999) -- Concerns about first quarter earnings and Kosovo supposedly sent the stock market lower, with the S&P down 2.7% and the Nasdaq losing 3%. The quick ascent of the market over the past 30 days (we're still at much higher levels than we were) is also responsible for decline. If we hadn't gained ground, we couldn't very well lose it. The Wise seem to forget that obvious point whenever the market declines more than a few points.

Fools who have been around long enough know that daily babble about the stock market is meaningless, but let's address today's concerns.

First, almost every quarter for the past few years stocks have declined before earnings due to fears that results will come up short; then, every quarter as earnings are released, successful companies experience rising stocks and the laggards suffer. Also, after every sharp rise in stocks there's been a retreat in prices for however long. Old hat. Always will be. And finally, external news will often impact the stock market, at least temporarily. In today's case, whatever misfortunes are taking place in Kosovo, they won't likely influence U.S. stocks for long.

However, the Wise will make you think that today was significant. The market is still far above recent prices and near record highs, but the Wise see any decline as meaningful and important. Why a decline is treated with so much importance and given headlines but a gain of the same size isn't is anyone's guess, but we suspect that most of the Wise are pessimists and they expect the worst and so any decline, to them, is a precursor to disaster. Or a dramatic headline sells a story.

Yawn. Check back in 10 years.

I didn't check the market today until half an hour after it closed (I'm a Fool, after all). In doing so, some of the comments from the Wise that I was able to gather included: "Look at that. AOL down $8." (Note to Wise: it was up $10 yesterday, and either way $8 isn't even a 7% move. Plus, the stock is up 140% in the past few months, so today's 6.7% decline is hardly worthy of a "Look at that.") Another comment was: "People have been calling for this for a long time and finally we have the correction coming." (Note to Wise: a 2.7% decline in one day is hardly meaningful when almost 25% of the time in the past four months the market has swung 2% in either direction in the course of one day. It's even less meaningful considering the sharp increase we just saw.)

Whatever today means or doesn't mean, the Rule Breaker Port took its lumps, falling over 6% on a 9.5% decline in Amazon and the 6.7% decline in AOL. Every stock in the portfolio fell, including our short, Trump Hotels (NYSE: DJT). For the year, however, the Rule Breaker is up 33% against the S&P at 3% and Nasdaq at nearly 6%.

Hey, did we just bother to mention tiny little Trump?

Yes, we did. While we're at it, it appears that Tiny is headed back towards the $3 range. Interest in Trump Hotels is drying up so fast that the ticker symbol needs Chap Stick. Today lowly Trump traded a big 97,000 shares. At $4, that gave Trump trading volume of but $388,000. That's not even penny stock status volume. That's half-penny volume. In fact, Trump's daily dollar volume is, ladies and gentlemen (and Fools of all ages), considerably lower than the value of this very portfolio.

Trump's average daily dollar volume has fallen from several hundred million dollars to about $400,000 since we shorted it almost two years ago. This indicates that analysts and brokerage houses (and mutual funds) have all but abandoned the stock -- not a good sign for any company. Debt continues to mount, property continues to depreciate in value, and consistent earnings are elusive. The next milestone for us, David suggests, is for this portfolio to have a larger total market value than Trump Hotels. Trump is currently valued at around $80 million, so we have a ways to go, but both arrows are pointing in the right directions.

In the opposite corner, @Home (Nasdaq: ATHM) has seen volume rise and a large increase in market value since last December. The investing public has known for some time that high bandwidth solutions were the next step in connectivity, but now it's beginning to admit that this solution is beginning to gather more momentum as it finally comes over the horizon, drawing closer and closer like a steaming locomotive. @Home has risen on speculation following recent deals in the industry and on the valuation of those deals.

Yesterday Comcast (Nasdaq: CMCSA) announced that it would acquire MediaOne Group (NYSE: UMG) in a $60 billion deal. The deal put into play the possibility of @Home, with 331,000 subscribers at year-end, acquiring or partnering with Road Runner and its 181,000 subscribers. We actually discussed the possibility of @Home working with Road Runner in early December, the day following our buy. Even then the companies were in negotiation -- on again, off again -- that were far from official but fat with possibility.

A merger or at least a strategic partnership would combine the two leaders in broadband cable Internet access and reduce infrastructure and service costs, as well as eliminate the long-term cost of competing, even though the two companies currently serve different geographic markets.

Part of the reason that Road Runner may seem low profile to many consumers when compared to @Home resides in the fact that Road Runner has lacked a CEO since last June, so the company's initiatives have been limited while searching, and management is probably reluctant to make any large moves without clear leadership in place. By contrast, @Home has continued to increase services (moving into Canada and signing agreements in the U.K.), it has bought Excite (Nasdaq: XCIT), and it is planning to unveil a potentially lucrative TV set-top business by year end. All that aside, @Home's partnership with 16 of the largest U.S. cable companies and its tie with AT&T (NYSE: T) doesn't hurt.

Road Runner might want to partner with this Tog Dog, First Mover to avoid from being little more than a runner up. Either way, high-priced consolidation and financing in the industry has @Home on the rise.

In other Foolishness, what's got Amgen (Nasdaq: AMGN) rising of late? Read the recent Daily Double on the company for an overview... Thank you to everyone who posted thoughts on the Improve our Foolish Portfolios board. Please keep them coming!... We've updated our Portfolio Quick Fact page and provided a table with each portfolio's historic annual return along with other useful resources.

Also in Fooldom tonight, Drip Port began to study its three oil finalists (Exxon/Mobil, BP Amoco, and Pennzoil-Quaker State) for possible investment, just as OPEC agreed to production cuts, pushing up oil prices. (Maybe it's good that this oil study has taken the portfolio five months so far!)... In the Rule Maker Port, Tom is talking about his favorite technology companies and the trip that and he David recently took to California... Finally, on our Hot Topics page, you'll find links to various discussions on our boards, including David debating Amazon.com's business model and Fools talking about AOL & @Home. Check it out.

Fool on!

What's up with Harry Jones today?

03/23/99 Close

Stock  Change    Bid 
---------------- 
AMZN  -12 5/8 119.38
AMGN  -3 1/4   75.81
AOL   -8 15/16 121.25
ATHM  -2      138.00
DJT   -  1/16   4.00
CHV   -1       87.38
CAT   -1 13/16 45.13
DD    -  3/4   56.50
GT    -  13/16 51.63
IOM   -  1/16   5.06
SBUX  -1 1/16  28.63
TDFX  -1 7/8    11.69
EBAY  -8 3/4  146.38

 
                   Day   Month    Year  History  Annualized 
      R-BREAKER  -6.22%  16.99%  32.87% 1233.65%  74.99%
        S&P:     -2.69%   1.92%   3.00%  188.90%   25.75%
        NASDAQ:  -3.05%   1.52%   5.94%  222.54%   28.78%

    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    121.25   13241.04%
   9/9/97  1320 Amazon.com     6.58    119.38    1714.42%
  5/17/95  1960 Iomega Cor     1.28      5.06     295.38%
  12/4/98   450 @Home Corp    56.08    138.00     146.08%
 12/16/98   580 Amgen         42.88     75.81      76.82%
  4/30/97 -1170*Trump*         8.47      4.00      52.77%
  2/26/99   300 eBay         100.53    146.38      45.61%
  2/23/99   180 Chevron       79.17     87.38      10.36%
  2/23/99   290 Goodyear T    48.72     51.63       5.97%
   7/2/98   470 Starbucks     27.95     28.63       2.40%
  2/23/99   300 Caterpilla    46.96     45.13      -3.92%
  2/20/98   260 DuPont        58.84     56.50      -3.98%
   1/8/98   425 3Dfx          25.67     11.69     -54.47%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 266750.00  $264750.53
   9/9/97  1320 Amazon.com  8684.60 157575.00  $148890.40
  12/4/98   450 @Home Corp 25236.13  62100.00   $36863.87
 12/16/98   580 Amgen      24867.50  43971.25   $19103.75
  2/26/99   300 eBay       30158.00  43912.50   $13754.50
  5/17/95  1960 Iomega Cor  2509.60   9922.50    $7412.90
  4/30/97 -1170*Trump*     -9908.50  -4680.00    $5228.50
  2/23/99   180 Chevron    14250.50  15727.50    $1477.00
  2/23/99   290 Goodyear T 14127.38  14971.25     $843.88
   7/2/98   470 Starbucks  13138.63  13453.75     $315.13
  2/23/99   300 Caterpilla 14089.25  13537.50    -$551.75
  2/20/98   260 DuPont     15299.43  14690.00    -$609.43
   1/8/98   425 3Dfx       10908.63   4967.19   -$5941.44

                              CASH   $9924.87
                             TOTAL $666823.31

Note: The Rule Breaker Portfolio was launched on August 5, 1994, with $50,000. Additional cash is never added, all transactions are shared and explained publicly before being made, and returns are compared daily to the S&P 500 (including dividends in the yearly, historic and annualized returns). For a history of all transactions, please click here.

</THE RULE BREAKER PORTFOLIO>

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