<THE RULE BREAKER PORTFOLIO>

Square Dancing!
Amazon playing Monopoly

By Paul Larson (TMFParlay)

CHICAGO, IL (May 3, 1999) -- The Rule Breaker got stepped on yet again today as the market was busy rotating out of the online domain and into the large and corporeal blue chips. If Wall Street was a square dance, the chant today might have gone something like this:

"Swing yer stocks round and round, sell the nets and buy the Dows!"

Just how bad was the carnage for the online stocks in the portfolio? Check this out:

Company  Change  Close    
@Home    -$7.56  $136.38 (Biff!)
Amazon  -$21.13  $150.94 (Kazam!)
AOL      -$9.06  $133.50 (Pow!)
eBay    -$17.50  $190.63 (Doink.)

But then when you look at how the Rule Breaker's Foolish Four performed today, it's a rather different story:

Company     Change  Close
Caterpillar +$0.81  $65.19                        
Chevron     +$2.13 $102.06                      
DuPont      +$1.13  $71.75                  
Goodyear    +$3.56  $60.75                      

Put it all together and the Rule Breaker lost 6.69% of its value today versus a 2.09% gain for the Dow. What's the reasoning behind this rotation? Color me clueless. Perhaps some of the comments from the Oracle of Omaha had something to do with the Internet stocks selling off, perhaps not. Either way, the Rule Breaker portfolio didn't try to time this sector rotation today, and trying to time it tomorrow is not in the playbook. Like Buffett, we're going to continue to buy companies we know and understand while holding them for as long as possible.

While you might not be able to tell when pulling up a quote on Amazon (Nasdaq: AMZN), there appeared to be some rather good news about the company released today. A new study revealed that Amazon has the highest brand awareness of any electronic commerce company. The survey, taken two weeks ago, estimated that 51.7% of all American adults knew what Amazon was. In addition, Amazon reached a brand awareness of 24.0% in those adults who have not even surfed the Web yet. Such large (and growing) brand awareness does not happen by accident.

The study was sponsored by Priceline.com (Nasdaq: PCLN) so it should be of little surprise that Priceline also scored quite well with 46.5% brand awareness. Rule Breaker eBay (Nasdaq: EBAY) was third with 32.2%, and the awareness of the others lower on the list drops off precipitously.

What's interesting about the study is that it shows that the larger e-commerce companies are broadening their lead against the smaller outfits in awareness. I would hardly call this one study proof of anything, but it does reinforce the Rule Breaker belief that being a top dog and a first mover is an exceedingly strong quality to look for.

Amazon also moved to catch a piece of the Star Wars mania today when it opened an online store dedicated to the new movie. Not only will books and toys about the movie be sold at the site, but the company is also promoting the auctions of some of the vintage toys from the original movie. While I know this will have little meaningful impact on next quarter's profits, I think it does show the brilliance of the brand as well as the smarts of those running the company. Running auctions alongside new merchandise is, in my opinion, an awesome idea that will reap many rewards down the road.

I read an interesting idea on the Amazon message board that really got my neurons firing. The message essentially said that today's electronic commerce is much like a game of Monopoly that has just gotten started. Players (companies) are going around the board and collecting whatever properties they can no matter the cost. As any good Monopoly player will tell you, if you have a chance to buy a property, do so. Paying a little cash early in the game can bring a literal windfall of cash later on.

This idea is one of the reasons that many of us Fools were actually cheering when Amazon predicted greater expenditures for the second quarter. It just means that the company has found another property to spend money on. The company has added auctions, pet supplies, and drugs to its portfolio over the past couple of months, and seeing more additions to the company's mix would not surprise me one bit. Could the company start offering software and clothes in future? I think it is a distinct possibility.

Monopoly and the Internet are also alike in that the strong tend to get stronger while the weak tend to get weaker. Plus, combining properties yield special synergies in both the game and the real world. In the game, it's stretches of hotels that bring home the bacon. But in the online universe, it's brand awareness and traffic. Books can feed traffic to auctions that can feed traffic to music, which can feed whatever. The fact that Amazon can "piggy back" any of its new properties to its existing properties gives it an enormous advantage over its competitors. To make a long story short, we like Amazon just as much today as we have at any time.

In other news relevant to the portfolio, Media One (NYSE: UMG) decided to accept AT&T's (NYSE: T) bid for the company today. Fans of @Home (Nasdaq: ATHM) should be rooting for Ma Bell since AT&T owns a controlling interest in the company and would likely align all of Media One's cable companies with @Home. Comcast (Nasdaq: CMCSA) reportedly is interested in countering AT&T's offer, and rumor has it that America Online (NYSE: AOL) and Microsoft (Nasdaq: MSFT) are willing to chip in to Comcast's cause in order to advance their own interests. As always, stay tuned.

Finally, congratulations are in order for there was a new addition to the Rule Breaker family yesterday. David and his wife Margaret welcomed their third baby, Zachary, into the world last night at 8:30 p.m. Zachary weighed in at 7 lb. 3 oz. and is 19 1/2 inches long. Both mom and baby are reported to be doing just fine and dandy. I'm sure this will be a very special Mother's Day for the Gardners. Congratulations, David!

Be Foolish....

-Paul Larson

05/03/99 Close

Stock  Change    Bid 
------------------ 
AMGN  -  1/2     60.94
AMZN  -21 1/8   150.94
AOL   -9 1/16   133.50
ATHM  -7 9/16   136.38
CAT   +  13/16   65.19
CHV   +2 1/8    102.06
DD    +1 1/8     71.75
DJT   +  5/16     4.75
EBAY  -17 1/2   190.63
GT    +3 9/16    60.75
IOM   +  1/16     4.94
SBUX  +  14/25   37.50
TDFX  +  5/8     18.00

                  Day     Month  Year   History   Annualized 
      R-BREAKER  -6.69%  -6.69%  51.51% 1420.71%  77.53%
        S&P:     +1.46%   1.46%  10.52%  209.07%   26.87%
        NASDAQ:  -0.29%  -0.29%  15.64%  252.08%   30.40%


    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    133.50   14588.89%
   9/9/97  1320 Amazon.com     6.58    150.94    2194.15%
  5/17/95  1960 Iomega Cor     1.28      4.94     285.62%
  12/4/98   450 @Home Corp    56.08    136.38     143.18%
  2/26/99   300 eBay         100.53    190.63      89.63%
  4/30/97 -1170*Trump*         8.47      4.75      43.91%
 12/16/98   580 Amgen         42.88     60.94      42.13%
  2/23/99   300 Caterpilla    46.96     65.19      38.80%
   7/2/98   470 Starbucks     27.95     37.50      34.15%
  2/23/99   180 Chevron       79.17    102.06      28.92%
  2/23/99   290 Goodyear T    48.72     60.75      24.70%
  2/20/98   260 DuPont        58.84     71.75      21.93%
   1/8/98   425 3Dfx          25.67     18.00     -29.87%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 293700.00  $291700.53
   9/9/97  1320 Amazon.com  8684.60 199237.50  $190552.90
  12/4/98   450 @Home Corp 25236.13  61368.75   $36132.62
  2/26/99   300 eBay       30158.00  57187.50   $27029.50
 12/16/98   580 Amgen      24867.50  35343.75   $10476.25
  5/17/95  1960 Iomega Cor  2509.60   9677.50    $7167.90
  2/23/99   300 Caterpilla 14089.25  19556.25    $5467.00
   7/2/98   470 Starbucks  13138.63  17625.00    $4486.38
  4/30/97 -1170*Trump*     -9908.50  -5557.50    $4351.00
  2/23/99   180 Chevron    14250.50  18371.25    $4120.75
  2/23/99   290 Goodyear T 14127.38  17617.50    $3490.13
  2/20/98   260 DuPont     15299.43  18655.00    $3355.57
   1/8/98   425 3Dfx       10908.63   7650.00   -$3258.63

                              CASH   $9924.87
                             TOTAL $760357.37

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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