<THE RULE BREAKER PORTFOLIO>

Laissez Faire
A Morose May

by Paul Larson (TMF Parlay)

CHICAGO, IL (May 28, 1999) -- It was a fairly quiet day for the Rule Breaker portfolio. The only meaningful news to consider was yesterday's announcement that Starbucks (Nasdaq: SBUX) had increased its same-store sales by 6% for the first four weeks of May while increasing total sales 26% in the same period. The growth in the Starbucks brand remains exactly where we hope and want it to be.

Beyond that there was some talk that Foolish Four holding Chevron (NYSE: CHV) was perhaps in the market to buy a competitor or two. Yawn. @Home (Nasdaq: ATHM) and Excite (Nasdaq: XCIT) shareholders also both approved the merger of the two companies today, and the merger is expected to be finalized over the weekend. No surprise there. The new company "Excite@Home" will start trading Tuesday. All in all it was mostly a peaceful day ahead of the long holiday weekend.

One interesting piece of news that did hit the wires this week was the fact that both the New York Stock Exchange and the Nasdaq made real steps towards expanding trading into the evening hours. What does this mean to the Rule Breaker?

Not much.

True Fools look at the possibility of having the market open longer with a laissez faire attitude. Since this portfolio hasn't traded a single share in over three months, I find it difficult to believe that the extended trading hours will entice us to flip any of the Rule Breaking companies. Are we being too static in not trying to time the tops in our individual stocks? Read Jeff's column from yesterday for an excellent reply.

While talking about expanding trading hours, the market regulators also spoke of the conversion from fractions to decimals in the coming months. Fools have been championing this cause for many moons, and it is good to know that down the road we won't have to go through the exercise of figuring out exactly what a price of $62 15/64 "really" means. The conversion to having the exchanges using prices reading in decimals is an ongoing process, and the change can't come too soon.

Since it is both the end of the week as well as the end of the month, now is as good a time as any to check the near-term performance of the portfolio:

                   Day     Week    Month
Rule Breaker  +2.74%  -4.89%  -17.58%
S&P 500       +1.59%  -2.14%   -2.50%
Nasdaq        +2.12%  -1.99%   -2.84%

Of course, it looks like May was not exactly kind to the Rule Breaker. One has to go all the way back to the balmy days of August of 1998 to find the last month where the Rule Breaker didn't have a monthly gain. Check this out:


       Rule Breaker   S&P 500  
Sept.  23.89%         6.31%
Oct.   12.17%         8.13%
Nov.   29.42%         5.91%
Dec.   44.46%         5.47%
Jan.   12.17%         4.07%
Feb.    1.25%        -3.23%
March  39.93%         3.88%
April   2.17%         3.79%
May   -17.58%        -2.50% (Doh!)

Look no further than the Rule Breaker's two overshadowing positions in Amazon (Nasdaq: AMZN) and America Online (NYSE: AOL) to see why May was such a lousy month for this portfolio. Amazon started the month at $168.25 and ended it today at $118.75, a 29.4% drop. Converted into dollars that means that our Amazon stock lost $65,340 of its value this month. AOL didn't fare much better after going from $141.38 to $119.25, losing $48,686 of its value to this portfolio. Pretty impressive losses, no? (Who says human nature is to exaggerate the wins and hide the losses? Look for more investing psychology columns next week.)

Of course, these are only paper losses and are not real losses. The Rule Breaker portfolio is investing for the long term, and saying that isn't just a way to cop out of short-term weakness. We say the same thing about being focused on the long-term whether the performance in any given month is outstanding, such as this past March, or terrible, like this past month.

While the stocks may have lost value, what we really care about is that the companies have continued to vibrantly grow. Find solid companies that we think have an exceptionally bright future and hold as long as possible -- what the Rule Breaker does is really that simple.

Looking for more Foolishness before heading out to barbecue this weekend? Check out our special feature this week -- The Best of the Fool.

Have a wonderful holiday, Fools.

-Paul Larson

05/28/99 Close

Stock  Change    Bid 
------------------ 
AMGN  +  7/16    63.25
AMZN  +4 3/16   118.75
AOL   +3 1/8    119.25
ATHM  +4 13/16  126.75
CAT   -  1/2     54.88
CHV   -  1/2     92.50
DD    +  5/16    65.44
DJT   +  3/16     5.31
EBAY  +8 3/16   177.19
GT    +2 5/16    59.69
IOM     ---       4.56
SBUX  +1 3/16    36.88
TDFX  -  7/16    19.38

                  Day     Month  Year   History   Annualized 
      R-BREAKER  +2.74% -17.58%  33.83% 1243.26%   71.60%
        S&P:     +1.59%  -2.50%   6.23%  197.56%   25.44%
        NASDAQ:  +2.12%  -2.84%  12.67%  243.04%   29.21%


    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    119.25   13020.98%
   9/9/97  1320 Amazon.com     6.58    118.75    1704.92%
  5/17/95  1960 Iomega Cor     1.28      4.56     256.33%
  12/4/98   450 @Home Corp    56.08    126.75     126.02%
  2/26/99   300 eBay         100.53    177.19      76.26%
 12/16/98   580 Amgen         42.88     63.25      47.52%
  4/30/97 -1170*Trump*         8.47      5.31      37.27%
   7/2/98   470 Starbucks     27.95     36.88      31.91%
  2/23/99   290 Goodyear T    48.72     59.69      22.52%
  2/23/99   300 Caterpilla    46.96     54.88      16.84%
  2/23/99   180 Chevron       79.17     92.50      16.84%
  2/20/98   260 DuPont        58.84     65.44      11.21%
   1/8/98   425 3Dfx          25.67     19.38     -24.52%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 262350.00  $260350.53
   9/9/97  1320 Amazon.com  8684.60 156750.00  $148065.40
  12/4/98   450 @Home Corp 25236.13  57037.50   $31801.37
  2/26/99   300 eBay       30158.00  53156.25   $22998.25
 12/16/98   580 Amgen      24867.50  36685.00   $11817.50
  5/17/95  1960 Iomega Cor  2509.60   8942.50    $6432.90
   7/2/98   470 Starbucks  13138.63  17331.25    $4192.63
  4/30/97 -1170*Trump*     -9908.50  -6215.63    $3692.88
  2/23/99   290 Goodyear T 14127.38  17309.38    $3182.00
  2/23/99   180 Chevron    14250.50  16650.00    $2399.50
  2/23/99   300 Caterpilla 14089.25  16462.50    $2373.25
  2/20/98   260 DuPont     15299.43  17013.75    $1714.32
   1/8/98   425 3Dfx       10908.63   8234.38   -$2674.25

                              CASH   $9924.87
                             TOTAL $671631.75
 
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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