<THE RULE BREAKER PORTFOLIO>

All Hail the Foolish Four!
eBay goes down

By Paul Larson (TMF Parlay)

CHICAGO, IL (June 11, 1999) -- It was just one of those days, Fools. There was news that one of our companies, eBay (Nasdaq: EBAY), was essentially out of business for the day. (Yikes!) Every single one of the positions in the portfolio fell today. Thankfully, one of those is the Trump (NYSE: DJT) short!

Either way, I think the numbers speak for themselves:

                      Day        Week
S&P                -0.70%      -2.56%
Nasdaq             -1.48%      -1.23%
Rule Breaker       -6.04%      -8.64%

All hail the Foolish Four!

After taking early 1999 by storm, the Rule Breaker portfolio has fallen on some tough times the last few weeks. Standing head and shoulders above the market indices and the other Foolish portfolios in performance for much of the year, the Rule Breaker is no longer the top-performing portfolio among our Foolish portfolios. As of yesterday, none other than the Foolish Four portfolio is the best-performing portfolio year-to-date. I'm sure not many figured the sleepy Foolish Four would be the marquee portfolio this late in the year, but it is. All hail the Foolish Four!

Luckily, the Rule Breaker portfolio has the Foolish Four strategy at its foundation, and the Rule Breaker's Foolish Four stocks of Caterpillar (NYSE: CAT), Chevron (NYSE: CHV), DuPont (NYSE: DD) and Goodyear (NYSE: GT) have fared much better than the riskier (but potentially more rewarding) Rule Breakers of late. Where once this portfolio's Foolish Four had an acute case of atrophy, they are once again coming into prominence. The F4 combined represent 11.9% of this portfolio's total value, and that's up from the 10.9% they represented when the F4 switch was made in February. If they continue to outperform, they'll grow in allocation. If not, they will shrink. Darwin would be proud since an emerging part of the Foolish investing strategy is to let the winners run and to let the losers whither away.

eBay goes down

And we're not just talking about the stock price, Fools. Due to some fairly severe technical difficulties, eBay has effectively been out of commission since about 1:00 a.m. Eastern time last night, and the online auctions are still silent as of this writing. In what appears to be the most serious outage to date, users of the site were not able to place bids or check on their items during the difficulty. Those who want the play-by-play of the technical side of the problems can click here.

One of my fellow Fools (who shall remain nameless) emailed me the following observation:

"I heard that eBay is simply closing up shop. They've made their millions and they're going home. ebay.com will now become defunct. It's okay. It is just over. Period. We can expect this kind of anti-expansion to continue online now. It's like an imploding star, this whole Internet thing. It really was a bubble in the end. Just a bunch of hype."

Obviously, this email was made with tongue firmly in cheek, but it does offer some comic relief into the situation. It's hard to argue that the outage was anything but bad for the company. Not only does it essentially represent a day's worth of sales that were thrown out the window, but it is also extremely frustrating to the users of the site. Making customers raving fans should be a priority, and regular eBay users are probably more "raging" than they are "raving" at the moment.

Even though eBay is far ahead of its competitors in the race for the auction leadership crown, this tripping up certainly helps the dozens of competitors that are chasing eBay. One of the sites that logically stands to benefit from eBay's demise is Amazon (Nasdaq: AMZN). But in the whacky and unpredictable world that is the market, Amazon was actually down almost as much as eBay was. Go figure.

Either way, I think it's important to take the eBay outage in context. As they say in basketball, one blown game doesn't necessarily ruin the entire season, and it certainly doesn't ruin a dynasty. String a bunch of blown games together and it might be more significant. I've got to wonder; will anyone remember this one outage five years from now?

This is not even close to the first outage for eBay, and it probably won't be the last. Let's hope for the Rule Breaker's sake that the company's techies get their act together and minimize outages in the future. On the day, eBay was down 9.2% to close at $165.88.

Amgen looks a bit anemic

One of the Rule Breaker stocks that has been looking anemic of late has been none other than the portfolio's sole biotechnology stock, Amgen. One of the factors that has brought dark clouds over the entire sector is the Clinton administration's efforts to give government assistance to the under-insured and uninsured who can't afford prescription drugs. While a noble goal to aid those in need, the proposed regulation brings with it the risk of drug pricing controls. Increased regulation and lower prices are the real risks here, and they're some of the reasons Amgen and its peers have been a bit sickly of late.

It was also announced yesterday that a complex legal struggle between Amgen and Transkaryotic Technologies (Nasdaq: TKTX) was being reopened. Transkaryotic is in Phase III clinical trials with a drug that could compete with Amgen's blockbuster Epogen drug, and it appears that Transkaryotic just wants to make sure that it has clear sailing to bring its new product to market later this year. With fears of increased regulation and competition, it almost makes sense why Amgen has been down.

Almost. Amgen has the sole marketing rights to what promises to be another blockbuster drug, NESP, that is in Phase III clinical trials. NESP is regarded as the "next generation" of anemia treatments. Where Amgen must share with Johnson & Johnson (NYSE: JNJ) its sales of anti-anemia drug Epogen, Amgen will be the exclusive distributor of NESP. Instead of getting just half the pie, Amgen looks to get the whole pie with Epogen's heir apparent. As always, stay tuned because the Amgen story is getting more and more interesting by the day.

Excite@Home, a week after Portland

Another story that has been hotly debated over the past week was the now infamous decision by the city of Portland to demand open access to its cable system that is now owned by AT&T (NYSE: T). Score two points for Rule Breaker AOL (NYSE: AOL) and the OpenNet coalition of ISPs, take one point away from Ma Bell and its partner and Rule Breaker Excite@Home (Nasdaq: ATHM).

In my opinion, probably the most important characteristic to look for in a Rule Breaker is that of a "sustainable advantage gained through business momentum, patents, visionary leadership, and/or inept competition..." One of Excite@Home's competitive advantages was the exclusive nature of the contracts it had with AT&T and other cable operators, and that advantage was seriously undermined by the ruling in Portland.

This isn't to say that Excite@Home is dead meat. There's more than enough sustenance to go around with the broadband pie. In addition, the company is light-years ahead of the other Internet connectivity companies in providing an Internet experience that maximizes the potential brought by connecting via cable. Plus, what exactly the regulatory and pricing structure will look like for open cable access is essentially unknown at this point, and probably won't be known for many moons. In any case, Excite@Home continued its slide and ended the day at $86, down to a level not seen since early January.

For the most in-depth discussion of this topic (or any other) on our growing site, make sure to swing by the Fool's message boards. Any analysis we hardworking Foolish scribes can come up with pales in comparison to the collective knowledge that is exchanged on the boards. Pick a number between one and seven, then click on the number you choose to see a select post from the last week about the Excite@Home situation: 1 2 3 4 5 6 7 .

(No, that wasn't a Foolish psychology or statistics lesson, just a way to show that we have some very intelligent and articulate Fools out there.)

Have a Foolish weekend.

-Paul Larson

06/11/99 Close

Stock  Change    Bid 
------------------ 
AMGN  -1 3/8     52.31
AMZN  -10 1/8   105.81
AOL   -5 7/8     99.88
ATHM  -6 7/8     86.00
CAT   -2 7/16    59.44
CHV   -  3/16    93.06
DD    -  15/16   67.31
DJT   -  1/4      5.13
EBAY  -16 13/16 165.88
GT    -2 3/8     59.38
IOM   -  1/16     4.31
SBUX  -  7/16    35.00
TDFX  -1 1/4     15.50

                  Day     Month  Year   History   Annualized 
      R-BREAKER  -6.04% -13.21%  16.15% 1065.84%   65.95%
        S&P:     -0.70%  -0.62%   5.57%  195.80%   25.07%
        NASDAQ:  -1.48%  -0.92%  11.64%  239.90%   28.70%


    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91     99.88   10889.16%
   9/9/97  1320 Amazon.com     6.58    105.81    1508.28%
  5/17/95  1960 Iomega Cor     1.28      4.31     236.81%
  2/26/99   300 eBay         100.53    165.88      65.01%
  12/4/98   450 Excite@Hom    56.08     86.00      53.35%
  4/30/97 -1170*Trump*         8.47      5.13      39.48%
  2/23/99   300 Caterpilla    46.96     59.44      26.56%
   7/2/98   470 Starbucks     27.95     35.00      25.20%
 12/16/98   580 Amgen         42.88     52.31      22.01%
  2/23/99   290 Goodyear T    48.72     59.38      21.88%
  2/23/99   180 Chevron       79.17     93.06      17.55%
  2/20/98   260 DuPont        58.84     67.31      14.39%
   1/8/98   425 3Dfx          25.67     15.50     -39.61%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 219725.00  $217725.53
   9/9/97  1320 Amazon.com  8684.60 139672.50  $130987.90
  2/26/99   300 eBay       30158.00  49762.50   $19604.50
  12/4/98   450 Excite@Hom 25236.13  38700.00   $13463.87
  5/17/95  1960 Iomega Cor  2509.60   8452.50    $5942.90
 12/16/98   580 Amgen      24867.50  30341.25    $5473.75
  4/30/97 -1170*Trump*     -9908.50  -5996.25    $3912.25
  2/23/99   300 Caterpilla 14089.25  17831.25    $3742.00
   7/2/98   470 Starbucks  13138.63  16450.00    $3311.38
  2/23/99   290 Goodyear T 14127.38  17218.75    $3091.38
  2/23/99   180 Chevron    14250.50  16751.25    $2500.75
  2/20/98   260 DuPont     15299.43  17501.25    $2201.82
   1/8/98   425 3Dfx       10908.63   6587.50   -$4321.13

                              CASH   $9924.87
                             TOTAL $582922.37
 
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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