High-Speed Insecurity?
Don't believe the hype

By Chris Rugaber

ALEXANDRIA, VA (July 12, 1999) -- Some quick news: Rule Breaker portfolio holding Amgen (NASDAQ: AMGN) reported after the market close this evening that earnings per share jumped 22% and the company plans to file a new rheumatoid arthritis treatment with the Federal Drug Administration this year. For more info, check the company's press release.

Otherwise, let's ignore the daily stock gyrations and consider some interesting recent news articles. The New York Times reported last week that high-speed, "always on" broadband internet connections, such as those provided by Rule Breaker portfolio holding Excite@Home (Nasdaq: ATHM), might pose greater security risks for individual users than "old-fashioned" dial-up access. The article includes a scary anecdote about one cable modem user whose hard drive was erased by hackers, but doesn't give a clear picture of how widespread this kind of vulnerability is.

There's no question that both cable and DSL connections are easier for hackers to break into than dial-ups. As the Times points out, dial-up services are more intermittent and temporary, so users are given different IP (Internet Protocol) addresses each time they connect to the 'Net. With high-speed "always on" connections, however, service providers frequently give users permanent IP addresses, and hackers can use various software programs to "sniff" or "probe" different connections to find vulnerable home computers. They can then break in and look for credit card numbers, use e-mail accounts, and other such pleasant activities.

Apparently, the unfortunate individual whose hard drive was erased found that he was being "probed" as often as twice a day, after he installed security software that could detect the attempts. But aside from a quote from a security consultant that there has been a "dramatic increase" in home-computer hacking, the article doesn't really investigate how often this actually occurs, or how companies like Excite@Home are responding to this potential threat.

It does note that Road Runner is beginning to rotate IP addresses for its users. It doesn't mention that Excite@Home takes other basic security precautions, such as shutting off print and file-sharing in Windows as part of its installation process. In addition, I gave Excite@Home a quick call and learned that the company uses filtering technology on some cable modems to provide additional security, but I was unable to get more details before deadline.

Nevertheless, when the Times article was discussed on our message boards, one Fool mentioned some apparent (unsuccessful) attempts to hack his connection, but that was it. No horror stories of stolen credit card numbers appeared. Clearly, security is more of a concern if you're going to leave your high-speed connection on all the time, or if you've installed a home network (which would require you to turn file sharing on), but it doesn't seem like this is a huge problem for most users. After all, another effective security measure is to simply turn off your cable modem when you're not using it. If you're interested, you might want to check out some security software mentioned in this post.

The Times does quote one security consultant stating that when it comes to high-speed internet access, "There are too many benefits that outweigh the security risks, provided you take precautions." Having been spoiled by high-speed access here at Fool HQ, I couldn't agree more.

Another article of note ran in The Wall Street Journal on June 30th. It told the story of Fred Housel, a commercial photographer in Washington State who purchased 450 shares of Microsoft stock over a two-year period ending in 1989 and has held on to this day. Don't you wish you had done that? Mr. Housel has since made about 115 times his original investment, and now owns (as a result of share splits) 14,000 shares worth about $1.2 million.

The story is about more than just some guy who actually lived the investor's dream of buying a company like Microsoft early on. One of its critical points is how challenging it was for Mr. Housel to keep holding onto the shares, rather than selling. For example, after his first purchase of shares in 1987, the October crash occurred, and soon Microsoft had lost a third of its value. Two years later, the stock was still at the level he had paid for it. In 1989, he sold half his stake -- which would now be worth another million bucks or so had he kept it -- when the stock jumped up about 12%.

Once the stock did start to really move, the temptation to sell and "lock in" his profits was even greater. Yet thanks in part to advice from his broker(!), Mr. Housel held on, selling only a small portion of his shares to finance a vacation cabin.

There are those who would say Mr. Housel was just lucky, or might ask how the rest of his portfolio performed "without Microsoft." These are questions the Rule Breaker Portfolio faces all the time, as if someone's best investing decisions shouldn't count when looking at their overall performance.

Regardless, the article demonstrates how an individual investor, while continuing to pursue a job he apparently loves, paying only limited attention to the stock market, was able to participate in and dramatically benefit from Microsoft's success, and even spread it around by giving shares to various family members. That's what investing is all about, or should be.

07/12/99 Close

Stock  Change    Bid 
AMGN  -3         66.31
AMZN  -8 1/8    117.38
AOL   -6        122.13
ATHM  -2 5/16    51.50
CAT   -  3/16    61.00
CHV   +1 11/16   98.94
DD    -1 3/16    70.50
DJT   -  7/16     5.63
EBAY  -7 7/8    127.88
GT    +  7/8     58.31
IOM   +  1/16     4.75
SBUX  +  1/16    25.13
TDFX  +  3/16    14.75

                  Day     Month  Year   History   Annualized 
      R-BREAKER  -4.30%   0.50%  29.29% 1197.73%   68.13%
        S&P:     -0.30%   1.91%  14.40%  219.47%   26.54%
        NASDAQ:  -0.09%   3.88%  27.26%  287.46%   31.59%

    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    122.13   13337.31%
   9/9/97  1320 Amazon.com     6.58    117.38    1684.02%
  5/17/95  1960 Iomega Cor     1.28      4.75     270.98%
  12/4/98   900 Excite@Hom    28.04     51.50      83.67%
 12/16/98   580 Amgen         42.88     66.31      54.66%
  4/30/97 -1170*Trump*         8.47      5.63      33.58%
  2/23/99   300 Caterpilla    46.96     61.00      29.89%
  2/26/99   300 eBay         100.53    127.88      27.21%
  2/23/99   180 Chevron       79.17     98.94      24.97%
  2/20/98   260 DuPont        58.84     70.50      19.81%
  2/23/99   290 Goodyear T    48.72     58.31      19.70%
   7/2/98   470 Starbucks     27.95     25.13     -10.12%
   1/8/98   425 3Dfx          25.67     14.75     -42.53%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 268675.00  $266675.53
   9/9/97  1320 Amazon.com  8684.60 154935.00  $146250.40
  12/4/98   900 Excite@Hom 25236.13  46350.00   $21113.87
 12/16/98   580 Amgen      24867.50  38461.25   $13593.75
  2/26/99   300 eBay       30158.00  38362.50    $8204.50
  5/17/95  1960 Iomega Cor  2509.60   9310.00    $6800.40
  2/23/99   300 Caterpilla 14089.25  18300.00    $4210.75
  2/23/99   180 Chevron    14250.50  17808.75    $3558.25
  4/30/97 -1170*Trump*     -9908.50  -6581.25    $3327.25
  2/20/98   260 DuPont     15299.43  18330.00    $3030.57
  2/23/99   290 Goodyear T 14127.38  16910.63    $2783.25
   7/2/98   470 Starbucks  13138.63  11808.75   -$1329.88
   1/8/98   425 3Dfx       10908.63   6268.75   -$4639.88

                              CASH   $9924.87
                             TOTAL $648864.25
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.


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