CHICAGO, IL (Oct. 13, 1999) -- Back in 1996, when Iomega's stock was insanely hot, the critics barked, "Eh, those silly Motleys. They'd be nothing without Iomega." A little while later, they were claiming AOL was the so-called "lucky pick" boosting performance. Then, Amazon was supposedly the only stock keeping this portfolio from mediocrity. Basically, pundits out there like to dream what this portfolio would be like without whatever stock has done well in recent times.

It's easy to see why they might want to do this. One stock, AOL, has been a grand slam home run, landing on the roof of the building across the street behind the centerfield bleachers. Beyond that, the portfolio has also had Amazon, another grand slam that "only" landed 30 rows up in left field. (You can scroll down to the very bottom of the page to see the stats yourself.) With so few companies bringing such large returns, it would be interesting to see where the portfolio would be without these homers. (We'll get to that in a sec.)

But first, I want to point out that it seems that those taking pot shots at the Rule Breaker and scoffing at its success thanks to one or two stocks are looking something over. All it really takes to beat the market is one good stock. (See last week's Three Points recap for an explanation.)

Additionally, I really wonder if they realize just how concentrated a portfolio this really is. Right now, the portfolio only has 12 positions, four of which are Dow heavies used in the mechanical Foolish Four method. That means that there are really only 8 "picks" in the portfolio at the moment, and rarely has the number of stocks strayed far from this figure. These are stocks that are held for years, too. Among such a limited sample, to purchase both Amazon and America Online very early in their lifecycles, well, I think it's pretty darn impressive.

More importantly, it really only takes one success and the strength to stick with that success to really make something (anything!) what it is. Just imagine -- the Chicago Bulls without Jordan. Colorado without mountains. Microsoft without Windows. Bill Gates without Microsoft. Intel without the Pentium. Coke without Coke. McDonald's without the Hamburgler. (Everyone knows the Golden arches would be nothing without the striped Hamburgler.) In other words, I think those that ask "Where would we be without _______?" are more than a little goofy.

Regardless, let's go ahead and answer those questions as it pertains to the Rule Breaker. I've gone ahead and calculated this portfolio's theoretical performance as if each of the top five performing stocks had been removed. To keep the calculations simple, I assumed that instead of buying these respective stocks that the funds were cashed and the dollar bills stuffed inside the secret compartment underneath the Fool HQ foosball table. In other words, imagine the funds stayed in cash, not collecting interest, not used to buy other stocks, not used to buy an index fund, not doing anything but sitting there.

All of the following figures are as of the close of trading yesterday, since they took a while to crunch. Getting to the point, if you were to remove the following stocks and their respective paper and realized gains, the performance of the Rule Breaker would have been as follows:
                 Annualized since 8/5/94 
Actual Portfolio              66.32%
Sans Excite@Home              65.59%
Sans Iomega                   65.34%
Sans Amgen                    65.08%
Sans Amazon                   53.26%
Sans America Online           50.05%

Nasdaq                        30.56%
S&P 500, with dividends       23.64%
90+% of mutual funds     Less than 23.64%
As you can see, the Rule Breaker portfolio would still be soundly beating the market even if we completely lost one of star players. This isn't just an exercise having to do with beating chests and pumping egos. Rather, this recap and last week's Three Points recap are meant to illustrate two things:
  1. All you need is one good stock and the fortitude to hold, hold, hold in order to have some smashing returns. For this portfolio, AOL in isolation would have soundly beaten the market over the past five-plus years.

  2. The arguments saying "The Fools would be nothing if they didn't have _______." are bunk. Even if one were to eliminate the gains contributed by any one of this portfolio's top picks, the Rule Breaker still would have beaten the market by a wide margin.
Let's now turn an eye towards today's news. It was another weak day on Wall Street, but there wasn't really a whole lot of news specific to our companies. AOL did announce it was setting up kiosks inside some of Universal's theme parks. Not a bad idea! A partnership between AOL and Motorola was also announced today where AOL's instant messaging service will be available on some of Motorola's new wireless devices. IM's on a cell phone? Very cool.

We're also just heading into heavy-duty earnings season. Iomega kicks off the Rule Breaker's earnings parade tomorrow, and the company is expected to report that it lost a penny per share in the third quarter. If it manages to just meet these estimates, I think we'll be very happy. It will also be interesting to see where the company's top line ends up. There have now been two quarters of sequential revenue declines and five quarters where sales were lower than the previous year. These aren't exactly signs of a Rule Breaker, in my opinion.

Time to close. Remember, Fools, it takes only one good company and the fortitude to hold, hold, hold in order to crush the market.

As always, share any thoughts about tonight's recap in our Rule Breaker Strategies board. And if you are looking into, or for, any new Rule Breaker prospects, the conversation always continues on our Rule Breaker Companies message board.