MIAMI, FL (February 1, 2000) -- Like clockwork, Fools. Yesterday we closed out another predictable month. For the 58th time over the last 75 years, small cap stocks outperformed their larger brethren for the month of January. That's an amazing 77% success rate. Woohoo! Easy money.

But, stop. Before you don your riot gear and head out onto the streets to celebrate, let's take a closer look at the numbers. The S&P 500 lost 5.1% of its value while the Nasdaq shed 3.2% last month. That's a relative victory, not an actual one. It's like cheering a sprained ankle because someone else broke a leg. If every month played itself out like January, the Nasdaq Composite would be off 32.3% this year. I won't even work the math on our own unfortunate 8.6% Rule Breaker slide last month.

This wasn't the paradise that market probability had promised. The so-called "January Effect" was a dud. Here we are, alive and kicking on this side of the New Year and not day trading out of wired bunkers, and still the percentages missed. Gimmickry is dead folks. It's time to earn our returns. Some may argue that this January phenomenon simply became its own worst enemy. So many speculators were banking on everyone else buying back the smaller issues after December's tax-loss selling season -- and buying in at the end of the year in anticipation -- that there was no one left in January to do the buying.

Allow me to explain in local terms. Here in Miami we have a Santa's Enchanted Forest carnival that has set up holiday shop over the past dozen years. It's full of all the rides, lights, and greasy eats one would expect to find at a seasonal fair. There is also this campy exhibit housed in a ramshackle booth fitted with a one-way mirrored glass. On one side patrons are instructed to contort their faces with challenges like "only so many people can touch the tips of their nose with their own tongues." Unbeknownst to the daring is that, on the other side, other parkgoers are watching the funny faces through the glass.

Cute? Next. But what happened? The first few years it worked like a charm. Then, as more and more caught on, everyone was lining up on the other side of the glass to find that no one was falling for the gag anymore. Nowadays the booth is ignored completely. Over time, a self-fulfilling prophecy can become a self-destructive prophecy.

But an even better lesson to be learned from all this is that timing reigns paramount in comedy and athletics but doesn't amount to a hill of beans in the investment world.

So January failed. When everyone figured that small caps would be bought the most, their only claim to success lies in the fact that they were sold the least. As for us, why did we fare so poorly this past month? Three letters: A -O - L. The market has not been kind to shares of America Online (NYSE: AOL) since the company announced its intention to merge with Time Warner (NYSE: TWX) last month. If you back AOL out of the portfolio the Rule Breaker would have slipped just 2.3% in January.

But why would anyone want to back AOL out? Since our 1994 purchase of the eventual online giant, the shares have grown 120-fold. There hasn't been a bagger this big since Super Bowl MVP Kurt Warner during his Hy-Vee grocery stock boy days.

AOL has had its share of adversity in the past and it has always found a way to rise above it. Why doubt its ability to continue to do so? AOL has a knack for fixing and ultimately whitewashing its missteps. Case in point, in this month's issue of Inc. Magazine, AOL's Ted Leonsis criticizes young Internet companies who are plunking down the big Super Bowl ad money.

"They should be focused instead on their service and delivery instead of dropping their dollars on TV ads," he said.

That's right, this is the same AOL that was accused of aggressively marketing its service to new subscribers even as the existing members were being surrounded by busy signals while trying to access the then limited network back in late 1996.

History is rewritten by winners. Don't underestimate AOL's ability to take a vat of Liquid Paper to the current Wall Street sentiment over the Time Warner purchase. Eventually. AOL will buy its Time as it bides its time. Tomorrow we will present a special Dueling Fools bout on the merger itself. Don't expect it to be the last word.

And, speaking of tomorrow, it's going to be a busy Ground Hog Day. While everyone gathers as Alan Greenspan emerges from his FOMC meeting to see if he finds his inflationary shadow, (Nasdaq: AMZN) will report earnings (or lack thereof) over the critical holiday quarter. Paul Larson (TMF Parlay) will be here to pick the numbers apart. CEO Jeff Bezos should have some interesting comments to share. Remember Jeff? He was named Man of the Year. In Time.