The first six months of 2002 were the worst for the stock market in 32 years -- the worst since 1970.

In a way, that's comforting.

We survived. It didn't even feel that bad. And since we don't plan to take our money out of the stock market any year soon, we have plenty of time to see a recovery. If the stock market keeps heading south, we have time for that, too. We believe in our companies.

Early July may bring such a decline about. Mid-July brings second-quarter earnings announcements from most companies, but before we get there, we need to get through a few weeks that will likely hold many "earnings warnings." Earnings warnings are announcements from companies saying that results won't meet what was previously expected.

After such a warning, a stock declines as its valuation is adjusted for new expectations. Today we've already seen a few companies warn, and their stocks subsequently tumble, including Avent Software (Nasdaq: ADVS).

It's ugly to watch, but it makes sense.

Except, warnings from just a few companies typically bring down many companies, or even the entire market. It's something investors accept.

Hopefully this portfolio's holdings will not add to the slide. Nearly all our companies announce results by the end of the month. Most our companies are expected to grow sales handsomely, but only two are expected to grow earnings per share by double-digits.

Take a slow look:

     Earnings Q2 EPS Last Yr.  Est. Q2 Sales  Est.
       Date    Est.   Q2 EPS  Change  Est.  Change
MLNM   7/16  ($0.19) ($0.14)   NA    $96m     63%
eBay   7/18   $0.17   $0.12    42%   $264m    46%
Amazon 7/23  ($0.06) ($0.16)   NA    $789m    18%
Amgen  7/24   $0.34   $0.30    11%   $1.1B    11%
AOL-TW 7/24   $0.22   $0.32   (31%)  $10B     8.6%
TREE   7/24  ($0.08) ($0.66)   NA     NA      NA
SBUX   7/25   $0.13   $0.12    8%    $821m    24%
HGSI    NA   ($0.35) ($0.19)   NA    $1.8m   (66%) 
Sirius  NA   ($1.54) ($1.35)   NA    $200K    NA

Highlights include eBay (Nasdaq: EBAY), one of our strongest stocks. The company is expected to increase earnings per share 42% this quarter with a 46% gain in sales, to $264 million. eBay could top $1 billion in revenue this year en route to its goal of $3 billion in 2005.

Despite its stock taking a beating, Amgen (Nasdaq: AMGN) is expected to grow earnings per share 11% this quarter. The stock was expensive, however, and the market's love for biotech is gone despite the long-term promise of industry leaders. For better or worse, this market doesn't care much right now about promise.

Amazon (Nasdaq: AMZN) is expected to grow sales a healthy 18% this quarter, while losses continue to narrow.

Starbucks (Nasdaq: SBUX) is expected to grow earnings just 8% this quarter, but 18% this year, as sales rise sharply amid worldwide expansion.

On the flipside, Human Genome Sciences (Nasdaq: HGSI) will see paltry sales. The company hasn't signed large, new database collaborations as it hinted it may a few years ago. Drugs are its only interest and hope. Unfortunately, two of its six drugs in human clinical trials (which for some reason HGS already calls "products" rather than pipeline) suffered setbacks not long ago in phase II trials.

We knew this may happen -- only a small minority of phase II drugs move to phase III -- so we'll need to be patient (for years) as long as we believe in HGS's drug developing abilities.

Meanwhile, our only short position, Sirius Satellite Radio (Nasdaq: SIRI), launched its service nationwide Monday. We congratulate Sirius on hard work finally accomplished. Competitor XM Satellite (Nasdaq: XMSR) has 136,500 subscribers after 7 1/2 months of service. XM wants 350,000 subs by year-end. Both companies need about four million subs to be cash-flow positive. We're very doubtful that the market (in the next three years or so) will prove that large. In the interim, both companies will need more cash during 2003.

Of our companies that are expected to be profitable this year, here are estimated values:

                 '02 EPS   Est.  Est.'02  Current 
         Price     Est.   Change   P/E     P/FCF*
eBay      $58     $0.76     55     76        70
Amgen     $38     $1.40     19     27        33
Starbucks $24     $0.54     18%    44       179
AOL-TW    $12.75  $0.90    (22%)   14        47
S&P 500   $957      NA      NA     26**      27

*Free Cash Flow
** Approximately

None except AOL Time Warner (NYSE: AOL) looks especially inexpensive on an estimated earnings per share basis; while on a free cash flow basis, the multiple on Starbucks is steep partly because it continues to invest operating cash flow back into new operations.

Overall, Rule Breakers typically look expensive, and given the moats protecting the sales of eBay, Amgen, and Starbucks, it isn't surprising to see these stocks trade at higher multiples even in a miserable stock market. As long as earnings don't disappoint, premium valuation multiples, which they've been given for years, will likely continue (though to lesser degrees as growth rates slow).

To discuss our companies and the Rule Breaker strategy, join us on the Rule Breaker Companies board. Finally, to close, if you care to find a less expensive discount broker, or open a new account, exercise your freedom -- visit the Discount Brokerage Center and compare commissions.

Have a great Fourth!

Jeff Fischer will not be lighting illegal fireworks this year, just those legal ones. Of stocks mentioned, he owns shares of eBay. The Fool believes in a full disclosure policy.

Rule Breaker Portfolio Returns of 7/01/02 Market Close:

            RB        S&P    S&P 500
            Port      500      DA*    Nasdaq
Week      -6.01%**   -2.42%    --     -3.87%
Month     -6.69%**   -2.12%    --     -4.06%
Year     -29.59%**  -15.63%    --    -28.03%
 8/4/94   20.80%      9.92%   11.62%   8.80%

*Dividends added.

**Please keep in mind that these figures will be distorted for the RB Port once a quarter when we deposit $12,500 in new cash. See next note! 

***Compound Annual Growth Rate using Internal Rate of Return. This performance measure accounts for the periodic deposits. Total return wouldn't be meaningful, because we started adding cash to the portfolio in July 2001. In a total return calculation, or (Current Value - All Cash Deposited)/All Cash Deposited, cash added shows up as returns.