Excellent piece......................<THE RULE BREAKER PORTFOLIO>
Persistence
Five Years Ago Today, We Bought AOL
By David Gardner
ALEXANDRIA, VA (August 5, 1999) -- The Rule
Breaker Portfolio had a day of minor recovery, rising
2.42% against a 1% gainer of a market.
The day was marked by a sizable rebound in some of
our most thoroughly beaten-down investments. eBay
(Nasdaq: EBAY) was tops, shooting up 23% on no
discernible news. 3dfx (Nasdaq: TDFX) gained 12%,
Amazon.com (Nasdaq: AMZN) rose 10%, and
Excite@Home (Nasdaq: ATHM) stepped up 9%. On
our message boards, I frequently see the bears get
hungriest often when they should be rehibernating. Do
you think it's happening again? Who knows. But one
fellow had just stated that eBay would never see $90
again -- at least not for a few years. Following today's
$17 rise and close over $92, we see the usefulness of
short-term predictions once again made manifest.
Foolish example #9,748.
OK, you might think -- given these -- that our portfolio
was up 10%. But days like that don't happen very
frequently. And, too, America Online (NYSE: AOL)
actually lost value, down 5%.
A perfect segue.
You see, I like to keep up with the "birthdays" of my
individual investments, as it provides me an opportunity
to review them, think them through, appreciate (or, as
the case may be, DESPISE) them a bit, look forward
as I look back.
And five years ago today, the Rule Breaker Portfolio
purchased America Online.
That statement will strike you differently, depending on
who you are. It comes down to your degree of
involvement with AOL, your investing beliefs in general, your thoughts about the
Internet, your degree of comfort with growth stocks, by what route you're
accessing us tonight, etc. The point to begin with is that this is a resonant
statement, resonating with many people in many different ways. Five years ago
today, the Rule Breaker Portfolio purchased America Online.
For instance, you may own it too. Maybe you bought when we did. Or you had
it before we did, or you bought it a few years later. Regardless, you're way, way,
way up, and even though you've watched the shares get cut in half this summer,
you're still shouting, "WOO-HOO! Let's put our hands together, people,
because we have moolah to BURN!"
Then again, you may only just have bought it two months ago for the first time.
What's your reaction then? Those with a pleasant disposition will think: "Those
Rule Breaker guys, gosh. They knew a good thing when they saw it. I WISH I
HAD BOUGHT IT BACK THEN! AAAAARGH." If you're of a less sanguine
disposition, you might think, "So what if you bought it five years ago? What has it
done lately, Fools?" These reactions and a myriad of others are all out there.
Hey, most people don't even own AOL. Some hate it. Every night, I'm writing to
people from every walk of life, in every imaginable situation, who will have the
motliest assortment of reactions to whatever our subject. It's quite a challenge... a
flattering one.
To review: For some people, stating that you bought AOL five years ago is
bragging. For others, it's a sign of credibility. For others, it's just dumb luck. "You
guys got lucky with that one."
Anyway, five years ago, we purchased America Online.
It's pure irony tonight. You see, here we are on our investment's birthday and
BANG -- on this very day, history has repeated itself. Today, AOL was once
again on the receiving end of only the latest in a long, historic series of negative
stories -- worries -- shaking the stock. If you've been a long-term investor in
AOL, we know two things about you: You're happy (a $2000 investment five
years ago in AOL is worth $182,000 today), and you are battling
manic-depression. Either that, or you've disconnected emotions from your
investing altogether.
Or, there's a third option. You're neither manic-depressive, nor phlegmatically
Vulcan. You're just a student of the long term.
Today's announcement, as reported in Breakfast with the Fool, was to the effect
that Microsoft (Nasdaq: MSFT) will compete head to head with AOL by
offering low-priced or free Internet access. The idea is that Microsoft might
provide its online service to you for free if, say, you committed to spending a
certain amount of money in e-commerce with its partners.
I'm quite serious when I say that I think it's great if Microsoft manages to provide
free Internet access in a compelling, cost-effective, profitable way. I own AOL
stock, and it could eventually be undermined if Microsoft pulled this off in a
dominating, mass-market way. But from the unselfish standpoint that admires
good capitalism, I have to say that if a company can provide free Internet access
to the world, more power to 'em. The societal gains in efficiency, commerce,
accountability, openness -- all those things I love about the Internet -- will be
astounding. To this, I say, "Go Microsoft." Or, go AOL. Go anyone who can pull
this off. We should all root for it -- in the most self-interested way, really. This is
why I love capitalism.
But this was the scare, so AOL was among the only "Internets" that didn't rise
today.
The first scare I ever remember for the stock was when Paul Allen sold out his
10%-plus interest in the company shortly after we bought the stock. The message
was that one of this decade's great investors had called it "kaput" and cashed out.
The market freaked. The stock dropped.
I'm not sure what was next. Was it AOL's log-in problems? Customers couldn't
get online reliably. A big suit was brewing. Or, was it Microsoft's entrance with
its own online service, MSN? That was going to kill AOL, too.
If you go back to that time, you'll find us in this very space writing of our belief
that BOTH companies would win. We don't view investing like sports. There
aren't two teams battling. It's not the Cowboys and the Redskins. Somebody
does NOT have to lose. Both AOL and Microsoft have done wonderfully.
Later, there were the tricky accounting charges, there was the "incredibly
overvalued" rap (Barron's printed that AOL was worth -- in split-adjusted
terms, now -- just pennies). Et cetera. If you've been a long-time Fool, you have
been through all of this -- whether or not you've been long, short, or not ever
invested at all. AOL is one of the great business stories of the 1990's. It's also
been one of the great stocks.
AOL had dropped over 10 bucks at one point today, on the Microsoft story. It
closed down several. The stock has been halved this summer -- not the first
summer we've been invested in AOL in which it's been halved! Various people in
various quarters are now calling for the stock's imminent collapse, and death.
You know, the company that is still at the dawn of the Internet, the Internet's
biggest brand name, 20 million customers, and an expanding international
presence. Brilliantly managed. Et cetera.
AOL is now one of the top 50 brands in the world.
I have never made a better investment in my life; perhaps I never will. I have two
points to close with. First, what is relevant now is not AOL's past, but it's future.
I am staying invested. I think AOL will make investors a lot more money over the
next 25 years. Whenever the Microsoft scares have occurred, those have
historically been among the best intermediate-term entry points for investors.
That's my point of view, and we'll see how it plays out. My money is where my
mouth is, and Lord knows I've been wrong before and will be wrong again. But
$2,000 invested five years ago in this stock is now worth $182,000, and that's
after the stock has been more than halved. I would be shocked if this stock is
not higher five years from now than it is today.
My second point: What can we learn from AOL? The greatest lesson I have
learned from watching the business is the amazing persistence of the company.
AOL has received huge amounts of negative publicity in the past five years. It has
been the victim of numerous class-action lawsuits. It has companies of all sizes in
many different sectors (prominently: giants in media, technology, publishing,
telecommunications, biotechnology -- OK, I'm kidding about biotechnology) --
many of the most powerful companies in the world -- gunning for it. Wanting
what it has. Nipping at its heels, biting at its ears.
AOL's lesson to us is persistence. We can all use a little of that as inspiration in
our own lives, whatever we're facing. The company has made numerous
mistakes, and been swatted at hundreds of times. It's happening again as I write.
I was talking earlier with Erik Rydholm, our chief operating officer here at the
Fool, and he likens the company to a football team that only runs the ball. Pounds
it. Over and over and over. It's brutal to watch, and often easy to criticize. But
just as most football teams that run the ball effectively win, AOL has won. Won
like few others.
Looking to the future, AOL would be really dumb if it weren't working hard to
get even stronger and more competitive. I think it has the management to do it,
and my investment dollars are essentially bets on (1) the management, (2) the
brand, and (3) the growth and increasing relevance of the Internet. We'll keep
our eyes wide open as we, long-term investors, continue to hold onto our shares.
Fool on.
-- David Gardner, August 5, 1999 |
