Boring Portfolio The New Boring Port: A Stalwart in Transition!
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By Dale Wettlaufer (TMF Ralegh)
October 1, 1998

Well, here we are. Dale Wettlaufer and Alex Schay here to explain who the heck we think we are and what the heck we're doing here. Over the next few weeks, we'll lay out our worldview and way of thinking about investing. In the meantime, if you aren't familiar with our work, the Evening News archive is where our past work is stored. I would imagine between us, we've written something in the neighborhood of a million words in our news publications.

That amount of words pales in comparison to what the entire population of people like yourself contribute to the Fool web and AOL sites every day. Which is one feature of the Boring Portfolio that I want to take time to explain today. Alex and I would like to make this as much of a collaborative endeavor as possible between our readers and ourselves. Of all features, there are a couple that stand out to us as the most productive. The component of interaction with the Cash-King managers and the Fools that read and contribute to the Cash-King folders is one. I've participated in the Cash-King folder since day one and I very much enjoy the constant collaboration, two-way teaching, and camaraderie.

Distributed intelligence across a network of minds can process a heck of a lot more information than just one processor can. For instance, it took a bunch of computers working across a network to break the RSA encryption code, not just one. The same kind of power is available to us through the Internet. In front of each computer monitor displaying these words sits an actively functioning brain with unique experiences, knowledge, and processing capabilities. We want to harness those brains to expand our knowledge and analytical abilities, and we want to make that a two-way street.

To that end, we will only be writing portfolio reports three times a week, Tuesday and Thursday being the off-days. This will give us more time to think, read, talk to companies, and hang out on the message boards, especially the Boring board.

With regard to the current portfolio holdings, we haven't shown up with machetes in hand. There are holdings that we like in the current portfolio. Carlisle Companies (NYSE: CSL), for instance, is a stock that my parents own based on the research that I and Greg Markus did a couple of summers ago. I also don't see us making a move with Cisco Systems (Nasdaq: CSCO) anytime soon. This is the sort of company that we like -- a growing market, huge return on capital, and a highly focused game plan. We won't redeploy that capital unless something goes wrong with the business or we can invest in something that grows faster AND with which we can overcome the tax liability that we will incur when we sell it.

On the rest of the holdings, we're not going to dump stuff just so that we can make investments in companies for which we have a greater preference. Before selling anything, we will be taking a look at the merits of the company, on their own and relative to other things. I can say this, though: When you sell anything at a loss, you immediately increase its after-tax value, because you get a deduction on the loss. That will lessen the pain of selling anything. Overall, though, we don't like selling. We want to buy high quality businesses at prices that afford us a large margin of safety. In the short-run, that is one good way to avoid an erosion of principle. In the longer-run, that is also the way to generate superior returns, in our opinion. However, we don't have ego problems on admitting a mistake when one happens. And they do happen.

We're looking forward to working with everyone on the Boring Portfolio and we're also looking forward to devoting more of our time to analysis of individual companies. Doing all the writing and research over the last couple of years for the news has been fun. But when you don't know what you're going to write about on any given day, you have to sacrifice time to do deep research that's needed to develop a wider scope of knowledge.

However, the time that we've spent looking at a wide array of things has helped us immensely. As generalists, we believe that we can invest anywhere we want. We don't have a problem with investing in things that others might not see as "boring," like so-called "high-tech" companies. We also believe that good fundamental analysis transfers itself into the analysis of debt instruments or other things like preferred convertible securities (both of which we'll explain when the time is right). We haven't closed these off from our purview. We are primarily equity investors, though. We'll consider whatever can help us achieve our goal of beating the historical rate of return on equities. Which is a good place to stop today. More tomorrow on what our goals are and what our modus operandi will be. In the meantime, answers to many questions regarding the portfolio's management transition rest behind this link, and are also linked at the top right of this page.


10/01/98 Close
Stock  Change    Bid 
 ANDW  -  3/4   12.50 
 CGO   -1 5/16  27.38 
 BGP   -  7/8   21.38 
 CSL   -1 7/16  37.50 
 CSCO  -4 9/16  57.25 
 FCH   -  11/16 23.63 
 PNR   -  13/16 31.44 
 TBY   -  1/8   6.00 
 
                   Day   Month    Year  History 
         BORING   -4.23%  -4.23% -18.05%   3.11% 
         S&P:     -3.01%  -3.01%   1.64%  58.68% 
         NASDAQ:  -4.81%  -4.81%   2.67%  54.89% 
  
     Rec'd   #  Security     In At       Now    Change 
   6/26/96  225 Cisco Syst    23.96     57.25   138.98% 
   2/28/96  400 Borders Gr    11.26     21.38    89.89% 
   8/13/96  200 Carlisle C    26.32     37.50    42.45% 
    3/5/97  150 Atlas Air     23.06     27.38    18.72% 
   4/14/98  100 Pentair       43.74     31.44   -28.13% 
   11/6/97  200 FelCor Sui    37.59     23.63   -37.15% 
   5/20/98  400 TCBY Enter    10.05      6.00   -40.27% 
   1/21/98  200 Andrew Cor    26.09     12.50   -52.09% 
  
     Rec'd   #  Security     In At     Value    Change 
   6/26/96  225 Cisco Syst  5389.99  12881.25  $7491.26 
   2/28/96  400 Borders Gr  4502.49   8550.00  $4047.51 
   8/13/96  200 Carlisle C  5264.99   7500.00  $2235.01 
    3/5/97  150 Atlas Air   3458.74   4106.25   $647.51 
   4/14/98  100 Pentair     4374.25   3143.75 -$1230.50 
   5/20/98  400 TCBY Enter  4018.00   2400.00 -$1618.00 
   1/21/98  200 Andrew Cor  5218.00   2500.00 -$2718.00 
   11/6/97  200 FelCor Sui  7518.00   4725.00 -$2793.00 
  
                              CASH   $5750.59 
                             TOTAL  $51556.84