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Cash-King Port

The Cash King Portfolio has been renamed the Rule Maker Portfolio.

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11 Steps:
 1: Philosophy
 2: Mastering Finances
 3: Allocating Savings
 4: Finding Ideas
 5: Getting Information
 6: Cash-King Criteria
 7: QuaVa & Flow
 8: Ownership
 9: Putting It Together
10: Retirement
11: Getting Answers

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Monday, February 09, 1998

Cash-King Portfolio Report
by Phil Weiss (pweiss@homemail.com)

TOWACO, NJ (Feb. 9, 1998) -- This week Cash-King Portfolio Central (CKPC) has finally moved to northwestern New Jersey. I say "finally" because when I recently looked back at some of the older messages in the Cash-King Portfolio, I saw that the first launch date that Tom threw out for this portfolio was Veterans Day, November 11, 1997.

Then when Tom realized that this date was a reach, the projected starting date was moved to January 1, 1998. We then missed that date by another four weeks as Fools decided that with Tom touring around the country like some kind of rock star, we'd have trouble getting the Cash-King portfolio off the ground in style.

Those of us contracted to help Tom build this portfolio (myself, Rob and Al -- whom you'll be meeting in the weeks ahead) were understanding, but understandably disappointed. After all, while one of the big benefits to investing in Cash-Kings is that it frees up time for you to pursue other interests, I also know that this rule can't possibly apply until you actually start putting your money to work for you!

Now, in the grand scheme of things the delays from the original launch date will mean very little to our portfolio's long-term return. We're clearly not planning to do any kind of market timing in this account... and even if we were, I expect 25 years from now, our cost bases would be less than memorable.

But, at last, it's finally started. Hey, it took Microsoft how many delays to get out Windows95? It took us two before we could launch Cash-King '98!

Ok, let's begin. Fools, in Step 3 of the 11 Steps to Cash-King Investing, we stated that we won't be following the events surrounding our stocks on a daily basis here. We think that all you need to do is check in on your Cash-Kings once a quarter sometime after the release of earnings. In fact, it's usually best to wait until the 10Q is issued rather than just going over the press release that accompanies the earnings announcement. For those that are unfamiliar with the process, the Securities and Exchange Commission (SEC) requires that listed public companies issue financial statements within 45 days of the release of quarterly earnings to the public.

We'll be reviewing the quarterly performance of our companies quite carefully, but we've also decided that in this space we're going to dedicate each Monday to a wrap-up of events that may have impacted our Cash-King stocks during the past week. Twenty-five percent of our portfolio will eventually be allocated to the Foolish 4, but those stocks will generally receive even less mention in this space than our Cash-Kings.

I get it real easy today, though. We've only been at this a week, and we've purchased just three stocks so far -- Microsoft, Pfizer and T. Rowe Price. Here are the performance tallies for last week:

Microsoft was up 5.7%

T. Rowe was up 3.4%

Pfizer was down 1.0%

Of course we purchased these stocks during the week, so that isn't reflective of the actual performance of our portfolio. If you already held any or all of these stocks, congratulations, you had a great week! For us, including commissions, the three stocks were down 0.1% -- all in all a rather inauspicious, but expected, beginning.

As far as news goes, Pfizer (NYSE: PFE) announced plans on Tuesday to build a 400,000 square-foot facility in New London, CT for the development of new drugs. Construction is expected to begin this spring, and the building should be completed by the year 2000. The new facility will initially employ 1,300 people from the company's global development team, charged with demonstrating the safety and effectiveness of new drugs.

As always, Microsoft (Nasdaq: MSFT) was in and out of the news this week during what seem to be daily skirmishes with the Justice Department. In what could be viewed as good news in this area, Softy did win an appellate court victory when the court suspended the work of special master and Harvard man, Lawrence Lessig. The court's action may allow for Windows 98 to be released sooner rather than later (according to the most recent scuttlebutt, this would mean April).

The probe of Softy was also extended this week to deals that they may have cut with their media partners on the "Active Desktop." As we've stated before, though, the Justice Department's probe is not of major concern to us as long-term investors. Even if one day Softy is broken up, we expect we'll be more than happy owning the resulting pieces.

On Monday, Bill Gates also published a letter to Microsoft's employees and shareholders:

Click here for it: www.microsoft.com/msft/html/gatesletter.htm

The letter provides his viewpoint on the company's current battles with the Justice Department. It's an interesting read. Those of you that are not big fans of Mr. Gates may enjoy knowing that he was hit in the face with a cream pie during last week's visit to Belgium. What many don't know is that the pie-thrower may have done this for money. We're fine with the pie-throwing at our company's executive -- all in good fun. But to do so seeking profit strikes us as particularly lame.

The only news on T. Rowe Price (NYSE: TROW) was the announcement of a 2-for-1 stock split payable on or about April 30. This gives me the opportunity to get up on my soapbox and talk very briefly about stock splits. Many people ask questions like "Such and such stock is splitting does this mean that I should buy it now," or "Fools, should I buy before the split or after it?"

From an investor's perspective stock splits mean absolutely nothing. If a stock splits 2-for-1, then subsequent to the doubling of shares, the price will be cut in half, as will any related dividends. All per share performance measures will be adjusted for the split as well. For example, if the most recent quarter's earnings per share (EPS) was $1.00 before the split, it'll be reported as $0.50 on a go-forward basis after the split. When all is said and done, other than the stock price appearing to be more affordable, nothing has really changed. Fool, your decision to buy any stock should be made independent of the splitting of the stock. If you like the business and feel comfortable with purchasing an ownership slice of it, then by all means do so and don't worry about whether to purchase before or after any pending stock split.

Okay, that's great... but if stock splits mean nothing, then why do companies split their stock? There are a few reasons: Many individual investors like to buy stock in round lots of 100. So, if the stock splits then it becomes more affordable to the individual investor -- a reason recently given by Microsoft. Sometimes it's done to increase liquidity of the stock, as a split results in more shares in the marketplace -- a reason recently given by Coherent Inc. Sometimes it's done to allow a company to offer its employees more shares (though, the same compensation in terms of total value) -- a reason recently given by Iomega. Sometimes it's done because the company has been performing well, is excited about its future prospects, and wants to subtly communicate that to the investing community -- most likely the reason for T. Rowe Price's split announcement this week.

There are also companies like Berkshire Hathaway Inc (Friday's close was $53,400) that have never split their stock. Of course, in this case the purchase of even one share of this fine stock is completely unaffordable for the majority of the investing public. At the extremes, yes, stock splits do make shares more "affordable" for the public.

In this portfolio it won't matter at all to us whether companies split their stock or not -- we just want them to go up. We're planning to invest approximately $1,875 in each of our initial 8 Cash-Kings and to add $2,000 to the overall portfolio every six months. We'll buy whatever number of shares we can get for our allocated purchase amount. If, six months from now, we love a stock trading at $1,960 per share, we'll buy a single share of it. Conversely, if we latch onto a $20 CK stock, we might buy up to 98 shares of it, (or $1,960).

The share count doesn't count.

Tomorrow I plan to cover some of the questions that have been mailed to me about those Steps to Cash King Investing that I worked on, and I'll also relay the content of a conversation that I had this week with the Investor Relations Department of one of our Cash-Kings. Pretty interesting stuff!

See you tomorrow, thanks for enduring my first report here... oh, and, yes...Fool on!

Phil Weiss (pweiss@homemail.com)


TODAY'S NUMBERS
Stock  Change    Bid 
 ---------------- 
 MSFT  -1       157.13 
 PFE   -  1/4   80.75 
 TROW  -1 5/8   65.25 
 

                   Day   Month    Year  History 
         C-K      -0.32%  -0.43%  -0.43%  -0.43% 
         S&P:     -0.17%   0.94%   0.94%   0.94% 
         NASDAQ:  -0.23%   2.27%   2.27%   2.27% 
  
     Rec'd    #  Security     In At       Now    Change 
    2/3/98    12 Microsoft    156.54    157.13     0.38% 
    2/3/98    22 Pfizer        82.30     80.75    -1.88% 
    2/6/98    28 T. Rowe Pr    67.35     65.25    -3.11% 
  
  
     Rec'd    #  Security     In At     Value    Change 
    2/3/98    12 Microsoft   1878.45   1885.50     $7.05 
    2/3/98    22 Pfizer      1810.58   1776.50   -$34.08 
    2/6/98    28 T. Rowe Pr  1885.70   1827.00   -$58.70 
  
                               CASH  $14425.27 
                              TOTAL  $19914.27 
  
 *The year for the S&P and Nasdaq will be as of 02/03/98 
       

 

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