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

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Cash-King for Kids
Finding the brands they know...

by Phil Weiss
(pweiss@homemail.com)

TOWACO, NJ (Aug. 5, 1998) -- Happy Birthday to The Motley Fool... hard to believe they've only been incorporated for 3 1/2 years and are operating with a base of about 150 employees. With expansion heading into the UK, and with thousands of new Fools joining each week (thanks in large part to you, dear reader), the sky is truly the limit here on educating people about their money across the planet. (Can you see the grand elegance of this vision?). Happy birthday, Fools.

Okay, last night I gave my perspective on the appropriateness of Cash-King investing for retirees. Tonight I'll go to the other end of the spectrum and discuss whether or not investing in Cash-King stocks is a good way to save for our children's education. It shouldn't be surprising to hear me say that it is. After all, I really think that Cash-King investing is appropriate for nearly all investors, no matter their age. Let's take a look at some of the reasons why Cash-Kings work for kids.

One thing that most parents find scary is the proposition of paying for the education of their children. After all, I've seen statistics stating that within the next ten to twenty years it will cost over $100,000 per year to go to a good private college. Right now, some of the top quality universities cost in the neighborhood of $40,000 to $50,000 annually. Ouch.

Now there are many good public institutions of higher learning that cost a lot less than private schools, but imagine a world where you can give your kids the full range of choices. This doesn't mean that we have to send them to a high-priced school, it just means that we want to make sure the option is available. (We Fools also think you should require your children to pay for a portion of their education on their own -- even if it's just $500 per year -- to remind them of the value of a buck.)

The important thing to keep in mind when saving for your children's education is that the sooner you can get started, the better. Since I expect that well-chosen Cash-King stocks will outperform the market over the long haul, I think it makes a lot of sense to invest at least a portion of the money that we put aside for our children's education in Cash-King stocks -- and to start today.

But, there's another reason for investing such funds in Cash-Kings. Believe it or not, this reason is probably even more important. Let's think about our Cash-Kings for a minute. We have Microsoft (Nasdaq: MSFT), which produces a repeat purchase product sold round the world over and over again. Even if we don't upgrade to the latest and greatest apps, the majority of us are at least reminded of this company every time we turn on our PC, type a document, or put together a spreadsheet.

We also have Coca-Cola (NYSE: KO) a global repeat purchase product that people drink the world over; Gap, Inc. (NYSE: GPS), another powerful brand name that has stores like Baby Gap and Gap Kids; Intel Corp. (Nasdaq: INTC) with its ubiquitous "Intel Inside" label found on over 80% of all PCs sold; and American Express (NYSE: AXP), the issuer of this daddy's favorite credit card.

So, what do all of these companies have in common? They have powerful brand names that people of all ages come across nearly every day. They also sell or market products that both children and adults can get to know and understand, no matter their age.

The advantage of investing in these kinds of companies is that they can be used to get our children familiar with the idea of investing in great companies. It can also teach them about the power of compounding and get them familiar with investing -- a concept that Tom and his brother David have pointed out time and again is unfortunately one of the most important, yet most neglected subjects in our school systems.

Companies like Coke and Intel are among the best in our portfolio for this purpose. Why? They have dividend reinvestment plans (Drips) that allow shareholders to purchase stock every month without paying any commissions at all. This means that you can give your child a share of Coke as a gift to get her started. Then each and every time she drinks a Coke or a glass of Minute Maid lemonade, you can remind her of the fact that she's drinking a product sold by her company.

Then you can encourage your child to take some of the money she receives as a birthday gift and use it to purchase some more shares of her company. And what about her allowance? And when she gets her first summer job, you can suggest that part of her earnings be used to purchase a little stock. As an added incentive, you can even offer to match any amount that they purchase from your own funds.

By investing in this way with your kids, you'll also teach them about the merits of buying and holding companies that they're familiar with. Over time, they'll become increasingly familiar with their companies and their products, they'll learn more about financial statements every year, and they'll come to recognize the value of following great businesses, benefiting from their many works and the many beauties of compounded growth.

Now, I'm certainly not proposing that they use all their money to purchase stocks and miss out on being a kid (i.e. ownership of a Mighty Morphin Power Ranger doll, that Barney t-shirt, and Sid Meier's next software game, etc.). There's no reason to deny them the joys of childhood, but we believe that the joys of childhood can be increased through an education about the game of saving and the game of investing. It needn't be all headaches and medicine. It truly can be a game played throughout life.

And, when all is said and done and it's time for your children to start college, there will be a much better chance that they can afford the college of their choice. There's a pretty good chance they'll realize that comparable value at less cost can be had from a public university -- who knows? The likelihood is that they'll much better understand the value of a dollar, manifest in their lifelong savings/investment account, and will make smart decisions as they leave the nest.

I'll be back tomorrow to discuss some of the ways in which we can save money for our children. In the meantime, if you have any questions visit our message boards, linked below.

Fool on,

Phil Weiss


08/05/98 Close
Stock  Change    Bid 
 ---------------- 
 AXP   +  2     108.44 
 CHV   +  3/8   78.69 
 CSCO  +3 9/16  96.69 
 KO    +1 1/2   80.38 
 GPS   +  15/16 59.44 
 EK    +  3/16  81.25 
 XON   -  7/8   66.19 
 GM    -1 1/8   68.38 
 INTC  +2 1/8   84.00 
 MSFT  -  3/16  104.25 
 PFE   +1 1/4   105.88 
 TROW  +  1/2   34.38 
 

                  Day   Month    Year  History 
         C-K      +1.18%  -2.50%  12.68%  12.68% 
         S&P:     +0.87%  -3.50%   8.00%   8.00% 
         NASDAQ:  +0.13%  -4.51%   8.17%   8.17% 
  
 Cash-King Stocks 
  
     Rec'd    #  Security     In At       Now    Change 
     2/3/98   24 Microsoft     78.27    104.25    33.19% 
     2/3/98   22 Pfizer        82.30    105.88    28.65% 
     5/1/98   37 Gap Inc.      51.09     59.44    16.34% 
    2/27/98   27 Coca-Cola     69.11     80.38    16.31% 
    6/23/98   23 Cisco Syst    86.35     96.69    11.98% 
    5/26/98   18 American E   104.07    108.44     4.20% 
     2/6/98   56 T. Rowe Pr    33.67     34.38     2.08% 
    2/13/98   22 Intel         84.67     84.00    -0.80% 
  
 Foolish Four Stocks 
  
     Rec'd    #  Security     In At     Value    Change 
    3/12/98   20 Eastman Ko    63.15     81.25    28.67% 
    3/12/98   20 Exxon         64.34     66.19     2.88% 
    3/12/98   17 General Mo    72.41     68.38    -5.57% 
    3/12/98   15 Chevron       83.34     78.69    -5.59% 
  
 Cash-King Stocks 
  
     Rec'd    #  Security     In At     Value    Change 
     2/3/98   24 Microsoft   1878.45   2502.00   $623.55 
     2/3/98   22 Pfizer      1810.58   2329.25   $518.67 
     5/1/98   37 Gap Inc.    1890.33   2199.19   $308.86 
    2/27/98   27 Coca-Cola   1865.89   2170.13   $304.24 
    6/23/98   23 Cisco Syst  1985.95   2223.81   $237.86 
    5/26/98   18 American E  1873.20   1951.88    $78.68 
     2/6/98   56 T. Rowe Pr  1885.70   1925.00    $39.30 
    2/13/98   22 Intel       1862.83   1848.00   -$14.83 
  
 Foolish Four Stocks 
  
     Rec'd    #  Security     In At     Value    Change 
    3/12/98   20 Eastman Ko  1262.95   1625.00   $362.05 
    3/12/98   20 Exxon       1286.70   1323.75    $37.05 
    3/12/98   17 General Mo  1230.89   1162.38   -$68.52 
    3/12/98   15 Chevron     1250.14   1180.31   -$69.83 
  
                               CASH     $94.76 
                              TOTAL  $22535.45 
  
   
 *The year for the S&P and Nasdaq will be as of 02/03/98 
       

</THE CASH-KING PORTFOLIO>

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