A Look Ahead
Drip Housekeepin', plus industry woes

by Jeff Fischer (TMFJeff@aol.com)

Alexandria, VA (Feb. 1, 1999) -- February is one day old and already the stock market has been all over the map.

Flat,           and then up more,
    up some from there,
          and then down again.
Meanwhile, already articles have been written and conversations have been had about how January is an indicator of where stocks will go for the year with 80% accuracy. This year stocks rose in January. According to history, when stocks rise in January, 4 times out of 5 they rise for the year as a whole. Therefore, some articles in the Wise press are already citing this year as a near sure thing for the S&P. (If only they could say the same for mutual funds.)

The bullish articles following January make me think -- if I must -- that stocks will decline this year. Not that we're watching, predicting, concerned, or even pretending to be concerned. In fact, we'd rather that our investments treaded a great blue sea of calm for years while we launch and sail more of our green investment boats out toward the long-term horizon. That's better than having the seas rise while over 80% of our investment-fleet is still stranded on dry land, in the un-invested zone.

Either way, this real-money portfolio is essentially based on one premise. That is:

1) If you regularly invest even small amounts of money into leading companies and you reinvest dividends you can save and return enough to build for a much, much more comfortable future -- and you can beat the market, too, and thereby 90% of the pros that charge you fees to invest your money and to underperform.

Beyond that (and this could be point two), you should enjoy investing your own money, and you should think to share your investment life with a community of like-minded Fools. Drip Fools are a proud group and not too shy to admit it: we avoid paying fees or commissions, we invest regularly no matter what the stock market is doing (because our belief in long-term investing is extremely well grounded), and we're loyal to our companies after discerning that they deserve our loyalty (both commercially and financially) and, finally, we actually understand our investments.

The flip-side to this is the professional money management industry.

Aside from Hollywood (where some actors are extremely overpaid for providing lousy performances -- we've all seen them), the investment industry is one of the most lopsided of any on this round earth. New York City is a bulging mass of inequity. For instance, we have the person working in the corner deli who makes an honestly great and above average sandwich and earns $34,000 a year to provide this well-above par service and product.

Next, we have the person on the 40th floor in the expensive business outfit who underperforms the S&P 500 every year -- just like a monkey could do -- and thereby does a great disservice to clients who would be better off in an index fund, and he or she earns $3 million a year.

And why?

The Financial Wise earn this kind of money only because they round up giant splish-sploshing pools of money (your money) and then skim off a percentage point here and another there. Thus, merely for having the gumption to round up your money, trade it in and out of stocks at a turnover rate of 80% annually and lose to the market, they make millions on the volume of business they create. Because volume business can be without morals, they're paid to underperform the passive averages. Paid millions. A 12-year-old can underperform the market too, and without an education or a million-dollar salary. A 12-year-old can outperform the pros by buying an index fund.

Meanwhile, down at the corner deli you can get a really great sandwich for $3.

Drip Housekeeping. The Drip Port has many items in the works at once, which we know makes it more difficult to "keep up" with the columns at times. However, we're about to embark on a company-by-company look at our oil and gas contenders that will be fairly consistent on a daily basis. That will begin Wednesday, so hold onto your cowboy hats.

Before then, a little note about our monthly $100 in savings. It wasn't added to the portfolio today for a reason. I'll discuss the Drip Portfolio's accounting and performance tomorrow and explain why at that time. For now, know that we'll still add and invest $100 per month, every month, but we won't be adding the money to the portfolio until we actually mail it to be invested. More on that and on our returns tomorrow.

Another big topic is Campbell Soup (NYSE: CPB). Campbell has been in limbo for us since the company instituted fees in its DRP last fall. We were at one time going to combat the fees with a unified effort and a campaign. After talking with Campbell and with First Chicago, however, the thought of doing that has dwindled. I believe that our time can be better spent elsewhere, rather than on confronting a company that seems reluctant to listen. Besides, management has reasons for the fees and it's still a very respectable investment program, at least for investors sinking several hundred dollars into it at once (thereby making the fee to invest negligible).

But what will we do with our Campbell Soup? That will be discussed when our company-by-company study of oil and gas is complete. Right now, Campbell is sitting in our account earning a dividend, for which we pay a slight fee to have reinvested. Know, though, that we haven't forgotten the issue and that it will be addressed with verve.

The next issue that I'm eager to discuss is pharmaceuticals -- again. That will have to wait, too, until the oil study is complete. Know that it's a topic again (especially following the research done on Industry Focus 1999) and that we'll be returning to it.

Also of note, Intel (Nasdaq: INTC) announced a two-for-one stock split last week that will be effective in April. This means that for every share we own, we'll receive another share, while the price of the stock will be halved. The total value of our holding won't change, but we'll own more shares. Likewise, we'll recalculate our cost per share, but not our total cost. Every price that we paid for Intel in our transaction history will be adjusted for the split. Therefore, our cost basis for Intel will be around $40 per share rather than $80. (By the way, the hope is that after 20 years our cost-basis for several of our companies will be in the single-digit per share range, such as $5 for Intel, let's say with a smile, and $8.10 for J&J, and so forth, due to splits.)

Finally, very exciting industry changes are taking place in the Drip-related landscape. We'll be all over this topic in the next few months, too, because it can and certainly will change how we invest, and for the better.

So, the look ahead:

1) Our accounting and performance, tomorrow.
2) Our oil and gas company study begins Wednesday.
3) That's followed by discussion of pharmaceuticals and Campbell Soup.
4) That should be followed by talk of industry changes, which might then be followed by action on our part in reaction to those changes. We might be making some new "rules" here, always with the purpose of achieving our goal to beat the stock market very, very handily over time.

If you have questions or comments, or if you want to make fun of Brian, please visit the message boards linked in the top right of this page. Fool on!

P.S. Check out the Fool's Investors' Rights special, which addresses many Drip-sporting companies and two Drip Port holdings in particular: Campbell Soup and Intel. Be Foolish.

Call Your Boss a Fool.

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2/1/99 Close

Stock    Close     Change
JNJ     83 11/16  -1 7/16
INTC   137 7/8    -3 1/16
CPB     46 3/16   -3/4
MEL     66 15/16  -1/16
             Day     Month    Year    History
Drip       (1.54%)  (1.54%)   4.37%   18.71%
S&P 500    (0.52%)  (0.52%)   3.56%   35.65%
Nasdaq      0.17%    0.17%   14.48%   57.49%

Last Rec'd Total # Security In At  Current
 11/02/98   8.055    CPB   $52.880 $46.188
 12/01/98   9.731    INTC  $80.248 $137.875
 12/08/98   8.605    JNJ   $74.109  $83.688
 01/04/99   3.994    MEL   $62.227  $66.938

Last Rec'd Total # Security In At    Value   Change
 11/02/98   8.055    CPB   $425.95  $372.04 ($53.91)
 12/01/98   9.731    INTC  $780.89 $1341.65 $560.76
 12/08/98   8.605    JNJ   $637.71  $720.13  $82.43
 01/04/99   3.994    MEL   $248.56  $267.38  $18.82

Base:  $2300.00
Cash:   $162.89**
Total: $2864.09

The Drip Portfolio has been divided into 96.509 shares with an average purchase price of $23.832 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress:
10/24/98: Sent $40 to buy more INTC.
01/18/99: Sending $100 to buy more MEL.