<THE RULE MAKER PORTFOLIO>
Wealth Building
By Tom Gardner
CHICOPEE, MA (June 22, 1999) -- For today's column, I'm taking a break from a short vacation in the hills of Western Massachusetts to make an important announcement for the regular readers of the Rule Maker Portfolio. Beginning on July 1st, the portfolio will now take in $500 of new, investable savings each month. That totes up to $6,000 of savings each year, which will be invested on a monthly or quarterly basis.
The natural setting up here in the Berkshires couldn't be a more perfect mood-setter for this announcement. On a hike this morning, I mused on our Rule Maker work online while winding under the outstretched arms of old maple, ash, paper birch, hop hornbeam, and white pine trees. Newts scurried across trails swept in thick roots and torn leaves. And two miles in, we came upon the 1898 grave of farmer John Gorman, stamped in the earth next to a stone wall twenty yards from his fallen house.
Everywhere the age of things, the timeless quality of nature's changing face, met with my thoughts about the purpose of this portfolio. We will be adding new money on a monthly basis now, with the aim of achieving ten, thirty, fifty years of above-average investment returns. The increase from $4,000 to $6,000 in new savings each year is in keeping with our belief that, in the early years of a portfolio, the amount of capital invested is of critical importance. With credit cards paid off, with no debt bearing interest higher than 7%, the dollars we bring into the portfolio truly represent long-term savings.
And if we choose to invest this money on a monthly basis, portfolio manager Matt Richey assures me that fees will not, like horseflies, eat us alive. Last night, Matt calculated that a $7.95 commission on a $500 investment amortized over a ten-year holding period comes out to a 0.16% annual charge -- less than the cost of owning Vanguard's index funds. And so, we will likely be making an investment decision and following it with our $500 during the first week of every month. We will continue to need and to use your help in making our choices (just the sort of help that led us to Cisco Systems during the public vote for a new stock in June, 1998... thanks, Fools).
And, in making our decisions, we'll continue to assess our past performance. During the sixteen months since this portfolio was born, we have outperformed the S&P 500 by one percentage point. We hold ten Rule-Maker stocks and the Foolish Four, and all of the managers are agreed that too many holdings is a far greater risk to our success than too few. Thus, you can expect that we'll be looking to add many of our $500 allotments to the holdings already in our portfolio.
To date, the portfolio has three standout winners -- Microsoft, Cisco, and Gap -- each of which has appreciated more than 100% since our purchase. But, in making our decision, we will not blindly add to our winners or pare away our losing investments. Rather, we'll carry out assessments of the businesses we own, continue to search for the highest-quality operations, and add money accordingly. Short-term valuation, the quarterly estimates of Wall Street's conflicted analysts, P/E ratios, the jigglings of lines on a stock graph, the recent performance of the overall market, and/or the flapping of a heron's wings along the Yangtze River -- none of these will affect our decision of whether to and what to buy upon the receipt of $500 at the turn of each month.
Instead, we're going to look for the best companies available to us. We're going to religiously add our new savings to them -- typically delaying a buy announcement at the beginning of a month only because we didn't have time to complete the necessary research. And as we add savings, as we learn more about great businesses, and as we see our wealth grow from one decade to the next, will we not come to take on the patient, calm, and professional gaze and gait of the geologist? She knows that the Earth was shaped over millions of years, that human life has evolved over hundreds of centuries, that everything worth having takes time... even that everything worth having is worth giving away.
In financial terms, we are here building wealth for the families of our family, for more than just an age.
Tom Gardner, Fool
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06/22/99
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Stock Change Bid AXP -1 9/16 124.75 CHV - 9/16 90.13 CSCO -2 5/77 59.50 EK + 1/16 71.56 GM - 1/8 63.63 GPS - 83/93 46.44 INTC -1 1/8 55.69 KO +1 1/16 62.63 MSFT -2 7/16 86.50 PFE + 15/16 98.44 SGP +1 3/8 47.25 TROW + 19/32 35.94 XON -1 3/16 77.06 YHOO -6 3/8 152.50 |
Day Month Year History
R-MAKER -1.21% 2.24% 7.04% 35.45%
S&P: -0.97% 2.61% 9.26% 35.15%
NASDAQ: -1.90% 4.44% 17.68% 56.11%
Rule Maker Stocks
Rec'd # Security In At Now Change
2/3/98 48 Microsoft 39.13 86.50 121.03%
6/23/98 68 Cisco Syst 29.21 59.50 103.73%
5/1/98 82.5 Gap Inc. 22.91 46.44 102.67%
2/13/98 44 Intel 42.34 55.69 31.53%
2/17/99 16 Yahoo Inc. 126.31 152.50 20.74%
5/26/98 18 AmExpress 104.07 124.75 19.88%
2/3/98 22 Pfizer 82.30 98.44 19.61%
2/6/98 56 T. Rowe Pr 33.67 35.94 6.72%
8/21/98 44 Schering-P 47.99 47.25 -1.55%
2/27/98 27 Coca-Cola 69.11 62.63 -9.38%
Foolish Four Stocks
Rec'd # Security In At Value Change
3/12/98 20 Exxon 64.34 77.06 19.78%
3/12/98 20 Eastman Ko 63.15 71.56 13.33%
3/12/98 15 Chevron 83.34 90.13 8.14%
3/12/98 17 General Mo 72.41 63.63 -12.13%
Rule Maker Stocks
Rec'd # Security In At Value Change
2/3/98 48 Microsoft 1878.45 4152.00 $2273.55
6/23/98 68 Cisco Syst 1985.95 4046.00 $2060.05
5/1/98 82.5 Gap Inc. 1890.33 3831.09 $1940.76
2/13/98 44 Intel 1862.83 2450.25 $587.42
2/17/99 16 Yahoo Inc. 2020.95 2440.00 $419.05
5/26/98 18 AmExpress 1873.20 2245.50 $372.30
2/3/98 22 Pfizer 1810.58 2165.63 $355.05
2/6/98 56 T. Rowe Pr 1885.70 2012.50 $126.80
8/21/98 44 Schering-P 2111.7 2079.00 -$32.70
2/27/98 27 Coca-Cola 1865.89 1690.88 -$175.02
Foolish Four Stocks
Rec'd # Security In At Value Change
3/12/98 20 Exxon 1286.70 1541.25 $254.55
3/12/98 20 Eastman Ko 1262.95 1431.25 $168.30
3/12/98 15 Chevron 1250.14 1351.88 $101.74
3/12/98 17 General Mo 1230.89 1081.63 -$149.27
CASH $70.09
TOTAL $32588.93
Note: The Rule Maker Portfolio began with $20,000 on February 2, 1998, and it added $2,000 in August 1998 and February 1999. Beginning in July 1999, $500 in cash (which is soon invested in stocks) is added every month.
