DRIP PORTFOLIO

<THE DRIP PORTFOLIO>
"Buy What You Know"
...as a stock screen. Plus, J&J's new call.

by George Runkle (TMFRunkle)

Atlanta, GA (July 19, 1999) -- This weekend I was looking through my investments and I was rather surprised by what I found. I've tried many forms of analyzing stocks, and I was curious to see if I could evaluate what worked. In my pre-Foolish days, I dabbled with Technical Analysis. That didn't work well for me. I couldn't see anything but squiggly lines in those charts. Giving up on this, I tried using the Fool Ratio, ValueLine's screens, The Fool Four, Discounted Cash Flow, Rule Maker screen, Rule Breaker screen, and I even experimented with buying a high beta stock to see what would happen (I lost a lot of money).

One of my other methods I've only used with Drips. It's what I call the "I Love This Company" method. It works like this. Step One, you find a company that has a product or service you really like. Step Two, you check to see if it has a Drip. Step Three, you buy the first share or make the minimum investment to get into the Drip. Step Four is to remember to look at its numbers after you've already enrolled in the plan. I always seem to forget to do that. It is kind of embarrassing. Really, I recommend switching Steps Three and Four, and I swear every time I buy into a Drip that I will do that the next time around.

What companies did I buy so carelessly? I bought Johnson & Johnson (NYSE: JNJ), Procter and Gamble (NYSE: PG), Intel (Nasdaq: NTC), and Wal-Mart (NYSE: WMT). The pattern was always the same. I would notice one of these companies, and think about how nice it would be to have it in a Drip. Without thinking, I called my broker, bought that first share, and then enrolled in the Drip. Wal-Mart was a little different. I was researching Netstock (www.netstock.com) for this column, and noticed I could get in that company for $25 a month. Heck, I spend that on coffee, so I went ahead and enrolled right there. Sad to say, not a shred of analysis.

Shamefully, all of these investments did really well. Procter and Gamble hasn't done too well in the past year, but over the time I've owned it, the stock has done very well. Why did this happen? It's probably because these were companies I knew that had products I respected. Also, because they were Drips, I could invest very little, and if the company turned rotten, I could stop right there. That happened to me with Compaq (NYSE: CPQ), but I analyzed that one with a Discounted Cash Flow analysis before I bought it. I really loved Boston Chicken (Nasdaq:BOSTQ) as a place to eat, but I couldn't get it in a Drip. I'm glad I didn't put it in my brokerage account with no analysis. It's bankrupt now.

It would be better to do a certain bit of analysis before jumping into a Drip, of course, to save the cost of the first share of a poorly performing company. The Drip Port looks for all these qualities, linked here. If you are throwing a decent amount of money into an investment, buying what you know without a knowledge of the numbers could get you fried with a company like Boston Chicken. However, as Peter Lynch espouses, there is a good reason to buy into companies that make products you use and love. The biggest surprise to me is that the simple "Buy What You Know" screen has worked better for me than any of the others.

It may be that the little area of what I do know is more than the analysts, account managers, fund managers, and all the rest of the herd can pick up about these companies. Last night as I stopped in Wal-Mart to get a few items, I wondered how many mutual-fund managers actually shop there. How many analysts go to grocery store and pick out laundry detergent? Do they pay attention to all the household products and over-the-counter drugs that are made by Johnson & Johnson?

You can analyze sales projections, profit margins, and fixed and marginal costs all you want, but it does not give you a feel for how good a product is unless you really use it. The carpenter building the house down the street from me probably goes to Home Depot (NYSE: HD) every week. He knows better than any analyst how much better that store is than the old lumberyards, or the "home centers" that popped up a few years ago. Every day all of us use something that we really like. The company that provides or makes that product is something to look into. You see, we all have more than we think.

A J&J Update. Although Johnson & Johnson hasn't traditionally held quarterly conference calls, this quarter it will. The company announces earnings tomorrow, July 20, at 8:30 a.m. Eastern Daylight Time. A 90-minute conference call will follow the announcement, and the call will be rebroadcast during the day, too. We'll have the rebroadcast information and we'll summarize the conference call as well. To obtain information about the live conference call, if you must, please call Johnson & Johnson. Fool on!

The Fool is hiring. Answer the call.

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7/19/99 Close

Stock   Close   Change
JNJ     95 15/16 -1 9/16
INTC    67 9/16  +7/16
CPB     43       -1/4
MEL     36 5/8   -1/8
              Day     Month    Year    History
Drip      (0.28%)   3.77%     7.77%    22.57% 
S&P 500   (0.78%)   2.54%    15.09%    49.81% 
Nasdaq    (1.19%)   5.39%    29.08%    77.58% 


Last Rec'd  Total#  Security   In At    Current
 05/03/99   8.134     CPB     $52.793   $43.000
 07/01/99  21.066     INTC    $41.861   $67.563
 03/09/99   9.076     JNJ     $74.910   $95.938
 06/07/99  22.453     MEL     $33.488   $36.625


Last Rec'd  Total# Security  In At    Value    Change
 05/03/99    8.134   CPB    $429.42  $349.76  ($79.66)
 07/01/99   21.066   INTC   $881.84 $1423.27  $541.43 
 03/09/99    9.076   JNJ    $679.89  $870.73  $190.85 
 06/07/99   22.453   MEL    $751.91  $822.36   $70.45 


Base:  $2800.00
Cash:    $24.29**
Total: $3490.41

The Drip Portfolio has been divided into 110.619 shares with an average purchase price of $24.408 per share.

The portfolio began with $500 on July 28, 1997, adds $100 to invest every month, and the goal is to have $150,000 in stock by August of the year 2017. Due to the slow nature of dollar-cost-averaging, we don't expect to seriously challenge the S&P 500 for the first 3 to 5 years as we build an investment base. The long-term advantages of dollar-cost-averaging still overcome the short-term disadvantages, however. (NOTE: our investment in Campbell Soup is all but frozen due to fees instituted in its DRP plan.)

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</THE DRIP PORTFOLIO>