<THE DRIP PORTFOLIO>
Drip Port is Beating the Market
by Jeff Fischer (TMFJeff)
ALEXANDRIA, VA (July 28, 1999) -- Two years ago today, the Drip Port launched with a 20-year plan. Ten percent of our time has already passed. Time does fly. If you don't have a plan and adhere to a strategy, time will catch you off-guard and leave you playing a sub-par game of catch-up. Too many investors avoid taking action due to uncertainty in the market. The market is never certain, however. The only way to succeed is to be certain yourself. Decide what kind of investor you are and then adhere to a long-term plan, whatever the market is doing around you.
Many people strive to sound important when they talk about investing (or anything). They want to sound intelligent. Sharp. Complicated. Complex. Weighty.
Ironically, Einstein had it right: Subjects should always be boiled down to their simplest form. Nothing is so complicated that it can't be simple. That's true in life, too. You have your value system. You have your goals. You work under your guidelines to achieve your goals.
The Drip Port's goals are simple. We don't have an eight-step program. We don't adhere to preset hurdles for companies to surpass beyond the implicit "strong business" hurdle, which is measured by a company's industry viability, market position, profitability, management, and return to shareholders generated via earnings, share buybacks, and dividends.
Our first purchase was Intel (Nasdaq: INTC) in September of 1997. Johnson & Johnson (NYSE: JNJ) followed in November 1997. In April of 1998, we bought our third company, Campbell Soup (NYSE: CPB). In October of 1998, we bought Mellon Bank (NYSE: MEL).
I believe that if we never buy another company but continue to invest in our present holdings, we will give the S&P 500 a run for the money and, by reinvesting dividends, there's a very good chance that we will smush it. This belief by default stems from a confidence in the management at our companies. A strong management knows how to provide employees access to the possibility for success, and then it allows employees to lead in the pursuit of that success (because management is not at the front line), and that type of management is what all of our companies possess.
How are we doing as managers of the Drip Port, with our stocks out front as our "employees" creating value? You may believe that I'm biased, but I believe the opposite is true. I believe that it is most possible to be objective about yourself, and if that's not true for a person (or a company), they're in for a comeuppance. (Hubris, it's called.) I believe it is easier to be objective about yourself than it is to be objective about anyone or anything else, because you don't likely know anything else as well as you know yourself and your situation.
So, I say objectively that we have done incredibly well. In fact, it would have been difficult to do better judging from the large world of DRP stocks that I follow (KO, PFE, XON, MO, and dozens of others). Intel and J&J have been wonderful investments for us -- beginning low and initially going lower or rising very slowly, thereby allowing us to build a base before they later rose significantly higher. Of course, much of this favorable performance is the result of buying a great business at a good value from day one. We bought both companies believing that we were getting value. Apparently, the market later agreed.
Overall, the Drip Port has invested $2,800 the past 24 months -- $100 per month following our $500 seed money -- and our $2,800 is now valued (as of yesterday) at $3,478. This represents an absolute return of nearly 25%. By itself that isn't initially impressive given the S&P 500's 45% return over the same period. However, the S&P's 45% return is measured in a lump sum from day one. That is not how we invest. We are dollar-cost averaging.
Nearly 50% of our money has been invested for one year or less, giving it much less time to appreciate. We want to compare ourselves to the S&P 500 on equal footing. Therefore, we must account for the fact that we dollar-cost average. So, let's consider the dollar-cost-average return of the S&P 500 over the time period that we have been investing.
If you invested in the S&P 500 via shares of Spiders (AMEX: SPY) on the first of every month for the past two years beginning September 1997 (when we began to invest), your dollar-cost-average return would be only 21.4%. On an apples to apples basis, the Drip Port is beating the S&P 500.
Assuming that you could dollar-cost average into the S&P 500 for free (which you can't), your average cost for shares of SPY (which mirror the S&P 500) if you bought $100 worth every month over our time period would be $112 per share. Today, SPY trades at $136, or 21.4% higher. On an absolute basis, the Drip Port has returned about 25% as of yesterday, and even using our Value Per Share accounting method (which in this case lowers our return a few points), the Drip Port had returned 22.15% as of yesterday.
So, despite what you may see others say or write about the Drip Port, this portfolio has not only held its own, but it is beating the market when the S&P is measured, as it should be, on the investment approach that Drip Port uses. This approach assumes that we must dollar-cost average. It assumes that we didn't have $2,800 to throw into the market two years ago and instead we must invest steadily in small amounts. It assumes that we would need to dollar-cost average into the S&P 500 because we are saving and investing regularly, every month, like a majority of Americans do or should do.
So, two years have passed and the portfolio has a healthy start. We have many more years ahead, of course, but first, let's take another quick look back with an interest in what we must improve.
The most rewarding experience related to this portfolio has been working with and becoming friends with many of you in the DRP investment community. It is a wonderful, friendly, patient, even-headed community that is growing every day. However, there is still an immense community out there that The Motley Fool should strive to reach: the millions of people who have no savings and no investments. For many, DRPs are arguably the only viable way to invest.
A majority of the country still lives check to check. They do not have thousands of dollars to put into stocks and they might never have that much to invest at one time. In fact, the only way that most people might be able to begin to invest, and continue to invest, could be with $50 a month. How do you reach these people? How do you get them started and share with them that it isn't difficult (no college degree required, not by a long shot), and that it is not hopeless? If you begin to save and invest even very small amounts now, you will be in a better place financially 10 years, 20 years, and especially 30 years from now. And you won't feel groundless. You will feel a sense of purpose and direction in this aspect of your life from day one -- from that first $50.
How do you reach more people? How do you reach the people who need the help most? In that respect, the Drip Port has probably largely failed, at least when compared to its potential, as has The Motley Fool. Hopefully, with good planning, that can change. There is nothing uncertain about the world's needs.
Thank you to all of the readers and contributors -- participants -- on the message boards and in e-mail the past two years. It has been wonderful. Campbell Soup is our only scar, I like to believe, and we'll discuss that more as we begin our next food and beverage study. For now, here's to another healthy two years, four years, eight years, and many more for you.
Change the World... work for the Fool.
|Recent Drip Portfolio Headlines|
|12/27/00||Eight Lessons from a Down Market|
|12/26/00||Fools Share Their Blessings|
|12/21/00||Amazon Dropped from Study|
|12/20/00||Ciena's Not Like Other Telecoms|
|12/19/00||They Say You Can't Invest|
|Drip Portfolio Archives »|