DRIP PORTFOLIO

<THE DRIP PORTFOLIO>
Fellow Fools and
the First Share

By George Runkle (TMF Runkle)

ATLANTA, GA (August 30, 1999) -- This past weekend I had the privilege of helping staff The Motley Fool booth at the "Managing Your Money" conference in Atlanta. The Gardner brothers came down and broadcasted their radio show live from our booth, and they gave a talk at the end of the program. I was pulled in for one minute at the end of the radio show and was able to speak somewhat coherently (I think) in spite of how terrified I was. It was great to talk to my fellow Atlanta Fools, and I found two people that have actually read my column. I'd like to thank all of you who stopped by and talked to us; it was great meeting you in person.

Across from our booth was a group from Waterhouse Securities. They were a great bunch of guys, and we had a discussion about buying the first share. As Fools have noted in our message board, they only charge $12 for the trade and no fee for the certificate. The Waterhouse guys told me that they have Dividend Reinvesting and there is no need to set up a Drip account if you buy that first share from them. I asked if they allowed monthly Optional Cash Purchases (OCPs) in those companies. Ooops!

Having realized the Error Of Their Ways, they recanted, slightly. They said if you bought a company that paid dividends, but you didn't want to make OCPs, you could reinvest the dividends at no charge. OK, that sounds fine to me. I even won a set of golf balls at their drawing. (They'll look nice at the bottom of some golf course pond.)

One Fool I met liked Drips because they are "the lazy man's way of investing." No trades to worry about, the whole thing goes on autopilot. I have to agree that, with automatic investments, there's not a whole lot to think about once the account is started.

What items came up repeatedly? Mutual funds. A lot of people wanted to know why we didn't like them. It's not that mutual fund managers don't know what they are doing, it's what they work against. Because of diversification requirements, mutual funds can only invest so much of their funds in any one stock. As a fund gets larger, it can have trouble purchasing or selling the stock without affecting its price. While you can buy as much of Intel (Nasdaq: INTC) as you want, Fidelity Magellan Fund can't without artificially causing the price of that stock to jump. When you sell your Intel position, nothing really happens. If a large mutual fund unloads all of its position in one stock, that stock's price will plummet before all the shares are sold.

I was surprised by how many of us made the same mistakes. Here are some of them:

  • Investing in front-end-loaded mutual funds.
  • Putting money into "investments" sold by life insurance agents.
  • Buying stocks in companies we knew nothing about because we saw something mentioned about them somewhere.
  • Trying to get rich quick by short-term trading.
A lot of questions came up about retirement and taxes. For those still curious, check out these links for answers to your tax questions and retirement questions. Plus, the Fool will have much more on retirement later this fall.

One display that impressed me was from Realestate.com. This site provides a whole set of tools for buying real estate. I was able to get a property report on my home, with its expected annual increase in value, and how long I need to stay in to break even when I sell.

Since last week's column on buying the first share, a few things came to me by e-mail and the message boards. Fool Trevar pointed out that E*Trade and other brokers often charge a fee for issuing certificates. So, check that out before you buy. E*Trade charges $5, but others can be quite high. Also, two other sources of the first share came up: First Share and the National Association of Investors Corporations (NAIC).

First share works as a cooperative; members sell the first share of a company to each other from their Drip accounts. For this, you have to become a member ($40) and you pay a fee for each transaction ($10). It's a little bit more complex than I have room to write about here, so check out their website.

The NAIC has a good plan, too. For a $7 fee and the price of the first share of the stock, they will enroll you in a Drip. Take a look at the list of companies in their plan to see if any interest you.

As a final note, let me quote Fool Trevar: "Yes, it is kind of amazing how many different ways there are to get started Drip-ping. And it's also amazing how newcomers take every word published on the TMF site (the articles, that is) as though it's the right way or the only way. Investing via Drips is a complicated topic -- companies change their plans, transfer agents impose fees or remove fees, there are many ways to do the same thing, etc. Using your articles to repeatedly refer people to the boards seems like a smart strategy because they can then post the questions that are specific to their situation and hopefully receive good answers."

That pretty well wraps everything up: In Fooldom, we learn from each other. To participate, visit the message boards linked at the top right of this page.

Drip Portfolio

8/30/99 Closing Numbers
Ticker Company Dly Pr Chg Price
CPBCAMPBELL SOUP-11/16$44.38
INTCINTEL CORP-3/4$82.25
JNJJOHNSON & JOHNSON3/16$102.38
MELMELLON BANK CORP-1 3/8$33.63

  Day Week Month Year
To Date
Since
7/28/97
Annualized
DRiP -1.27% -1.27% 11.61% 17.48% 33.61% 14.86%
S&P 500 -1.80% -1.80% -.35% 7.71% 41.03% 17.87%
S&P 500(DA) -1.77% -1.77% -.35% 8.17% 43.66% 18.91%
S&P 500(DCA) n/a n/a n/a n/a 21.75% 9.86%
NASDAQ -1.67% -1.67% 2.81% 23.72% 72.83% 29.90%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
9/8/9721.0659INTC42.573$82.2593.20%
11/14/9710.16JNJ78.233$102.3830.86%
11/5/9822.4534MEL34.156$33.63-1.55%
4/13/988.174CPB54.586$44.38-18.71%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
9/8/9721.0659INTC$896.84$1,732.67$835.83
11/14/9710.16JNJ$794.85$1,040.13$245.28
11/5/9822.4534MEL$766.91$755.00($11.92)
4/13/988.174CPB$446.18$362.72($83.46)
  Cash: $24.33  
  Total: $3,914.85  


Key
• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.

Note
Drip Port launched with $500 on July 28, 1997, adds $100 to invest every month, and the goal is to own $150,000 in stock by August of the year 2017. Due to the slow nature of dollar-cost-averaging and our relatively significant starting costs, we do not expect to seriously challenge the S&P 500 for the first three to five years as we build an investment base. The long-term advantages of dollar-cost-averaging still overcome the short-term disadvantages, however. Final note: our investment in Campbell Soup is frozen due to fees instituted in its investment plan. Click here for a history of all Drip Port transactions.