Fool.com: Tiebreaker Criteria for Choosing Stocks [Drip] March 7, 2000

DRIP PORTFOLIO
Tiebreaker Criteria for Choosing Stocks

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By George L Smyth
March 7, 2000

We spend a lot of time talking about the most important things one should consider when selecting a direct investment. However, when several companies show themselves to be the cream of the crop, it may be difficult to make a decision amongst them. One may legitimately resolve the issue by using criteria at the "second level."

To illustrate, we can use an example where two stores close to your home sell milk. Store A sells a gallon for $1.69 and store B for $1.79. All things being equal, you will probably gravitate to store A to purchase your milk.

However, upon entering store A, you notice that it is untidy, difficult to find the milk, and the employees are not friendly. Although it may cost slightly more, the inclination may be to shop for milk at store B. In this case, we have moved past the first level, the cost savings, to the second level, the aversion to the store, to decide where to shop.

We have a similar situation as the Drip Port decides whether to add Coke, Pepsi, or Wrigley to the portfolio (or if none of them should be added). Although many of us have our own personal favorite, we need to choose among three quality companies that should all fare well in the future.

So what might tip the balance if one is facing a similar dilemma? I would suggest moving to the second level where something else may be important. There are numerous directions that this can take, and everyone will have their own individual ideas.

Personally, I feel that it is very important to be able to speak with the company when I have a concern or question. For instance, several months ago I read that an environmental organization was at odds with Enron, a holding in my Drip portfolio. As its environmentally friendly nature was one of the reasons I liked the company in the first place, this was a cause for concern.

Immediately after reading the charges, I went to Enron's website. Clicking on a large button labeled "Investor Resources," I was taken to the appropriate page. There, I found the e-mail address of the department and wrote them about the article. They responded promptly with a calming explanation of the situation.

I decided that testing the three food companies in such an exercise might serve as a means for making a decision amongst the three at the second level. As I own Coke in my Drip portfolio, I decided to test it first.

Visiting it's site -- www.coke.com -- I found the Investor Relations button, which took me to that page. However, as I searched for an e-mail address, I failed completely. Not only was I unable to find an e-mail address for Investor Relations, I couldn't find a telephone number either. As a matter of fact, I couldn't find any e-mail addresses anywhere.

Then I went to Pepsi's website -- www.pepsi.com -- hoping for better luck. As I hold a minimum number of shares in Pepsi's plan, which I will turn over to my daughter, Katie, when she graduates college, I hoped for better results. Unfortunately, Pepsi's site is even worse than Coke's.

I figured out which picture represented "Help," as there was no obvious Investor Relations link. This took me to a page with a large button labeled "Contacts." My heart raced as I selected it, expecting to find a listing of e-mail addresses, but it was simply a link to the Webmaster's e-mail, in case I had any technical questions.

Could Wrigley be any worse? I found my way to its website -- www.wrigley.com -- with my fingers crossed. Wrigley's website is by far the best of the three, with its clear layout and ease of use. However, a long story made short, I found no e-mail address or telephone number for Investor Relations, and like the other two, no e-mail addresses at all.

As a Webmaster, this exercise surprised me greatly, since the main purpose of the Web is to disseminate information. All three of these large and powerful companies failed at the simplest exercise -- proper communications with their shareholders. I was hoping for a tiebreaker for the three companies, but that doesn't always happen.

So if you have used all of the numbers to narrow your selection possibilities down and need a tiebreaker, decide something else that is important to you and run an additional test yourself. Unlike my experiment, you may find a second-level tiebreaker when you need to make a decision.

To discuss this column (what tiebreakers do you use?), please visit the "Drip Companies" discussion board linked below.

Drip Portfolio

3/7/00 Closing Numbers
Ticker Company Dly Pr Chg Price
CPBCAMPBELL SOUP-1 7/16$27.56
INTCINTEL CORP-1 5/8$115.75
JNJJOHNSON & JOHNSON-3 1/8$67.38
MELMELLON FINANCIAL CORP-1$28.19

  Day Week Month Year
To Date
Since
7/28/97
Annualized
Drip -2.50% -4.25% -1.28% 4.41% 35.65% 12.38%
S&P 500 -2.56% -3.80% -.79% -7.73% 44.40% 15.10%
S&P 500(DA) -2.56% -3.80% -.79% -7.73% 47.02% 15.90%
S&P 500(DCA) n/a n/a n/a n/a 20.07% 7.25%
NASDAQ -1.16% -1.36% 3.22% 19.13% 208.86% 54.00%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
9/8/9722.9799INTC45.635$115.75153.64%
11/14/9711.811JNJ80.721$67.38-16.53%
11/5/9831.5773MEL34.290$28.19-17.80%
4/13/988.269CPB54.401$27.56-49.33%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
9/8/9722.9799INTC$1,048.68$2,659.92$1,611.24
11/14/9711.811JNJ$953.39$795.77($157.63)
11/5/9831.5773MEL$1,082.79$890.09($192.71)
4/13/988.269CPB$449.84$227.91($221.93)
  Cash: $24.41  
  Total: $4,598.10  


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.