DRIP PORTFOLIO
The Real Reason for the Nasdaq Drop

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By George Runkle (TMF Runkle)
April 10, 2000

Last week, I got a few letters disagreeing with what I had to say about Lucent (NYSE: LU). Let me quote a message from one Fool, David Kjoller:

"You've written an interesting and well-detailed article about Lucent. In my investing experiences, which have dealt almost entirely with technology, I have found that research has its merits but some limitations. To explain, some years ago I persuaded an acquaintance (who eventually became a friend and investment client) to buy 200 shares of Dell (Nasdaq: DELL). His purchase, made prior to our association and under one of his brokerage accounts, would grow, in 3 years and 4 months, from $9,000 to more than $210,000.

"More than any other factor in my convictions about the company was the impression I had of Michael Dell from articles I read, particularly of his early experiences in business. As a teenager, he said, 'I want to beat IBM.' Among other things, this audacious statement was evidence of a person driven by a singular idea and a will to win.

"As it is with Dell, so I believe it is with those who lead Lucent. That is, McGinn & Company are driven, as many CEOs are, to win. So when Lucent's stock drops from the mid 80s to the low 50s, it is a gift. Namely, buy if you don't own and buy more if you already do. As you allude to in your article, the so-called bump is a virtual certainty to every company.

"Again, analysis has its merits but its limitations. With Dell Computer, or Lucent, or any other company, I am likely, over time, to find analytic reasons to discard a given investment. But I prefer, and submit, that it is better to look at those who lead the company. If there is the indisputable will to win, as I believe there is with Lucent, then the occasional bump will be of little concern."

I also wanted to go over the recent correction in the Nasdaq. In spite of what all the experts said on CNBC, I have to apologize: It was my fault. Yes, the "Runkle Effect" went into full gear this spring, since I had to set up a SEP-IRA to lower my tax bill for my consulting. I put the money in the account a couple weeks ago and invested in, yes, Nasdaq stocks, which immediately started a correction in the market. Before all of you get angry with me over this, I also needed to raise some money for this account by selling some investments. I figured the most Foolish way was to sell my biggest loser to avoid paying capital gains tax. That loser was Procter & Gamble (NYSE: PG), which jumped up in price just a couple days after I liquidated the Drip account.

It wasn't entirely my fault though -- Fool JuliaGoolia admitted to watching CNBC on Tuesday when the 574-point drop occurred. Fortunately she turned the TV off in the afternoon and the Market was able to recover somewhat. We at the Hype and Hysteria discussion board have learned to head for the hills when Julia stays home and watches CNBC -- the market always tanks. I figure if Julia and I ever take up day trading, it will certainly lead to the worst financial panic this country has ever known. In the interest of protecting the public, I will remain strictly "Buy and Hold" and we better hope that Julia starts watching talk shows or Wheel of Fortune when she stays home from work. If she becomes a full-time mom after she gets married, and doesn't change her viewing habits, I'm afraid the financial markets in this country will be ruined. Don't worry -- if that happens I'll save you all by panicking and selling my stocks, which will make the Market recover (to record highs).

Next week I'll try to get serious and we'll take a look at Nortel (NYSE: NT) and see if this Canadian company can qualify as a Pathfinder and lead us through the wilderness. It should be interesting, eh?

Drip Portfolio

4/10/2000 Closing Numbers
Ticker Company Day Chg % Chg Price
CPBCAMPBELL SOUP7/83.11%$29.00
INTCINTEL CORP-5 11/16-4.16%$131.13
JNJJOHNSON & JOHNSON15/162.62%$76.00
MELMELLON FINANCIAL CORP5/164.37%$31.31

  Day Week Month Year
To Date
Since
7/28/1997
Annualized
Drip -1.05% -1.05% 1.79% 17.34% 52.44% 16.87%
S&P 500 -.78% -.78% .39% 2.40% 60.26% 19.05%
S&P 500(DA) -.78% -.78% .39% 2.40% 62.88% 19.76%
S&P 500(DCA) n/a n/a n/a n/a 32.53% 10.97%
NASDAQ -5.81% -5.81% -8.41% 2.92% 166.84% 43.74%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
9/8/199722.9859INTC45.653$131.13187.22%
11/14/199713.323JNJ79.310$76.00-4.17%
11/5/199831.5773MEL34.290$31.31-8.68%
4/13/19988.269CPB54.401$29.00-46.69%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
9/8/199722.9859INTC$1,049.37$3,014.03$1,964.66
11/14/199713.323JNJ$1,056.65$1,012.55($44.10)
11/5/199831.5773MEL$1,082.79$988.76($94.03)
4/13/19988.269CPB$449.84$239.80($210.04)
  Cash: $24.47  
  Total: $5,279.61  


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.