Boring Portfolio

Investment Possibilities
Some atypical options
by Dale Wettlaufer (TMF Ralegh)

ALEXANDRIA, VA (Oct. 28, 1998) -- OK, I'm going to broach a subject that people might not expect us to discuss. You might want to sit down for this. It's mutual funds.

To reach our goal of outperforming equities' historical yearly return of 11%, we'll do everything we can. That means we'll consider turning over some funds to mutual fund managers that we think can do a particularly good job with our money. Think of it this way -- investing your money in a well-run mutual fund is no different than investing your money in a well-run company. In both cases, we're looking for rational allocators of capital.

A large company like General Electric has hundreds of divisions and multiple large business groupings. A very good mutual fund may have a number of stocks in the portfolio, but we have found that the successful funds usually carry a very small number of top holdings that make up half or more of the fund's value. Either way, we don't see a big difference between a large holding company and an investment company if the managers of both forms of incorporated entities go about things in a businesslike way.

To that end, we don't have any qualms about investing in a mutual fund where don't pay a premium to invested capital and where we think the fund manager has a reasonable chance of meeting our bogey of outperforming the S&P 500 over a number of years. Sure, we would be buying the underlying common stocks at whatever multiples prevailing in the market, but we are willing to admit that there are some professional money managers out there who can do better than us. Included in this is an S&P 500 index fund or other index funds.

Among the investment choices that we will have available to us, we include fixed-income securities and convertible fixed-income securities. Depending on the situation we're looking at, fixed income securities have at times beaten the historical return on equities. This has included the early 1980s in government obligations, the period following the junk bond market collapse in the early 1990s, the time following the bond market crash in 1994, and in certain situations where solid companies have hit rough patches. In the last instance, convertible securities can offer an attractive investment alternative to common stock, since they offer current income as well as appreciation possibilities.

It's not just down-and-out companies that offer fixed-income convertible securities possibilities. Microsoft has issued fixed-income securities that I believe are still outstanding. 3Com had an attractive security that they have called. Data storage equipment company EMC had a very attractive convertible bond a couple years ago when its stock was down. CompUSA had a very nice junk bond that I bought in 1994 after the company ran into inventory control problems. So, while this won't be a regular feature of the portfolio, we just want to state up front that there is the possibility that we will invest in such securities.

The goal of the Boring portfolio is to generate solid analysis of businesses and to grow the assets in the portfolio. We don't have a hang-up on being the best stockpickers around. We are in the practice of maximizing the return on capital available to us, so we will very likely allocate to index funds, managed mutual funds, or fixed income securities some of the capital that we control. Our primary mission, though, is to analyze businesses and invest in equities.

10/01/98: The New Boring Port Transitions Facts

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10/28/98 Close

Stock  Change    Bid 
 ANDW  -  3/8   14.88 
 CGO   -  1/4   33.25 
 BGP   -  1/16  24.88 
 CSL   -  3/16  36.88 
 CSCO  +2 1/8   62.88 
 FCH   -  11/16 23.19 
 PNR   -  1/16  37.88 
 TBY   -  1/16   7.06 
 
 
                    Day   Month    Year  History 
         BORING   +0.24%   4.83% -10.30%  12.87% 
         S&P:     +0.26%   5.03%  10.07%  71.83% 
         NASDAQ:  +1.15%   2.57%  10.63%  66.90% 
  
     Rec'd   #  Security     In At       Now    Change 
   6/26/96  225 Cisco Syst    23.96     62.88   162.47% 
   2/28/96  400 Borders Gr    11.26     24.88   120.99% 
    3/5/97  150 Atlas Air     23.06     33.25    44.20% 
   8/13/96  200 Carlisle C    26.32     36.88    40.08% 
   4/14/98  100 Pentair       43.74     37.88   -13.41% 
   5/20/98  400 TCBY Enter    10.05      7.06   -29.69% 
   11/6/97  200 FelCor Sui    37.59     23.19   -38.31% 
   1/21/98  200 Andrew Cor    26.09     14.88   -42.99% 
  
     Rec'd   #  Security     In At     Value    Change 
   6/26/96  225 Cisco Syst  5389.99  14146.88  $8756.89 
   2/28/96  400 Borders Gr  4502.49   9950.00  $5447.51 
   8/13/96  200 Carlisle C  5264.99   7375.00  $2110.01 
    3/5/97  150 Atlas Air   3458.74   4987.50  $1528.76 
   4/14/98  100 Pentair     4374.25   3787.50  -$586.75 
   5/20/98  400 TCBY Enter  4018.00   2825.00 -$1193.00 
   1/21/98  200 Andrew Cor  5218.00   2975.00 -$2243.00 
   11/6/97  200 FelCor Sui  7518.00   4637.50 -$2880.50 
  
                              CASH   $5750.59 
                             TOTAL  $56434.97 
 

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