Thursday, February 26, 1998

Cash-King Portfolio Report
by Rob Landley ([email protected])

Alexandria, VA (Feb. 26, 1998) -- "This must be Thursday. I never could get the hang of Thursdays." - The Hitchhiker's Guide to the Galaxy.

On this particular Thursday, several things are moving through the ionosphere, many miles above the surface of the planet. They're not huge, not yellow, and not slab-like, but they're up there. I am referring of course to our Cash-King stocks.

According to yesterday's closing numbers, three of our four Cash-King positions are already solidly trouncing the market. Admittedly this is pure noise in statistical terms: what any stock or set of stocks does over any short-term period of time is more or less random. It takes months or years for a clear picture to emerge (a highly technical process referred to in the scientific community as "hindsight"). However, it's still great fun rooting for these suckers, and since we put the daily numbers at the end of these things we might as well acknowledge them occasionally. :)

The confusing bit is that our total portfolio returns are currently losing to the market. Badly. The Nasdaq's up over seven percent, the S&P has gone up over four percent, and our Cash-King portfolio gains are under two and a half percent. Not that anyone here's expected to be a mathematical genius, but this is a little ridiculous, right? With three-quarters of our picks beating the market, and the other basically flat so far, how can we be THAT far behind?

The reason for the conflicting numbers is fairly simple: we're not fully invested yet. Yes, the total returns so far from our four stocks (even with T. Rowe in negative territory at Wednesday's close) are well over six percent, but we've invested less than half of our money. We still have over twelve grand sitting there in our account, twiddling its thumbs. With less than half our portfolio working for us, we're getting less than half the returns we'd expect.

Another little complication is that this is a real money account, and we're taking our real-world transaction costs into account in our returns. Even though we're starting with $20,000 (and basing our gains and losses against that amount), some of that money is getting spent on commissions each time we trade. That's part of the reason we're very happy with this whole revolutionary new idea of "not trading a lot."

Then there's the "spread." The price quoted for the stock is generally the "bid price," or what some random stranger on Wall Street would have been willing to pay us to buy our stock. (The number changes from second to second during the trading day as different random strangers walk by, but that's Wall Street for you.) Wall Street quotes us a different price if we want to buy stock from it: it charges us the "ask price," which is a tiny bit more expensive (naturally) than what they're willing to buy it for. (This is apparently what prevents all the people already there from trading with each other until you show up. :) With commissions and spreads, and more to come as we invest the rest of our money, we're lucky to already be in the black at all. In fact a 2% return in one month is pretty darn impressive.

In reality, the market has up months and down months, and even up years and down years. We know that the value of our investments in these consistently profitable companies is increasing steadily with time (even if the PRICE of our investments is anything but steady). We're willing to give our investments plenty of time, so there's plenty of increase in plenty of value. As for choosing stocks to plunk the remaining twelve and a half grand into: there's no rush. Don't let your own investment money burn a hole in your pocket either. Do your homework before putting it anywhere other than in the bank. So you lose a week or two of compounding time at the beginning, just wait a week or two longer at the end and it all evens out. Picking the right stock for the next decade or three is way more important than any week or two's worth of compounding.

Remember, thirty years from now, if we've done our job right, these 2% swings will mean hundreds of thousands of dollars gained or lost, often overnight. It's a good idea to learn patience and a strong stomach now, while we're dealing with amounts of money that can more easily be replaced if we panic and do something un-Foolish. We're not going to announce our next buys before Tom gets back from his Caribbean cruise, anyway. (The things he and his brother do for this company... Tragic.) We will, however, be buying our shares of Coca-Cola (NYSE: KO) tomorrow, as announced last week.

Go. Relax. Have fun. Don't panic.

TODAY'S NUMBERS

Stock  Change    Bid 
 ---------------- 
 INTC  -1 11/16 92.31 
 MSFT  +  9/16  85.50 
 PFE   +1 13/16 90.19 
 TROW    ---    66.50 
 
                 Day   Month    Year  History 
         C-K      +0.08%   2.46%   2.46%   2.46% 
         S&P:     +0.55%   4.73%   4.73%   4.73% 
         NASDAQ:  +0.60%   7.52%   7.52%   7.52% 
  
     Rec'd    #  Security     In At       Now    Change 
    2/3/98    22 Pfizer        82.30     90.19     9.59% 
    2/3/98    24 Microsoft     78.27     85.50     9.24% 
    2/13/98   22 Intel         84.67     92.31     9.02% 
    2/6/98    28 T. Rowe Pr    67.35     66.50    -1.26% 
  
     Rec'd    #  Security     In At     Value    Change 
    2/3/98    24 Microsoft   1878.45   2052.00   $173.55 
    2/3/98    22 Pfizer      1810.58   1984.13   $173.55 
    2/13/98   22 Intel       1862.83   2030.88   $168.05 
    2/6/98    28 T. Rowe Pr  1885.70   1862.00   -$23.70 
  
                               CASH  $12562.83 
                              TOTAL  $20491.83 
  
 *The year for the S&P and Nasdaq will be as of 02/03/98