Friday, May 1, 1998

Cash-King Portfolio Report
by Tom Gardner

Alexandria, VA (May 1, 1998) -- Strike up the band, play the show tunes, put on your glass slippers, and dance, Fool. Dance!

The Cash-King Portfolio welcomes the Gap to our treehouse -- and we'd like to apologize to the 81,000 employees of the company who were temporarily reduced to the short-term wiggling of a stock price printed on a digital page.

At noon today, the Cash-King Portfolio picked up its 37 shares of Gap Inc. (NYSE: GPS) at a price of $50 3/4. We intend to hold onto our ownership position in this company for a decade -- if not a few. And why not? Gap is the leading national brand in casual-wear, a corner of the world of apparel that isn't driven much by whim and fashion. We're also comforted that Gap has proven an aggressive manager of its inventory, its cash, and its name brand.

No, Warren Buffett does not own Gap shares yet. I think we may have just scooped him.

Our few-day delay in buying these shares has been entertaining. I really enjoyed the notes posted lately to the C-K message folder after yesterday's report. The great majority of contributors persuaded us to just get the buy order over with. After all, a short-term 10% move, to the north or south, is totally inconsequential when a Fool plans to hold the investment for ten years, or ten times that.

Truly, the farther out our investment time horizon sits, the more important the merits of the business become. For example, what have we saved when we save 10% on the stock price of a business that doesn't have the financial wherewithal or managerial expertise to endure? As long-term investors, we lose much more when we select companies that aren't built to last than we ever could gain back in a week guessing at the fluctuations of their stock price.

Hoping to hammer these ideas home in a post entitled "Igottagetalife," Leo (Double Entry) wrote:

"Do you know that this morning I woke up and
there were a couple of kids running around with
some lady who claimed that she was my wife
and that the kids were mine!

"This is why I'm investing a la CK. I no longer
want to take the hours upon hours of timing
entries and exits. I'm still young. Hopefully
to overpay for the Gap)."

Elsewhere in the folder, in a post entitled "Market Timing?" ShoeShine wrote:

"I think there is no better way to show that
current market value is your 89th
consideration in selecting a CK. Yes, Gap
has had an 11.4% jump, but price shouldn't
be a consideration. Reading the CK steps
has broken me loose from my value mindset. I
would be highly confused if the CK managers
postponed their buy of Gap because of price."

And finally, a wonderful suggestion landed in the Cash-King folder from "wjp" -- a first-time poster in Fooldom, who wrote:

"I believe that you should take the emotion out
of your decision about when to buy Gap or any
other stock. You have five days to buy
(according to your portfolio guidelines). On the
first day, flip a coin. Heads, you buy; tails, don't
buy. Continue to do this each day through the
fourth day. If you throw four tails in a row, then
you simply buy on the fifth day."

Yes, that's a spectacular idea, wjp. It inspires me to make a personal guarantee to Cash-King Fools everywhere. (General counsel here at Fool Global HQ is standing over my left shoulder peering at my monitor.)

Fools, I hereby promise never again to time my entry into a Cash-King stock without flipping a coin to make the decision -- or dialing a psychic, laying my hands on a Ouija board, scanning for cloud patterns on a stock chart, or rolling fist-sized red dice down the green fields of Atlantic City. Henceforth into eternity, chance will drive the timing of all Cash-King purchases; it's just that ridiculous to be concerned about short-term pricing when buying for the long haul.

Yes, dozens of other Fools chimed in over the last day, setting things aright in the Cash-King folder -- reminding us all that when we truly treat investing as a lifelong endeavor, what companies we choose to buy is just so much more meaningful than at what price we buy them. That idea is absolute blasphemy on Wall Street. It's a great way to crush the market over the long haul on Main Street.

Elsewhere in the Cash-King portfolo, T. Rowe Price (Nasdaq: TROW) split its shares down to around $37 1/2 and then promptly violated what too many believe to be true about splits -- that the stock will automatically rise after the split; that the world believes two cuts of the same sandwich is worth more than the sandwich. T. Rowe ended the day down $3/4.

Finally, our Foolish Four stocks had another strong day, with all four closing up more than 1% (and two up more than 3%) . Eastman Kodak (NYSE: EK) is now up 16.2% and Exxon (NYSE: XON) is up 17.5% since we purchased them on March 12th. It's much too early to tell if these four stocks will beat the market over our holding period, but we're off to a fine early start.

About a year ago, Time magazine's financial gooroo, Dan Kadlec, pronounced this high-yielding Dow approach dead, after opening and speedily slamming shut the statistical window to support his point. Convenient logic is a wonder to behold. I'll be interested to see if anyone outside of Fooldom revisits his analysis ten years from now. I do find it odd that he hasn't written about the underperformance of managed mutual funds in Time. With 25 years of statistics calling into question the structural integrity of today's managed funds, and with a few trillion bucks invested in them, why wouldn't he write that article?

From the standpoints of performance, cost, effort, and tax expense, I'll take the Dow approach.

Have a great weekend, Fools. Next week should be a doozy. We'll announce our 7th Cash-King purchase and Phil Weiss will spend his week's reports trying to identify Cash-King qualities to look for in financial services companies. And, on Monday, the Motley Fool will make what I consider to be its most exciting announcement of 1998.

I'm off to a wedding on the left coast, framed in khakis and a button-down shirt, holding our Gap shares in my mind. Fool on!

Tom Gardner


Stock  Change    Bid 
 CHV   +3 1/8   86.38 
 KO    +  3/8   76.19 
 GPS   +1 1/16  51.06 
 EK    +2 1/8   73.38 
 XON   +1 5/16  75.63 
 GM    +  5/8   68.56 
 INTC  +1 1/4   82.06 
 MSFT  -  1/2   89.63 
 PFE   -1 1/4   112.75 
 TROW  -  21/25 36.75 
                  Day   Month    Year  History 
         C-K      +0.46%   0.46%   8.97%   8.97% 
         S&P:     +0.83%   0.83%  11.96%  11.96% 
         NASDAQ:  +0.27%   0.27%  13.34%  13.34% 
 Cash-King Stocks 
     Rec'd    #  Security     In At       Now    Change 
     2/3/98   22 Pfizer        82.30    112.75    37.00% 
     2/3/98   24 Microsoft     78.27     89.63    14.51% 
    2/27/98   27 Coca-Cola     69.11     76.19    10.25% 
     2/6/98   56 T. Rowe Pr    33.67     36.75     9.14% 
     5/1/98   37 Gap Inc.      51.09     51.06    -0.05% 
    2/13/98   22 Intel         84.67     82.06    -3.08% 
 Foolish Four Stocks 
     Rec'd    #  Security     In At     Value    Change 
    3/12/98   20 Exxon         64.34     75.63    17.55% 
    3/12/98   20 Eastman Ko    63.15     73.38    16.20% 
    3/12/98   15 Chevron       83.34     86.38     3.64% 
    3/12/98   17 General Mo    72.41     68.56    -5.31% 
 Cash-King Stocks 
     Rec'd    #  Security     In At     Value    Change 
     2/3/98   22 Pfizer      1810.58   2480.50   $669.92 
     2/3/98   24 Microsoft   1878.45   2151.00   $272.55 
    2/27/98   27 Coca-Cola   1865.89   2057.06   $191.17 
     2/6/98   56 T. Rowe Pr  1885.70   2058.00   $172.30 
     5/1/98   37 Gap Inc.    1890.33   1889.31    -$1.02 
    2/13/98   22 Intel       1862.83   1805.38   -$57.45 
 Foolish Four Stocks 
     Rec'd    #  Security     In At     Value    Change 
    3/12/98   20 Exxon       1286.70   1512.50   $225.80 
    3/12/98   20 Eastman Ko  1262.95   1467.50   $204.55 
    3/12/98   15 Chevron     1250.14   1295.63    $45.48 
    3/12/98   17 General Mo  1230.89   1165.56   -$65.33 
                               CASH   $3910.83 
                              TOTAL  $21793.27 
 *The year for the S&P and Nasdaq will be as of 02/03/98