THE CASH-KING PORTFOLIO
Your Cash-King Portfolio
How to get started
by Phil Weiss (email@example.com)
Towaco, NJ (Dec. 10, 1998) -- Some of the most frequently asked questions on our Strategies message board center around starting a Cash-King Portfolio. Tonight I thought that I'd offer some thoughts on what one might want to do when getting started with their own Cash-King investments.
The first part of this question that I'd like to tackle is whether or not one should just duplicate our current portfolio. My answer to that question is a resounding NO! NO! NO! Just duplicating what we've done is in direct conflict with the Fool's overall message -- make your OWN investment decisions, do your OWN research, be accountable for the performance of the stocks in your OWN portfolio (i.e., take control of your OWN investments).
I know that you can look at our results so far and see that we're off to a good start as we have forged an early lead over the S&P 500. We have purchased stocks that we intend to hold for at least 10 years, and we've only been around for 10 months, making it pretty unlikely that we no longer believe in the future of any of our stocks. We also state that we don't think valuation is all that important, and we believe that just about any time is the right time to buy one of our holdings. Our results so far might even make it look like we have an idea of what we're doing, but that still doesn't mean that you should just mimic our portfolio.
What I'd suggest you do first and foremost is take your time. If you're really ready to invest in Cash-Kings then you have a number of years to go before you'll be in need of the money that you've invested in these stocks. You can put your money in a safe place until you're really ready to start investing.
You can then start off by reading through the 11 Steps to Cash-King Investing -- it will be 12 once the Step on Selling is posted here. All you have to do is click on each of these steps as they appear in the box at the top right of each of our nightly reports. You could also read the 13 Steps to Investing Foolishly. Then you might also want to read some other books on investing for the long-term. One of my favorites is Common Stocks and Uncommon Profits by Philip Fisher (which I discussed in a four-part series in September).
Once you're sure that investing in Cash-Kings is the way you want to go, it's time to start researching stocks on your own. It's probably not necessary to do any fancy stock screens here. After all, Cash-Kings are stocks with strong mindshare. You could start with a list of products that you use regularly. There's also nothing that says you can't consider the stocks that we already own here as part of your list. Then you might want to put together a basic spreadsheet that you can use to take them through the numerical criteria in our 6th Step.
Another thing that you should do is get a better understanding of the companies that look the best to you. You can either call the company and ask them to send you an investor package or you can go to a site like FreeEdgar and review the recent financial reports (i.e., 10-Qs and 10-Ks). You might also want to check out the company's Message Board here at the Fool and see what else you can learn by reading the discussion that others are having about the stock. You can also ask a question or two on either the company's own message board or our Cash-King Companies Board if there's something you don't understand.
When you've finished your research, it's finally time to get started. This leads to the next question -- do you buy a group of Cash-Kings or do you buy them one at a time. This one depends on a number of factors. The primary one revolves around how much money you have to invest. The guideline that we like to use here is that your commission costs should be no more than 2% of your total purchase price.
We've decided to invest in $2,000 increments in this portfolio, which keeps commissions to less than 0.5% of our transaction cost. That's what we decided worked best for us; it doesn't have to be what works best for you. However, if you're using one of the brokers that let's you trade for only $8, your minimum investment should be at least $400 in each stock that you buy. If you have $2,000 to invest when you get started, you could easily purchase as many as 5 of your own Cash-Kings to start.
If your financial situation dictates a slower approach or smaller investments each time, you can also look to invest in Cash-Kings that have Dividend Reinvestment Plans (DRIPS).
One other important choice you have to make is whether to invest your Cash-Kings in taxable or non-taxable accounts (such as traditional or Roth IRA's). Since the premise behind Cash-King investing is to buy stocks and hold them for the long haul, if our tax system stays at it is now, any taxes that you pay from possible sales of your Cash-King holdings will be at a reduced rate at a point well in the future. This reduces the advantages that you might gain from purchasing Cash-Kings in your non-taxable accounts.
If you decide to invest in Foolish Four stocks as we have in this portfolio, you could consider holding those stocks in a non-taxable account. Even though the strategy allows you to hold these stocks long enough for you to get preferential tax treatment for your gains, you have to pay taxes every year on your Foolish Four stocks. On the other hand, any taxes due from gains on your Cash-Kings are deferred until you decide to sell them. So, if given a choice, I would include Foolish Four holdings in a non-taxable account and Cash-Kings in a taxable account. There is nothing, however, to stop you from holding Cash-Kings in either type of account.
Order your copy of David and Tom Gardner's new book, Rule Breakers, Rule Makers, in advance. This Simon & Schuster beauty doesn't arrive until January, but you can reserve your copy today! The first half of the epic book, on Rule Breakers, elucidates the Fool Port's investment style; the second half, on Rule Makers, further explains Cash-King investing.
Stock Change Bid AXP -3 3/8 93.75 CHV +1 1/4 85.88 CSCO +2 5/16 83.50 KO -3 1/8 62.94 GPS +2 13/16 50.75 EK - 1/8 72.00 XON + 7/8 74.63 GM - 1/8 68.94 INTC +1 13/16 116.44 MSFT +2 7/16 134.00 PFE + 7/8 114.88 SGP +1 1/8 57.75 TROW - 3/16 35.94
Day Month Year History C-K +1.02% 3.01% 25.42% 25.42% S&P: +0.12% 0.24% 15.95% 15.95% NASDAQ: +0.66% 4.09% 21.78% 21.78% Cash-King Stocks Rec'd # Security In At Now Change 2/3/98 24 Microsoft 78.27 134.00 71.20% 5/1/98 55.5 Gap Inc. 34.06 50.75 49.00% 6/23/98 34 Cisco Syst 58.41 83.50 42.95% 2/3/98 22 Pfizer 82.30 114.88 39.58% 2/13/98 22 Intel 84.67 116.44 37.51% 8/21/98 44 Schering-P 47.99 57.75 20.33% 2/6/98 56 T. Rowe Pr 33.67 35.94 6.72% 2/27/98 27 Coca-Cola 69.11 62.94 -8.93% 5/26/98 18 AmExpress 104.07 93.75 -9.91% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 64.34 74.63 15.99% 3/12/98 20 Eastman Ko 63.15 72.00 14.02% 3/12/98 15 Chevron 83.34 85.88 3.04% 3/12/98 17 General Mo 72.41 68.94 -4.79% Cash-King Stocks Rec'd # Security In At Value Change 2/3/98 24 Microsoft 1878.45 3216.00 $1337.55 5/1/98 55.5 Gap Inc. 1890.33 2816.63 $926.30 6/23/98 34 Cisco Syst 1985.95 2839.00 $853.05 2/3/98 22 Pfizer 1810.58 2527.25 $716.67 2/13/98 22 Intel 1862.83 2561.63 $698.80 8/21/98 44 Schering-P 2111.7 2541.00 $429.30 2/6/98 56 T. Rowe Pr 1885.70 2012.50 $126.80 2/27/98 27 Coca-Cola 1865.89 1699.31 -$166.58 5/26/98 18 AmExpress 1873.20 1687.50 -$185.70 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 1286.70 1492.50 $205.80 3/12/98 20 Eastman Ko 1262.95 1440.00 $177.05 3/12/98 15 Chevron 1250.14 1288.13 $37.98 3/12/98 17 General Mo 1230.89 1171.94 -$58.95 CASH $120.62 TOTAL $27414.00 *Please note: On 8/4/98 $2,000 cash was added to the
portfolio. $2,000 will be added every six months.
*The year for the S&P and Nasdaq is as of 02/03/98
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