ALEXANDRIA, VA (July 30, 1997) -- Our DRP portfolio has begun with much fanfare but no investments. Readers wonder, when will this irksome situation change?
After much soul-searching and analysis of the launch of prior Fool portfolios, co-manager Jeff Fischer and I decided that it was best to start the portfolio with absolutely no investments in mind, giving the readers a chance to start with us. So heck, at this point we're not ready to buy a DRP even if we wanted to. Which leaves us here to discuss strategy and to try to convince anyone who will listen that investing in stocks, a few dollars at a time, month after month, is brilliant.
Are we looking at a few attractive DRPs? You betcha! First -- as we're still getting so much email -- for readers who are uncertain about what DRPs are or why they exist, I urge you to read some of the articles Jeff and I whittled away a few hours of our lives penning for your benefit.
Perhaps begin with the article on What are DRPs? It's in the listbox on the side called "Portfolio Information" for AOL readers, or on the left nav bar for Web readers. Or, What is the history of DRPs?
We have that sucker in the same space as well. Your most basic questions are going to be answered after reading these articles. You owe it to yourself and to those you might happen to be investing for to read these articles and figure out exactly what we're embarking on here, and what you may be embarking on. Fiduciary responsibility is a major task and should not be approached lightly. Get at it, Fool!
The DRP Portfolio, as Jeff stressed yesterday, will start with $500 and we will add $100 a month, starting August 1st. Right now, that money sits in cold cash, eagerly awaiting our first investments. So what have Jeff and I discussed since launching the portfolio?
To begin, Jeff wants to convince us of the merits of investing in COCA-COLA (NYSE: KO) and INTEL CORP. (NASDAQ: INTC) over the next twenty years. He also wants to consider stocks like SCHERING-PLOUGH (NYSE: SGP) and others. As for my thoughts: in this column we'll soon take a serious look at OWENS-CORNING (NYSE: OWC) and KANSAS CITY SOUTHERN (NYSE: KSU), the latter on the recommendation of an astute and regular reader of my Evening News column, "Fool on the Hill."
(For those of you unfamiliar with me, my main preoccupation on the Fool is writing the columns that accompany the Lunchtime and Evening News, as well as overseeing most of the investment-oriented analytical info that the Fool spews out on a regular basis. But back to the important stuff... like stocks.)
Direct investing, or DRP investing, requires a different mindset than what most people are conditioned to expect in the stock market. There is absolutely no immediate gratification possible. Any potential immediate gratification is wiped out by the high initial costs (relative to the money that you're beginning with) to DRP investing. When you buy a company via a DRP, this is not something you can logically expect to sell in a few months. You have to be serious about buying and holding this company for a significant period of time to recognize the substantial benefits possible through the ownership of publicly traded companies.
The first analytical "screens" that Jeff and I will use to process potential DRP candidates are very simply: "Is this a company that we want to own in 20 years? Is this a company that has an economic model that can remain stable for that long? Is management proven? How much visibility is there going forward in the business?" Certainly, nothing is certain. However, when you buy a DRP, you are buying for 20 years, not 20 seconds. There are no trader shenanigans here!
Jeff and I will be trading back and forth as far as writing this column, switching every other day on average. Whereas Jeff, as the nice guy that he is, will first and primarily focus on answering questions and explaining what is going on to readers, my primary mission is to outline a viable investment strategy for DRPs and to try to carry it out in the confines of the DRP Portfolio, which I will call the DRPfolio for short. In the long run, we'll share all responsibilities, though -- of course!
As the greatest hidden wealth creation machine in America, surprisingly very few keen minds have turned themselves to considering how you should select companies to purchase month by month over many years. This is our task here, and one that I am eager to accept the challenge of completing. My next column will outline how exactly you determine whether or not a company is a potential selection for your DRPfolio and will use Coca-Cola, Intel, Owens-Corning and Kansas City Southern as examples.
Randy Befumo (TMF Templr), a Fool