Drip Portfolio Report
Thursday, July 31, 1997
by Jeff Fischer (TMF [email protected])
and Randy Befumo (TMF [email protected])

ALEXANDRIA, VA, (July 31, 1997) -- This portfolio is going to show you that a nestegg can be built over the next twenty years beginning with very little money. You can begin with $100 if you'd like. But if you -- the reader -- don't understand exactly how we're going about setting up this portfolio, you need to learn, and we're here to help. Now is the best time, before we move on.

Over the past three days we've talked about the process of buying stock directly from companies, and the portfolio information alongside this recap offers background and guidance, too. We're also answering your email but that takes time and doesn't result in "shared" learning, so any future questions please post to the Fool's DRP message board. That's where the Foolish conversation about this portfolio will take place over the coming years -- and we hope that it will be a daily conversation.

That said, knowing the value of time when it comes to compounding a dollar, all good Fools are anxious to begin investing. Investing is the next step for the portfolio... well, that is, after we decide, right here, what we want to buy, and keep buying, for the next two decades. The purchase decisions will be determined primarily by the qualities that we're looking for -- by the stringent requirements that we'll impose on our possible buys. Tomorrow Randy will outline exactly what we want to see in each company that we consider. The end objective is to teach you and ourselves -- and we all have plenty of time to do this -- how to consistently find great companies.

Company valuation methods, numbers, forward looking valuations... all of these will be explained here one step at a time. Much of the definitions and helpful examples come from the Fool's School, so you may want to bookmark that page. And you'll probably want to bookmark or "favorite place" this page, too!

We're aiming to send the check for our first purchase next week, so we may move a little more quickly than one might expect. But we will make certain that everyone understands why the purchase is made. Each individual purchase completed in this portfolio must be clearly and fully explained, so that everyone knows the reasoning behind it, and can apply that reasoning to find future investments of their own. If we don't accomplish that, we're not doing what the portfolio intended. If you watch this portfolio grow to $150,000 over twenty years, but have no idea why we bought what we did, then in the end nobody has really benefited all that much.

The many criteria that a Fool looks for in stocks, and that this portfolio is looking for in particular, will be presented tomorrow by Randy. Already yesterday he mentioned some of the companies that we're initially considering, but we haven't put those companies to the test yet. We'll do that in public.

Two of the companies that I'm interested in are well-known, by everyone: COCA-COLA (NYSE: KO) and INTEL (Nasdaq: INTC). Some folks, understandably so, question the value of investing in such well-known names. "Everyone knows them already, so isn't it too late?" people ask. They believe that they need to find a new company, something that nobody has ever heard of before. They may find such a company with a colorful press packet but too often the stock will go nowhere -- for years, or forever -- while the known and recognized leaders continue to lead. Most of the best-performing stocks over the entire century have been the names everyone knows: Coca-Cola, General Electric, Schering-Plough (well, not everyone knows that name), Sears, General Motors.

If you'd bought $500 of Coca-Cola in 1919 it is worth over $50 million today, after taxes. Over the past fifteen years the stock has averaged a compound annual return rate of 30%, including reinvested dividends. This crushes the market's historical average return of about 11% per year.

What about Intel? As of last year, Intel had returned over 43% annually during this decade, while a $235 purchase of Intel's stock in 1971 is now worth over $90,000.

Do these two companies meet our requirements? We'll see. Tomorrow the Foolish requirements will be outlined, and we'll begin to take a look at these and other stocks. Thanks for stopping by.

Fool on!

--Jeff Fischer, Fool