Drip Portfolio Report
Tuesday, August 19, 1997
by Jeff Fischer (TMF Jeff)
ALEXANDRIA, VA (Aug. 19, 1997) -- Many people don't trust technology companies as long-term investments. "Technology changes too frequently," is the common worry. "Companies that lead one day can disappear the next."
Hewlett-Packard, IBM, Texas Instruments, Motorola, Digital Equipment, General Electric, XEROX, Johnson & Johnson...
Johnson & Johnson?
You can argue that J&J's medical and pharmaceutical products require ever-changing advances in technology in order to keep ahead of the competition, but we won't get into that argument today. You could also argue that Coca-Cola, Gillette, 3M, Chevron, and nearly every public company is somehow technology-dependent (though, granted, that doesn't mean that they're selling technology in order to survive -- an important distinction).
All of the companies listed above have been around for several decades, and many of them have lead their industries with enough chutzpah to represent market-beating investments. IBM and Digital are the notable exceptions over the past decade.
Hewlett-Packard was started out of a garage in 1938 with $538. The company's first product was an audio oscillator. Walt Disney, one of its first customers, bought 8 audio oscillators to use in the making of the film Fantasia. Fools would agree that the technology landscape has changed greatly over the past six decades. Hewlett-Packard has survived and prospered through the first supercomputers, personal computers, and now the Internet.
In 1914, a NCR salesman (NCR being another technology company still with us today) left that company and in 1924 was largely responsible for bringing about IBM. The company began by selling punch card tabulators. Yes. IBM's business has changed over the past seventy years. The company has made mistakes, too. It initially dismissed the potential of computers, for one. IBM is still here now, and if you'd invested in it three decades ago you wouldn't be wanting for food and water. Or much else.
Leading technology companies have much more staying power -- and adaptability -- than investors often seem willing to admit. Some investors go so far as to avoid technology companies completely for their entire lifetime. If historians ever question Warren Buffett's investing style, one question will be: Why didn't he buy technology leaders while living during the technology revolution? Is Microsoft's business that difficult to comprehend? More difficult than an airline or an insurance company? Or more risky?
As is apparent yesterday from Randy's column on INTEL (Nasdaq: INTC), Randy wants to invest in the computer technology leader. I agree with this investment. We'll send the check Friday (more details on this process tomorrow) and we'll discuss Intel much more in the coming days. This being our first purchase, it's imperative that we point out: this is our decision. It is, of course, up to you to make your own decision. Fools know this. Many Fools out there are investing in COCA-COLA (NYSE: KO) to start. Personally, I send a check to Coca-Cola almost every month, and I will this month, too. So of course I believe in investing this portfolio into Coca-Cola as well.
Randy does, too... but, the news of nine days ago that sent Coke's stock from $68 to $59 has Randy wanting to wait and see the company's next quarterly report, announced in early October. I argue that the numbers from one quarter won't change a twenty-year investment decision -- a decision that is based primarily on the company's business model, and on that model's ability to provide sustainable growth. Randy argues that we have plenty of time to invest in the company, and he wants to see why the earnings growth is apparently slowing, even during the historically stronger quarters.
This week we'll have much more on Intel and Coca-Cola (Randy and I have a good enough friendship that we can "argue" and still work together -- in fact, I'm sure that it's healthy to the Drip Port's investing process. And by the way, of course there will be plenty of hearty and Foolish discussion over any Owens Corning possibility, too.) Also this week we'll review who should be investing in DRPs, and who might want to consider different investing approaches. We'll do that as we go over the process of sending off our first investment check. We'll be sending about $115 for the first share of Intel and to get enrolled in Intel's dividend reinvestment plan.
Following the first purchase and alongside the on-going discussion of Intel and Coca-Cola, I'm going to begin comparing leaders Johnson & Johnson and Schering-Plough. Certainly over the next twenty years we want to be invested in this general industry. Which company might serve us better?
The next few weeks are going to be especially interesting. In the end Randy and I want to grow this portfolio to $150,000 in twenty years. Investing in a company that supplies the most expensive part in over 80% of the world's personal computers (and is in a highly defensible position) is a great start. It also goes against common "conventional wisdom." Too many people argue that technology doesn't make a good long-term investment. We feel otherwise -- strongly -- and note that history is very much on our side. We'll see you on the DRP message boards for continued discussion.
---Jeff Fischer, Fool
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