Drip Portfolio Report
Monday, August 25, 1997
by Jeff Fischer (TMF Jeff)
ALEXANDRIA, VA (Aug. 25, 1997) -- If you're buying one share of INTEL (Nasdaq: INTC) in order to enroll yourself in its Dividend Reinvestment Plan, be aware that the company also offers automatic investments once you're enrolled. Just ask for an Automatic Clearing House (ACH) registration form when you request or receive the plan information from Harris Trust. This allows you to automatically put money towards Intel stock every month or every quarter, by mechanically drawing the cash from your savings or checking account. Some people have stated that they feel they must do this, in order to make themselves save and invest regularly. With Intel you can automatically invest in any amount from $25 to $15,000 monthly.
We don't plan to use "automatic deposits" in the Drip Portfolio because we're going to have five companies or more in which to invest each month, and only $100 per month to invest (at least for the first few years). Every month we're going to invest the money as we see fit, perhaps all of it in Intel one month if the stock is "down," all of it in Coca-Cola the next month, and some months $25 will go to one company, $25 to another, and $50 to a third.
Over time, though, we aim to invest fairly even amounts of money into each company, and the growth of each investment will have very little influence on how we invest future money. If our best investment grows to three times the size of our second best, we're not going to stop sending money to that best investment. Just as we believe that you should let your winners run, we think that when investing regularly you should keep feeding the fire of your brightest holdings. Of course!
Investing in COCA-COLA (NYSE: KO) for the past ten years has been a fine example. If you bought your first share in 1987 before the market "crashed," your split-adjusted cost on that share would now be $6. (Warren Buffett started to buy Coca-Cola in 1988.) If you began to invest $50 per month in Coke's stock in August of 1987, by now you would have invested $5,900 and you'd own 523 shares valued at $31,440. That same amount of money, $5,900, steadily put into a savings account wouldn't be worth any more than $8,000 now.*
Of course we won't ignore our "slow" stocks, either. We'll keep putting money into businesses that we know are succeeding, even if the stock is languishing. I don't expect Coca-Cola's stock to increase in value for three to five years if we begin to buy the stock this fall. In fact, as long as the business is solid I'd hope that the stock would remain flat for us -- for years. People that began investing regularly in INTEL (Nasdaq: INTC) in 1987, when the company was far from "small" (Intel had $1.9 billion in revenue that year) have a split-adjusted cost basis of $3.50 to $6 per share -- the range of the stock price all the way until 1992. They had five years of piling their money into the stock at these prices. It wasn't until 1994 that the stock rose above $20, split-adjusted. All those years of a fairly "flat stock" took place while Intel's revenues looked like this:
1986 $1.2 billion 1987 $1.9 1988 $2.8 1989 $3.1 1990 $3.9 1991 $4.8 1992 $5.8 1993 $8.8 1994 $11.5
Never a down year, and yet the stock was quiet. If we had begun to invest in Intel ten years ago, we wouldn't have had second thoughts about sending the company a check every month or quarter, even if the stock appeared "dead." This will be true of our investments going forward, too. If we buy Coca-Cola we'll hope that it drifts for the next five years, so we can build an investment base at better prices. Now that we've sent our first check to Intel, we're rooting it down!
Down, Intel! Go down!
This week we'll start looking for the next company to invest in and then "hype downward." Then, after five years, ten years, and especially after nineteen years, we'll be hyping these things up!... Up!....
By then, hopefully we won't need much upward movement in order to make a large, positive impact on the now small and humble Drip Portfolio. In the year 2016, a mere one dollar gain in Intel or Coca-Cola could bring us... hmmm.... Let's not venture to guess so early in the game. A very good amount of money, let's hope.
*Coca-Cola numbers are from "The DRP Authority" newsletter, published by The Moneypaper.
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