ALEXANDRIA, VA (April 17, 1998) -- A recent post by a new Drip investor on our message board lamented that, so far, all of his Drip investments had declined, and though on paper he had lost only menial sums of money, he was still uncomfortable.
This situation and the concurrent emotions represent one of the more difficult things to overcome when Drip investing -- that is, when your investments are steadily declining while you continue to buy more every month, you might begin to feel as if you're throwing money down a deep sinkhole. But the mind of a Foolish investor must turn this situation on its head.
Remember that you're investing for the long-term -- for at least five years, hopefully ten or twenty years. You should know your companies very well; you should understand their businesses; and you should realize that over the years the companies will experience difficult times now and again -- as will the overall market. You need to be prepared to continue to invest through the difficult times and not throw in the towel and "wait until things get better." Several of the advantages of dollar-cost-averaging will be lost on you if you stop investing whenever stocks decline.
Consider the flipside of this situation, using the Drip Port as an example. Imagine that our stocks have been soaring ever since we first began to buy them, rather than staying relatively flat (JNJ) or declining (INTC). Yes, our annual return would look impressive, but in that scenario we'd still be sending the same amount of money to our companies every month, and we'd be buying far fewer shares. The potential return on our money would arguably be far less because we'd own fewer shares; also, stocks that rise much more quickly than an increase in the value of the underlying business usually, eventually, experience periods of a slowdown during which the business value "catches up" to the stock price.
In the early years of our investing life -- as long as our companies have strong long-term fundamentals -- we should hope for the opportunity to buy stock at reasonable prices rather than rapidly inflating prices.
Speaking of stock prices and business fundamentals, this week we saw earnings announcements from both Intel (Nasdaq: INTC) and Johnson & Johnson (NYSE: JNJ). Though far from causing concern (both corporations are highly profitable with no signs of this changing), both Intel and J&J have room for improvement -- and I consider that a good thing, because I trust that both companies will improve over the years. Again, I'd rather be buying into a quality firm at a slow time, oddly enough, with an eye on the future, than be buying during a company's latest heyday, when the stock price is trading ever higher.
We summarized the earnings reports from both companies on Tuesday. Now Intel and Johnson & Johnson both trade at 23 times earnings estimates for the year, in line with the multiple granted the S&P 500. Of course, we'll have close and ongoing coverage of our companies in the future.
For now, Dale is deep in the process of finding a financial services stock for the Drip Port. He's initially, as you know, providing all of the background information and the education that a Fool needs in order to understand the investments, let alone find one. The comprehensive study that Dale is sharing tops anything that I received in any college financial course. It's worth printing the columns to mull over them and learn during a period of time, as they are in-depth and detailed. To help, Dale has provided a financial services glossary that he'll update as he continues forward. The glossary is available at the top right of this page. It's excellent reference material.
For the week, on Monday Dale covered the giant merger of NationsBank and BankAmerica, while discussing and explaining national banking brands. He also reviewed the Banc One and First Chicago NBD merger. Tuesday we had earnings reports from our two companies, as mentioned, and Wednesday Dale provided Web links to the Federal Reserve while further discussing the large mergers that we've seen over the past few weeks. Thursday Dale provided an example of an income statement, showing how to read it with help from the glossary. After Dale sweeps around the home stretch in his Foolish background columns, he'll begin to consider the actual companies for investment that we listed in February. (If mergers continue, he'll have half as many companies to consider!)
Next investments. The Drip Port bought 0.3897 shares of Intel on April 1, $30 worth, at $76.98. Next week I'll again send $30 to Intel's Drip and $70 to Johnson & Johnson. We're sending different amounts in hopes of balancing the two positions somewhat before we add more stocks to the Port. The Campbell Soup (NYSE: CPB) purchase is in the works. We bought $70 worth of Johnson & Johnson around April 7, but I haven't received the price yet.
So, next week the $30 and $70 checks will be mailed.
Drip Stock Contest. Finally, on the Drip Companies message board (linked in the top right of this page), our friend Tony (TMF 2Aruba) is hosting a stock finding contest. Tony is looking for another stock to round out his Drip Portfolio, and he's gone to Fools like you for the answer. Post your favorite Drip stock for Tony and give the reasons in the post. Soon Tony will decide which stock he'll buy, based on your posts, and the winning post will earn the contributing Fool a free Fool cap -- and, more importantly, Tony's undying respect if the stock does well for him over the years! Click in and post your favorite stock for Tony!
Have a great and Foolish weekend. Stay Foolish!