Where Are "We" Going?
More ideas on our next study

by Brian Graney (TMFPanic)

ALEXANDRIA, VA (Oct. 29, 1998) -- Before I get into the meat of today's column, some Foolish praise is in order.

A big "thank you" goes out to everyone who has posted their favorite companies from the energy sector on the message boards over the past few weeks. I've been very impressed by the turnout, as it seems every time I check the boards there are a few more great companies suggested which I hadn't considered. Keep up the great work, Fools!

And if you haven't posted your picks of the energy litter yet, let's hear 'em. Unlike in other, less-advanced democracies (such as the U.S.), the polls never close in Fooldom. Everyone's input is welcomed in this space, as the sum of our collective investing knowledge dwarfs the insights that any one of us may possess as an individual. To paraphrase The B-52s, "Interactivity, baby -- that's where it's at."

Originally, I had intended to use today's column to talk about me -- specifically, what I wanted to look at in the energy sector, which companies I think are interesting, etc. However, all of us will probably be better served in the long run if I ditch the selfishness and replace today's planned "me" emphasis with a "we" focus instead.

It's been pretty much established that we want to look at companies doing business in the energy realm. But should we limit our analysis to just the large integrated oil and gas production/exploration firms, or should we also consider some of the smaller producers and explorers? And what about the other firms out there in the oil patch, such as oil services firms, contract drillers, motor oil and lubricant makers, and refiners? Should we be considering them, too? And, finally, should we stretch the boundaries of our focus group to look at energy companies on the whole, which might include diversified power producers and pipeline companies, among others?

One DRP-per named Martin recently shared these comments on the subject on the Web's Drip Companies message board:

"Although related, it seems to me that these industries are significantly different in terms of their financial performance, cyclical vs. non-cyclical nature, and the timing of any cycles. As such, should we not examine our goals prior to the inclusion of any of these to our portfolio?"

Well said, Martin. At this point, a quick review of what we're trying to accomplish with this portfolio may very well help clear up some concerns on where we're going and what we're trying to do with our next investment, whatever company that turns out to be.

Our main aim here is to create a portfolio that will be worth $150,000 in 2017. To get there, we need to select companies that will return an average of 15.5% annually over that span. In explaining the portfolio's strategy, Jeff and Randy Befumo described the ideal purchase for the Drip Port this way:

"Our strategy is to buy world-leading companies that we don't plan to sell, and to invest in companies that are so well run or improving steadily enough that the stock market grants them expanding multiples, or values them more highly than other stocks, but reasonably so. The businesses that we buy will be mature but still steadily growing -- both through sales volume and through better management."

These high standards do not mean that we are limiting ourselves to only investing in the biggest, most well-known company in our selected industry. Just as an exercise, ask any investor you know to name a financial services company off the top of their head. The odds are pretty good that Mellon Bank, our choice in that sector, will not be the first name to roll off their lips.

With that example in mind, I hesitate to go on record with any broad dictum, such as "We will not invest in that kind of company. We will only invest in this kind of company." We're much too early along in our analysis process to rule out too many companies. Our financial services study included companies of all shapes and sizes, ranging from Citicorp to First Tennessee to Fannie Mae. There is no reason why our current study should be any different, since it will allow us the flexibility to find and potentially invest in the best company in the energy field.

However, we cannot sacrifice a good, solid framework in the name of flexibility. To that end, I invite everyone to keep posting their suggestions on the Drip Companies board. But when making suggestions, keep our strategy in mind, as always. And if you have ideas on what the framework for our study should be, include those thoughts as well.

Hopefully, I'll have a good working framework for our study established by next week.

Oops, I mean "we."

FoolWatch -- It's what's going on at the Fool today.

10/29/98 Close

Stock Close Change CPB 54 + 1/2 INTC 89 3/4 + 17/32 JNJ 82 3/8 + 1 9/16
Day Month Year History Drip 1.01% 4.91% 17.56% 0.11% S&P 500 1.66% 6.77% 11.90% 14.15% Nasdaq 1.14% 3.74% 11.90% 10.25% Last Rec'd Total # Security In At Current 09/02/98 8.027 CPB $52.867 $54.000 09/01/98 9.727 INTC $80.238 $89.750 10/07/98 7.850 JNJ $71.405 $82.375 Last Rec'd Total # Security In At Value Change 09/02/98 8.027 CPB $424.36 $433.46 $9.10 09/01/98 9.727 INTC $780.50 $873.03 $92.53 10/07/98 7.850 JNJ $560.53 $646.64 $86.12 Base: $2000.00 Cash: $186.08** Total: $2139.21

The Drip Portfolio has been divided into 85.474 shares with an average purchase price of $23.399 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress:
09/21/98: Sent $77 to buy/enroll in MEL.
10/24/98: Sent $40 to buy more INTC.
10/26/98: Sending $60 to buy more JNJ.