<THE DRIP PORTFOLIO>
A Drip here, a Drip there
by George Runkle (TMFRunkle)
ATLANTA, GA (March 30, 1999) -- In an earlier Drip Port column (January 19, 1999), I covered different ways of allocating money to your investments. I divided it up into three methods: the "Amount Available" method, the "Fixed Automatic Investment" method, and the "Percentage Allocation" method. To sum them up quickly, the Amount Available method is sending whatever money you have available to your Drip account. The Fixed Automatic Investment method is to send in a fixed amount to your account, month in, month out. The final method, Percentage Allocation, is determining each month how much of your investment funds to send to each Drip based on some valuation criteria.
After I wrote the column, George Smyth (GLSmyth on our message boards) wrote me and mentioned his program, "INVESTmete." George has it on his website, http://www2.ari.net/glsmyth/. To find it, hit "Other Links." You can work your percentages right there. Not only that, George has some really interesting photography posted there. I liked his images from Kodak Infrared film the best.
Anyway, back to Drips. INVESTmete works on the idea that you need to buy more of a particular company's stock on the dips. You input the current price of your stocks, the 52-week high, the 52-week low, and how much you have available to invest. I used Johnson & Johnson (NYSE: JNJ), Exxon (NYSE: XON), and Coca-Cola (NYSE: KO) for a test. I figured on having $150 to invest, and put in all the numbers. The program suggested that I invest $31.95 in Johnson & Johnson, $50.55 in Exxon, and $67.50 in Coke.
Since Johnson & Johnson was close to its 52-week high, it came out lowest. Coke seems to be hovering nearer its 52-week low, so it called for the highest investment. Exxon is somewhere in the middle. Is this a valid way to invest? For these companies, I believe it is, since all three are strong and can be expected to have an upward movement of stock price in years to come. If you used this program, you would not have bought much Coca-Cola last summer when it zoomed up to almost $89 a share.
One word of caution -- this program is not for screening stocks. Don't put in a company that you haven't already researched for suitability as an investment. If your company has had a downward march in its stock price because the CEO went to Brazil with his secretary and the company treasury, you could be tricked into putting a lion's share of your funds into the stock.
In summary, George has a very good program. However, it is not a program to screen stocks for "investability." He is assuming you did that when you chose your Drips. This program can help you take advantage of dips in the stock price and avoid buying on temporary spikes in price. I'd like to thank George for the work he has done developing this, and posting it on the Web where we all can use it. This is true Foolishness. Way to go, George!
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