<THE DRIP PORTFOLIO>
Another Industry Study Begins
by Brian Graney (TMFPanic)
ALEXANDRIA, VA (June 11, 1999) -- Those grunts and groans you hear in the distance are not the sounds of music lovers reacting to reports of a New Kids on the Block reunion tour. Nor do they belong to Baltimore Orioles fans watching their beloved Birds' bull pen give up another ten runs in a single inning. No sir, those panged sounds of effort are coming from Jeff and myself. We're undergoing a rigorous mental fitness regimen to gear up for yet another Drip Port industry study! As they say, "No pain, no (capital) gain."
That's right, Jeff and I are itching to add a new company to our collection of world class DRPs. And in the time honored tradition of this portfolio, we'll look at a group of related companies to see if any superstars shake out. With any luck, a company will catch our eye and send our hearts aflutter while visions of future share price appreciation dance in our heads.
To prepare ourselves, Jeff and I are cracking our knuckles, checking our computers' surge protectors, and settling into our favorite desk chairs here at Fool HQ to churn out regular updates of our all-out stock selection effort. In the weeks to come, we'll try to provide the best look at the most promising investment possibilities in the food and beverage industry available anywhere in the online world, free or otherwise.
"Food and beverage!" I can hear loyal Drip Port followers shouting-out with dismay. "Didn't they already do that?" Yes we did. (Alright, I personally didn't do it, since I was still working for the Wise at the time. But that's beside the point.) The food and beverage industry was one of the very first industry studies conducted by this portfolio, starting way back in 1997. From that study came the decision to buy Campbell Soup, which the portfolio still holds today.
However, we have decided not to invest another penny of our monthly investment money in Campbell after the company hit small-time investors like ourselves where it hurts the most -- in our wallets. As Jeff has already discussed, Campbell's decision last year to slap fees on every optional cash purchase made by its Drippers is too hard for this portfolio to swallow. Those fees would undermine the low-cost beauty of the Drip Port by eating up dollars that would otherwise be compounding for years and years. As we're only planning to invest $24,500 total over the 20 year life of the portfolio, Jeff estimates that Campbell's fees could conceivably take away 2% of our total deployable cash. That's too high of a price to pay, despite our fondness for the company.
So, we're looking for a replacement for the Soup King. We're sticking to the food and beverage industry because it's a sector we feel we know pretty well. We like the consistency of earnings that many of the industry leaders exhibit. We like the economies of scale in the companies' manufacturing processes and national distribution networks. And we like to eat -- a lot. It seems like a natural fit.
Originally, we had planned to look at energy companies after finishing our oil and gas study earlier this year. That may still happen at some point down our investment idea pipeline, but probably not anytime soon.
A major reason why we held off on investing in an oil and gas company was due to the consolidation that is currently going on within the industry. In essence, rapid consolidation makes it too hard for folks like us -- who are already at a disadvantage by coming into the industry without any prior familiarity -- to pick winners. When your game plan relies on picking the winners in an industry and investing in them for 20 years, you better be confident who tomorrow's winners are going to be. In oil and gas, we're still trying to build up that confidence. So we've decided to wait and learn.
Upon doing some initial analysis of utilities and gas transmission companies, we discovered that not only are those industries consolidating (adding uncertainty), but certain sectors are also deregulating (adding even more uncertainty). Forget about trying to pick winners, we're not even sure who the major players are going to be. Industry analysts and even some of the players themselves have admitted that they don't know what the winning business strategy will be over the next ten years or so. That's not a very comforting vantage point from which to start a lengthy and in-depth study.
We embrace the idea of learning about industries and building up a mountain of investment knowledge from the ground up, especially in an industry such as energy, where long-term demand looks promising. But we also embrace the concept of avoiding situations where the odds of picking the winners over the next 20 years are stacked against us. While we develop an understanding of the energy industry, we'll stick to investing in what we know.
That brings us back to the food and beverage industry. Jeff and I plan on examining some old favorites during the study, along with a few new faces that have caught our eye over the past few months. As always, any suggestions you may have are gladly welcomed. Post your thoughts on the Drip Companies message board.
Touchstone Friday: On Monday, George broached the subject of diversification, an issue that always seems to perk-up the ears of Drippers. On Tuesday, Jeff shared some thoughts on when it might be appropriate for a Dripper to do the often unthinkable and sell a position.
On Wednesday, Jeff discussed the cost benefits Intel will reap thanks to its recently-announced shift to 300 mm semiconductor wafers from 200 mm wafers. He also hyped my coming e-commerce site, BrianGraney.com. (Thanks Jeff!) Jeff himself is busy thinking up ways to outdo me in the e-business department. His first Web business idea, the ill-fated and some say self-serving dating service Jeff-in-a-Jiffy.com, has already been scrapped due to a lack of interest from Web users. Back to the drawing board, Jeff.
In Thursday's column, Jeff wrapped up the week with a look at recent posts from the message boards of the Drip Port's four holdings. This weekend, why not check out what other Fools are saying about our holdings or your own?
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