Dec 8, 1999 at 12:00AM
To us, direct investing means that you invest in companies inexpensively enough that it is as if you're buying stock directly from the company itself, typically commission free, and in the process avoiding middle parties. As touched on in our book, Investing Without a Silver Spoon, our definition of direct investing grants us some leeway. As direct investors (all of us), our main common bond is that we buy stocks of leading companies at little to no cost, we buy regularly, and we reinvest dividends. Period.
The more esoteric and commonly accepted definition of direct investing means that you buy stock directly from a company via a direct investment plan, which is either a dividend reinvestment plan (DRP) or a direct stock plan (DSP). There isn't much leeway there. The plan is a must. Thus, your landscape is limited to the 1,200 companies that offer investment plans.
As 1999 ends, more ways to "direct invest" (by our definition) in more companies than ever before are presenting themselves. We're no longer limited to companies with direct investment plans alone, as we largely have been. Who should we thank for this change? Mr. Internet. Who else? The entrepreneurs who have enough gumption to help shape the Internet. And who else? The millions of fun-loving consumers (like you and me) who have enough enthusiasm to try new things.
Three companies are launching new services that help reshape a direct investors' landscape and widen their horizon. The three companies are newcomer BuyandHold.com, Netstock Direct, and Moneypaper. Our investment possibilities may rapidly expand with the introduction of these new services. Want to buy Cisco Systems as a direct investor? What about America Online? Or how about eBay? Or maybe Amgen?
We just may want to. We have high goals here, after all, and we have a long enough time horizon to achieve our goals that we can accept interim volatility. We are risk averse, but we are not risk intolerant.
You have come to know our investment style if you have read us for any amount of time. Does the prospect of any change in our style concern you? It shouldn't. Whatever we do here in the Drip Port, we will adhere to the investment criteria that we have followed since our inception nearly 2 1/2 years ago. We seek industry leaders (dominators, to be precise) with outstanding business economics that could result in stocks that reward us with greater than 15% annualized returns long-term.
The new services being offered online may help us to achieve our goal by widening our investment possibilities tremendously, without burying us under new costs. A brief summary of three new or pending services follows.
BuyandHold.com (www.BuyandHold.com) is the one new service that has already launched. Through BuyandHold.com, you can begin to invest in over 1,200 companies with as little as $20 (there's no need to own a whole share first, meaning you save commission money right off the bat). You can invest regularly in amounts as small as $20, thereby dollar-cost-averaging via fractional shares, and dividends are reinvested for you without charge. In addition, you can manage all of your stock accounts online (BuyandHold.com is in essence an inexpensive, value-added discount broker) and you can increasingly buy companies that do not have direct investment plans.
BuyandHold.com trades twice daily. If you place an order early in the morning, it will be executed before noon. Although we're long-term investors and not market timers (and BuyandHold's strategy is obviously long term, too), this transaction frequency is a convenience that we don't enjoy with our "once-a-month" direct investment accounts. Finally, you can automate your buying as well; simply set up a regular schedule and BuyandHold does the regular buying for you. So what's the cost? The cost to buy stock in any amount from $20 to billions of dollars is $2.99. (Click the link above to read about all of BuyandHold.com's offerings.)
In our case, BuyandHold's service could be handy for buying stocks that have expensive direct investment plans and especially for buying stocks that don't offer direct investment plans. We could begin to buy Starbucks (Nasdaq: SBUX) or America Online (NYSE: AOL) four times per year, for example, keeping the commission low (after one year, the total commission would still be lower than the typical $15 fee we've paid to begin our direct investment plans). We will especially begin to buy something if we believe that its performance (against other possible buys as represented by companies with direct investment plans) will more than compensate for the small additional purchase fee. If we need to pay $2.99 a few times a year to buy AOL, it'll be worthwhile if AOL clobbers something like Coca-Cola (NYSE: KO).
ShareBuilder.com (www.sharebuilder.com) is a pending new service from Netstock Direct. ShareBuilder will apparently operate in similar fashion to BuyandHold.com. There is no balance minimum and the cost is only $2 per investment. Of course, if we use one of these new services, we will consider commission rates in relation to the complete services offered to find the best value for us. Click the link above to see a little more information on this still "under wraps" new offering.
Universal Stock Access (http://www.u-s-a-account.com/details.html), called USA for short, is a new service rolling out from The Moneypaper. Being a member of this service costs $199 annually, so Drip Port will never be a member. Luckily, you needn't be a member to participate, although nonmembers generally pay higher fees. There is a $10 fee to open a brokerage account, and a $3 setup fee for each company that you begin to buy. There is also a small commission to buy, and buys are made weekly. Services offered sound similar to BuyandHold and ShareBuilder, but the fees generally appear higher. To learn about this upcoming service (which will likely have advantages for some), please click above.
On the Drip Port message boards (linked below), Fools are already discussing how these new services can be used to complement their existing direct investment strategies. We'll discuss this much more here, as well, beginning on Friday when we start to eat our way toward a conclusion on our food and beverage study.
Finally, if you're interested in participating on this week's Motley Fool Radio show, see this link and contact Mac Greer at firstname.lastname@example.org.
Jeff Fischer (TMFFischer) is advisor at Motley Fool Pro and co-advisor at Motley Fool Options.
- Dec 8, 1999 at 12:00AM