<THE RULE MAKER PORTFOLIO>
What Happened to Cash-King?
The Rule Maker Year in Review
By Phil Weiss (firstname.lastname@example.org)
Towaco, NJ (Jan. 4, 1999) -- Welcome to the first Rule Maker Portfolio report of 1999. I hope that all of you enjoyed ringing out the old year and starting the new one as well as the long weekend. Before we start talking about 1999 let's take a final look at the end of 1998. As shown in the table below, our portfolio ended the year on a down note.
However, since we've closed the books on 1998, it's also a great time to assess our performance for the year. When we started this portfolio, we mentioned that we intended to buy stocks that we could hold for at least 10 years. Our stated goal was to beat the performance of the S&P 500 while minimizing transaction costs and taxes. We ended the year with a gain of slightly over 30%, which was more than 25% better than that of the S&P during the 11 months our portfolio was in place. As for transaction costs, we paid $104 in commissions while investing approximately $22,000, an expense ratio of roughly 0.5%. As for portfolio turnover, there was none. The only taxes paid on this portfolio for 1998 were on dividends.
All told, this group of four Fools who ran the Rule Maker Portfolio did better last year than over 90% of all managed mutual funds with minimal expenses and tax costs. We hope that each of you had comparable or even better results than we did and look forward to an even better 1999. Here are our numbers:
Rule-Maker Last This Change Pfizer $119.38 $125.00 4.7% Gap Inc. $54.13 $56.13 3.7% S Plough $54.94 $55.25 0.6% American Express $103.38 $102.50 -0.9% Cisco $94.19 $92.81 -1.5% Microsoft $141.75 $138.69 -2.2% T. Rowe $35.13 $34.25 -2.5% Coca-Cola $69.44 $67.00 -3.5% Intel $125.00 $118.56 -5.2% Fool Four Last This Change Kodak $73.13 $72.00 -1.5% Exxon $74.63 $73.13 -2.0% Chevron $84.69 $82.94 -2.1% GM $73.44 $71.56 -2.6% S&P 500 1,226 1,229 0.2% Total RM $28,699 $28,444 -0.9% 1998 Final Results S&P 500 (*) +23.91% Rule-Maker +30.14% (*) The year for the S&P is as of 2/3/98, the start date for the Rule Maker Portfolio.
Not surprisingly, 1998 was a good year for many of our companies as well. As a matter of fact, Forbes selected Pfizer (NYSE: PFE) its company of the year. If you currently hold shares in this Pfine Pfilly or if you're considering adding it to your stable, I strongly suggest that you click on the link and check out the article. It discusses many of the reasons that Pfizer is one of the top performing stocks in our portfolio as well as one of the top pharmaceutical stocks you can own. I believe that our company's focus on research and development and the marketing of its products is second to none. Those of you who think that Pfizer is a one-product wonder because of Viagra can also read of the large number of potential blockbuster products in our company's pipeline.
As expected, on Thursday afternoon the Food and Drug Administration announced the approval of Celebrex, a drug that will be used for relief of signs and symptoms of osteoarthritis and adult rheumatoid arthritis. The drug, which was developed by Monsanto's pharmaceutical unit, will be co-promoted by Pfizer's top-notch marketing team. My understanding is that terms of this arrangement will be similar to the very successful one that Pfizer has with Warner-Lambert (NYSE: WLA) for the marketing of the anticholesterol drug Lipitor. Many people expect this drug to be a blockbuster (i.e., have sales over $1 billion annually in the near future).
When one buys companies with a long-term focus like we do here in the Rule Maker Portfolio, one thing that is important is that you want to buy stock in companies with top-notch management teams. So, it wasn't surprising to see executives from four of our companies included on Business Week's list of the Top 25 Executives of the year. The four were the president of Pfizer's U.S. Pharmaceuticals Group, Karen Katen; Intel's (Nasdaq: INTC) recently appointed CEO, Craig Barrett; Gap Inc.'s (NYSE: GPS) CEO, Millard Drexler; and the CEO of Cisco (Nasdaq: CSCO), John Chambers. We're happy that each of these executives are key decision makers at our companies and look forward to receiving the benefits of their efforts in the years to come as well.
I'm pretty sure that as 1999 moves forward one of the stories that dominates the news will be the potential implications relating to the much anticipated Year 2000 computer problem. It was comforting to read on Wednesday that Coca-Cola (NYSE: KO) has a plan to ensure its worldwide distribution runs smoothly next year. However, it is important to note that certain aspects of the issues related to this problem are outside the control of our companies. As a result, Coke has developed contingency plans to help deal with the situation. According to a statement filed with the SEC, these plans include "stockpiling raw and packaging materials, increasing inventory levels, securing alternate sources of supply and other appropriate measures."
On Wednesday, PC Magazine announced its "Best of 1998" awards. These awards are considered to be among the most prestigious in the computer industry. Cisco had one product on the list of networking products and Intel had three.
I was thinking about going through this whole report without mentioning Microsoft (Nasdaq: MSFT), but I just couldn't do it. After all, it's hard not to mention the company that performed the best of all our holdings during 1998. All was generally quiet with Mr. Softy last week, but here's a link to an article offering one perspective on the progression of the case so far.
I also wanted to include a link to a message on our Companies Message Board by a poster named hompleum in which he does a rather Foolish job of taking a company through the Rule Maker criteria in our 6th step. This is just one example of how each and every one of us can do the research and analysis required to determine which stocks to purchase.
Before closing tonight's report, I do have one financially related New Year's Resolution to share in this space. Over the last couple of years my investing has become more and more Foolish. The one thing that I haven't finished doing yet, though, is getting my portfolio down to the maximum level of stocks discussed in our 3rd step. By the end of 1999 I will not own more than 15-20 stocks. Cutting down the number of stocks I own will leave me more time to spend with my family and will also allow me to pursue other interests more readily.
I hope that everyone has a happy, healthy, prosperous and, most importantly, Foolish New Year. I'll be back tomorrow night with some thoughts on saving money for retirement.
Phil Weiss, Fool
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Stock Change Bid AXP -1 101.50 CHV - 7/8 82.06 CSCO +2 1/2 95.31 KO + 3/16 67.19 GPS + 1/2 56.63 EK - 13/16 71.19 XON - 1/2 72.63 GM - 11/16 70.88 INTC +2 1/4 120.81 MSFT +2 5/16 141.00 PFE -1 1/2 123.50 SGP + 13/16 56.06 TROW +1 1/8 35.38
Day Month Year History R-MAKER +0.77% 0.77% 0.77% 31.14% S&P: -0.09% -0.09% -0.09% 22.08% NASDAQ: +0.70% 0.70% 0.70% 32.51% Rule Maker Stocks Rec'd # Security In At Now Change 2/3/98 24 Microsoft 78.27 141.00 80.15% 5/1/98 55.5 Gap Inc. 34.06 56.63 66.25% 6/23/98 34 Cisco Syst 58.41 95.31 63.18% 2/3/98 22 Pfizer 82.30 123.50 50.06% 2/13/98 22 Intel 84.67 120.81 42.68% 8/21/98 44 Schering-P 47.99 56.06 16.81% 2/6/98 56 T. Rowe Pr 33.67 35.38 5.05% 5/26/98 18 AmExpress 104.07 101.50 -2.47% 2/27/98 27 Coca-Cola 69.11 67.19 -2.78% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 64.34 72.63 12.89% 3/12/98 20 Eastman Ko 63.15 71.19 12.73% 3/12/98 15 Chevron 83.34 82.06 -1.54% 3/12/98 17 General Mo 72.41 70.88 -2.11% Rule Maker Stocks Rec'd # Security In At Value Change 2/3/98 24 Microsoft 1878.45 3384.00 $1505.55 6/23/98 34 Cisco Syst 1985.95 3240.63 $1254.68 5/1/98 55.5 Gap Inc. 1890.33 3142.69 $1252.36 2/3/98 22 Pfizer 1810.58 2717.00 $906.42 2/13/98 22 Intel 1862.83 2657.88 $795.05 8/21/98 44 Schering-P 2111.7 2466.75 $355.05 2/6/98 56 T. Rowe Pr 1885.70 1981.00 $95.30 5/26/98 18 AmExpress 1873.20 1827.00 -$46.20 2/27/98 27 Coca-Cola 1865.89 1814.06 -$51.83 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Exxon 1286.70 1452.50 $165.80 3/12/98 20 Eastman Ko 1262.95 1423.75 $160.80 3/12/98 15 Chevron 1250.14 1230.94 -$19.20 3/12/98 17 General Mo 1230.89 1204.88 -$26.02 CASH $120.62 TOTAL $28663.68 *Please note: On 8/4/98 $2,000 cash was added to the
portfolio. $2,000 will be added every six months.
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