Drip Portfolio Report
Monday, July 28, 1997
by Jeff Fischer (TMF [email protected])
and Randy Befumo (TMF [email protected])

ALEXANDRIA, VA, (July 28, 1997) -- Greetings!

Welcome to The Motley Fool's new real-money portfolio, the portfolio that we're wildly predicting -- with a grin and a wink -- will become the most popular of the Fool's three real-money portfolios. Why? For many reasons, but perhaps because of two primary factors:

1. Most Americans have more credit
    card debt than they do savings.

And

2. Most Americans want to change
    that situation and start investing.

First though -- as the Fool's School cries for -- pay off that debt! THEN begin to invest. But how, you ask, does a Fool begin with so little money?

That's where Dividend Reinvestment Plans (DRPs) come in. With as little as $50 to $100 you can begin to invest in world-leading companies, and each month you can continue to buy more stock, nearly as little or as much as you like, without paying brokerage commissions.

But we've already gone over the details of such investing (see the menu to the left). Behind the "Portfolio Info" link are fourteen articles that explain what we're doing here, what we plan to do over the coming years, and how we plan to invest our real money. The articles explain the goals of the portfolio, our purchase policies, the reasons why we're opening an account with The Moneypaper, and what exactly DRPs are, as well as the history behind them and how they benefit you, the Foolish investor.

Speaking of goals, Randy Befumo is here to share one of the portfolio's goals right here and now. He and I will be writing this column every weeknight. Tonight is mainly fluff -- as there's plenty to read behind the link that explains the portfolio and DRPs. Please read what interests you and send us any questions that you may have. Soon in this very space we'll get down to work -- Foolishly!

Greetings from Randy...

In the Direct Portfolio, our general goal will be to teach people how to create wealth over periods measured in years by investing small amounts of money on a regular basis in the shares of publicly traded companies. We have two specific goals -- one for three years and one for twenty years. Let's look at the long-term goal in this column.

The long-term, twenty-year goal will be to swell this Portfolio to $150,000 -- approximately enough to buy Jeff a life. To achieve this long-term goal, we will need to return about 15.5% on an annualized basis, well above the S&P 500's 10.8% annualized return since 1926. Our $500 base and an additional $100 invested per month (total of $24,000) will grow to $150,000 in twenty years at this rate.

We believe that we can achieve our goals, if not beat them, by purchasing quality companies with solid earnings growth at good prices. We are looking for companies that can sustain double-digit earnings growth, carry low to medium valuations relative to the fundamentals of the business, and have high rates of return on equity.

Finding a company with all of this and a decent yield as well will be an awesome task. We will look at the "total" return a company can generate, which means including the yield and the possibility for stock price appreciation. Some of the companies we purchase may seem highly valued relative to earnings estimates for this year... or even estimates out five years. However, in keeping with the 20-year goal of the portfolio, we will take a company or two that can provide the 15.5% or better returns over the long-term even if in today's dollars they appear to be "highly" valued.

We are very excited about the Direct Portfolio (or DRP Port) and look forward to your continued interest. The next few weeks will probably be some of the most exciting as we explain our goals and make our first investments. We plan to do this in a very deliberate and measured manner so that anyone who decides they want to can make the same investments.

As we go forward, we plan to continually discuss new and different Dividend Reinvestment Plans (DRPs) for the benefit of readers who are interested in continually learning about new companies that they might like better than the companies we happen to select. We'll also dissect our companies on a regular basis to teach what we like about them and what we don't, and what we think makes a great investment.

Keep in mind that neither person running the Portfolio is perfect and that you should always do your own research when deciding what to do with your money.

Good luck and Fool on!