Monday, January 22, 1996
DRiPs: Investing For The Foolish Proletariat
by GRunkle

At last, Communism seems to have found its way to the ash heap of history. The politics of economic distribution just don't work, and the reasons have been well documented by the Russians and Chinese themselves. The theory of Communism developed when working people felt they could not share in the wealth of the capitalists who owned the world's factories, shipping lines, and trading companies. They worked hard, but they never seemed to reap any gain for it. The solution seemed simple to intellectuals such as Marx: take away the wealth of the capitalists and give it to the proletariat. There were, naturally, a few tricky problems, such as who in their right mind would invest in companies that create wealth only to see it taken away? (Details, details. . .)

It's too bad they didn't have Dividend Reinvestment Plans (DRiP's) back in 1848 when Marx wrote the Communist Manifesto. After all, it's a great way for your average Foolish proletarian to participate in the wealth of capitalists, and you don't even need a revolution to play the game. A DRiP lets you buy stock directly from a company, with no commissions and only a minor transaction fee. Usually you have to buy one share of stock from a broker (you need the certificate, it can't be in "street name"). Then you write to the company and ask for an application for the DRiP plan. Plans differ, but my favorites are the ones that take automatic withdrawals from my bank account every month. And some companies, such as Proctor & Gamble and Texaco, will sell you those first shares directly, not even bothering with commissions.

This is the ultimate for the proletarian Fool. You don't need a pile of ready cash to buy, say, 1000 shares of Coca Cola. You simply ask the people at Coke take $50 out of your checking account every month over time. Sure, there are some drawbacks. First, you can't buy and sell quickly. But since most companies with DRiP's are older, more established outfits, their share prices generally don't vary much day-to-day anyway, so this isn't a serious problem. The second criticism is that the transaction fees of some plans are actually higher than commissions at many discount brokers. Recently, McDonalds changed its DRiP program and introduced some fees. Several postings on the stock boards claim their fees are so high you could do better at a discount broker. Maybe, but I went through the costs and found that at my level of investing the DRiP is still the cheapest way to buy McDonalds. There are other advantages, too, such as dollar cost averaging and convenience.

The beauty of a DRiP plan is you don't have to have an estate in the horse country of Fauquier County, Virginia, to buy stocks. The average working Fool can use his or her hard-earned money to share in the wealth of the capitalists, and we can leave the guillotines in the museums.

Just think if they had DRiPs in Marx's time! Coca Cola might belong to the entire population of Moscow. Instead of standing in line at Lenin's mausoleum for vacation (yuck!), the Russians would be travelling to sunny Atlanta to see the Coke museum, and to get their free samples of Coke Classic. The populations of China, North Korea, Vietnam, and Cuba would all be Foolish, and all that money spent on weapons could have gone for more shares of Shanghai Oil, Hanoi Semiconductor or Havana Removable Disk Drives, Ltd. Imagine the stock boards with a couple billion more Fools throwing in their opinions in a babble of languages--- "Ford, dah! GM, nyet!"

Not all companies have DriP's, of course To find them, you can spend some money on a newsletter, or better yet, go to the local library and check out a book listing companies with DRiP's. The Internet has some sites that list DRiPs too. Since not all companies with DRiP's are good investments, you still have to do your own research. For those of us who are of limited cash, it's the only way to invest. As Marx would have said, "Working Fools of the world unite! You have nothing to lose but your brokerage commissions!" Or something like that anyway.