<FOOLISH FOUR PORTFOLIO>
1999 Foolish 4 Announced
First Real-Money Portfolio
by Ann Coleman
([email protected])
Reston, VA (December 23, 1998) -- And now the moment we've all been waiting for. May I have the envelope, please? How amazing! The official, real-money Foolish Four portfolio for 1999 will be (please, hold your applause until we get to the end)... Caterpillar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %>, J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %>, Minnesota Mining and Manufacturing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>, aka 3M, and (groan, not again!) International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %>.
Just kidding. (About the drama, not the stocks.) In contrast to our other portfolios and the "stock picks" touted by various talking heads, our portfolio is the antithesis of dramatic. The numbers go into the RP generator and out come the stocks. We buy them and hold them for a year and a day. Rinse. Repeat.
Now that we know the stocks, we need to decide how many shares to buy of each. Remember we are investing equal dollar amounts in each company. That takes a bit of math -- get out your calculators.
Our portfolio is starting out with $4,000 so we will look to invest close to $1,000 in each stock.
WAIT! You don't have that much? No problem. As long as you have at least $2,000, you can just split what you have evenly among the first two stocks. That would be Caterpillar and J.P. Morgan. This is known as the RP 2 strategy. It's an interesting variation. It actually outperforms the Foolish 4, but it is a riskier strategy -- all your eggs are in two baskets. If you are not comfortable with that, you can split your money among the first three stocks, or bite the bullet and spring for four commissions instead of two or three. It's really your choice. Just try not to pay more than 2% of your principal in commissions.
For those of you who are thinking, "Hey! They get out of investing in International Paper!" I've got only this to say: When it comes right down to it, you are responsible for your investments. International Paper has been in the Foolish Four for a long time and may be due for its day in the sun. (Then again, we've thought that before!) If your decision is to skip it, that's your decision and no Fool will argue with your right to make it. Messing with the system is totally up to you. I'm going strictly by the book.
OK. We want to buy equal dollar amounts of four stocks. CAT closed today at 42 9/16, which is $42.56 in real money. $1000/$42.56 = 23.50. We will round that down to 23 shares.
JPM closed at $103.38. $1,000/$103.38 = 9.67. Round down to 9.
3M closed at $72.06. $1,000/$72.06 = 13.88. Boy, that's close!
IP closed at a nice even $43.00. $1,000/$43.00 = 23.26. Round down to 23.
Now, if we buy 23 shares of IP at $43.00 ($989.00) and 13 shares of MMM at $72.06 ($936.78) and 9 shares of JPM at 103.38 ($930.42) and 23 shares of CAT at $42.56 ($978.88) we will have spent only $3835.08. Even after commission of $8 per trade ($32.00 -- less than 1% of our principal), and allowing for a bit of a price pop tomorrow, we can afford a few more shares, don't you think?
Since 3M was close to 14, let's buy one more of those. That brings our total (including the commissions) to $3939.14. We've still got sixty bucks to play with. We can afford one more share of CAT or IP. Tough choice! But even if IP weren't such a miserable stock right now, CAT would be the better choice. Why? It's the top stock on the list. Remember the Foolish 2? Those two top stocks are often real dynamite. So I'm sticking my extra cash into one more share of CAT.
That still leaves us with about $18, which means that even if every stock jumped $4 at the open we would still be OK. That's about as close as we can get, folks. Just let whatever money you have left over sit in your brokerage account and earn interest until next year.
Here's the final talley.
The Foolish 4 Portfolio is buying:
24 shares of CAT
9 shares of JPM
14 shares of MMM
23 shares of IP
I will try to buy tomorrow near the open unless the prices jump wildly.
A few housekeeping notes: The stock list that we have been running every day -- the top ten high yielding stocks in price order is being replaced today with the top 10 stocks selected by the RP method. This reflects our feeling that the RP is a superior way to select Dow stocks and lets us list the Current Foolish Four stocks in their usual place. We will continue to provide the Low Price/High Yield list every day in Today's Stock Lists.
You will also note that we are not changing our portfolio reporting just yet. A number of people have been following the portfolio numbers and it seems only right to finish out the year. I will be reporting on how each stock in our real money portfolio is doing in the portfolio report each night until the end of the year, at which time we will bid our paper stocks adieu and report on the new stocks formally.
Fool on and prosper!
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Today's Stock Lists | 1998 Dow Returns
12/23/98 Close
Stock Change Last -------------------- UK +1 7/8 44.00 IP + 1/4 43.00 MO +1 5/16 54.69 EK - 1/8 73.31 |
Day Month Year
FOOL-4 +1.72% -0.96% 13.04%
DJIA +1.74% 0.94% 16.36%
S&P 500 +2.07% 5.58% 26.60%
NASDAQ +2.43% 11.44% 38.35%
Rec'd # Security In At Now Change
12/31/97 206 Eastman Ko 60.56 73.31 21.05%
12/31/97 276 Philip Mor 45.25 54.69 20.86%
12/31/97 291 Union Carb 42.94 44.00 2.47%
12/31/97 289 Int'l Pape 43.13 43.00 -0.29%
Rec'd # Security In At Value Change
12/31/97 206 Eastman Ko 12475.88 15102.38 $2626.50
12/31/97 276 Philip Mor 12489.00 15093.75 $2604.75
12/31/97 291 Union Carb 12494.81 12804.00 $309.19
12/31/97 289 Int'l Pape 12463.13 12427.00 -$36.13
Dividends Paid YTD $1092.81
TOTAL $56519.94
</FOOLISH FOUR PORTFOLIO> |