<FOOLISH FOUR PORTFOLIO>

The Pinocchio Portfolio
Foolish 4 Stocks Purchased

by Ann Coleman
([email protected])

Reston, VA (December 24, 1998) -- The blue Fairy reached out with her wand at 10 a.m. this morning and Zing! our Pinocchio Portfolio became a Real Boy.

The Zing cost us $8 each in commissions. I can't say the announcement last night moved the market, but all of our stocks were up slightly from yesterday's close by the time we bought them. None had jumped so far that we needed to delay the purchase, however. Here are the beginning positions for the real-money Foolish Four Portfolio:

Caterpillar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> Bought 24 shares at $42.75, + $8. Total $1034.00
J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %> Bought 9 shares at $104.65, + $8. Total $ 949.62
3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %> Bought 14 shares at $73.00, + $8. Total $1030.00
Int'l Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> Bought 22 shares at $43.19 + $8. Total $958.12

Total invested: $3,971.74
Cash in account: $28.26
Account total: $4,000.00

We are one share short of the plan to buy 23 shares of IP. I cut things a bit too fine yesterday when I figured $18 was enough slack to cover prices going up. It was a slight problem with multiplication. With J.P. Morgan and 3M up just over $1 from yesterday's close, the $1 rise on 23 shares blew my margin.

I could have handled this by waiting to see if the prices would drop later today or by dropping the extra share of Caterpillar that we added yesterday when it looked like we might have the cash to cover it. But you know what? It wasn't worth the hassle. This is a simple system. I went with simplicity.

When I placed the orders I could see that the prices were up some, but nothing had jumped wildly. I bought the first three positions "at the market," waited for confirmation of the actual trade price, added up what I had spent, and spent the rest on International Paper. (Don't try that if your buy list includes Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> or America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>, though!) We now own 4 Dow stocks on which we spent $1000 each (plus or minus $50). Folks, that's close enough.

The $30 or so left over will rattle around in the account for the next year, earning interest. It will be joined eventually by dividend payments from our high yield stocks. Next year most of that cash will go into the picks for the year 2000.

One other choice I could have made deserves a bit of discussion. I could have placed limit orders for each stock at yesterday's close or a bit above. A lot of people like using limit orders to insure that they "don't pay too much" for their shares, but I'm not too crazy about them. For one thing, you can miss out entirely if the price never hits your limit, or you can end up buying at a higher price later when you give up waiting for the "right" price. But the main reason I didn't use them was because this is an IRA account.

At my brokerage a limit order cost $5 more than a market order. So 4 limit orders would have cost me $20. Now, I'm not cheap, but I can't see paying hundreds of dollars for limit orders. (WHAT?) You see, in a regular brokerage account, I could have sent in a check to cover that $20, skipped a few lunches and everything would be square. But in an IRA, I am limited to adding $2,000 per year. Any money I spend from that $2,000 cannot be replaced. Even though this year that $20 is just sitting in my account earning interest, next year it will be invested in the Foolish Four and it will stay invested for at least 20 more years. In 20 years, earning the Foolish Four's rate of return for the last 35 years of 19.84%, that $20 will have grown to almost $750. I can't afford that!

Note: Today's portfolio numbers are for the old Foolish Four portfolio. We will be listing the new stocks in the spreadsheet starting January 4. This will let readers who have been following the 1998 Foolish Four portfolio close out the year with it.

Next week we will take some time to get to know our Foolish Four companies.

Fool on and prosper!

<% =headlines %>

Get the Fool's new book - The Foolish Four

Today's Stock Lists | 1998 Dow Returns

12/24/98 Close
Stock  Change   Last
--------------------
UK   -   1/2   43.50
IP   +   5/16  43.31
MO   +   1/4   54.94
EK   -   3/16  73.13

                   Day   Month    Year
        FOOL-4   -0.04%  -1.01%  12.99%
        DJIA     +0.17%   1.11%  16.56%
        S&P 500  -0.18%   5.38%  26.36%
        NASDAQ   -0.44%  10.95%  37.74%

    Rec'd   #  Security     In At       Now    Change

 12/31/97  276 Philip Mor    45.25     54.94    21.41%
 12/31/97  206 Eastman Ko    60.56     73.13    20.74%
 12/31/97  291 Union Carb    42.94     43.50     1.31%
 12/31/97  289 Int'l Pape    43.13     43.31     0.43%


    Rec'd   #  Security     In At     Value    Change

 12/31/97  276 Philip Mor 12489.00  15162.75  $2673.75
 12/31/97  206 Eastman Ko 12475.88  15063.75  $2587.88
 12/31/97  291 Union Carb 12494.81  12658.50   $163.69
 12/31/97  289 Int'l Pape 12463.13  12517.31    $54.19


               Dividends Paid YTD  $1092.81
                            TOTAL  $56495.12

</FOOLISH FOUR PORTFOLIO>