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This year I simply called up the Foolish Buy Calculator and entered the following information: the cash in my Foolish Four portfolio after selling 3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %> and IP; my commission rate; the number of shares I held of the stocks that were staying on for another year; and the ticker symbols of the two new companies. Voila!
OK, "voila!" actually had two steps. Step one was to get a current quote that allowed BuyCalc to inform me that JP Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %> and Caterpillar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %>, the stocks I am keeping, were each slightly less than 25% of the portfolio. I then hit the Equalize button, which calculates the number of shares to buy (or sometimes to sell) if one wants all the stocks in equal (as close as possible) proportions.
Hitting Equalize informed me that my nine shares of JP Morgan were as close as I could get, but that I needed to buy two more shares of Caterpillar to equalize that holding. Two shares of Caterpillar would have cost me $8, which was more than 8% of the total purchase cost, so I said no thanks and locked in the shares that I was currently holding. BuyCalc obligingly recalculated the number of shares of Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> and General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> -- the two newcomers to this year's portfolio -- and informed me that 18 shares of GM and 20 shares of Kodak would make the best use of my available cash.
After I bought GM (using a separate browser window so as not to lose the BuyCalc screen) and entered the actual trade price, BuyCalc rechecked the recommended number of Kodak shares and even gave me the maximum share price I could afford to pay (including the commission) without running out of cash. When I placed my final order, I received a real-time quote that was well under that limit so I went ahead and bought the full 20 shares. See Today's Numbers below for the actual execution prices.
I was left with $19 in my account -- not enough to buy a single additional share. BuyCalc took me right down to the line to get the maximum cash working in the market, and the whole process took less than 10 minutes, including placing the trades and getting trade confirmations.
Not bad. Not bad at all. Of course, when you are trading very large, highly liquid stocks like these on a day when the market isn't likely to be flooded with orders, it's easy to get quick confirmations. In fact, my trades were confirmed as soon as I hit the "Check Status" button the first time. It seemed almost instantaneous.
The one thing I'm not certain of is exactly how much cash I have left. That's because Ameritrade (the broker I use) is distressingly slow at updating the cash balance. Odd as it may seem, I won't get an account balance update until after midnight tonight. So if that $19 balance changes between now and tomorrow, it's because my back of the envelope (literally) calculation was off.
By the way, I started this process with a cash balance of $140.52 in the account, instead of the $119.51 reported in the Today's Numbers last Thursday. Some fourth-quarter dividends had arrived since that amount was last updated. Go dividends!
Well, that's it. Now all I have to do is sit tight until December 28, 2000, collect my dividends (which requires no effort at all), and watch what happens.
One final note: While this is the "official" portfolio in the sense that it is the one that we will follow online, there is nothing special about it. The Foolish Four formula helps us pick blue-chip stocks when their price is low relative to their dividend, indicating that the stock is a good value. Depending on how the market prices the Dow stocks, a different set of stocks may be the best value tomorrow, next week, or next month, according to the formula.
As we saw last year, the returns from portfolios started at different times will almost certainly be different, and can be widely different. Over time, these differences should average out, but on a year-by-year basis, they can be quite distracting. I know a number of people like to do their switch at the same time we do so that they can follow the returns here on a daily basis. That's fine, but it certainly doesn't guarantee that you get the best portfolio. You might do better if you use next Friday's list. There's no way to tell.
Lest I sound too discouraging, it is also true that you are usually better off in the long run to get your money into the market and get it working for you rather than dithering around worrying about when to start. Sure there are bad times to invest, but waiting for them to hit and be over is most often an expensive mistake. Remember, of course, that you are investing only money that you won't need for at least five years.
Tomorrow, we will review how our first real-money portfolio performed this year.
Fool on and prosper!
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