PORTFOLIO TO STUDY: Watering with Cash

The Study Portfolio was first introduced in the July/August 2001 issue of ShareOwner with the general plan for gradually building positions in a manageable selection of the stocks available through the Low Cost Investing Program (see page 27).

This and subsequent articles report on progress in constructing the portfolio and on any significant portfolio management issues that emerge from corporate, stock market and typical personal developments.

Related Results

Readers are cautioned that the information and commentary about the Study Portfolio and its securities are not intended to constitute a recommendation or securities advice or an offer to any particular person, or solicitation of an offer to any particular person, to buy or sell any of the securities in the Study Portfolio. Rather, the Study Portfolio is presented as a practical example of the processes and activities involved in constructing and managing a portfolio of common stocks over the longer term.

You can watch the construction and monitor the management and performance of the Study Portfolio at:

www.Investments.ShareOwner.com/cgi-bin/lciponline.pl Click 'View a Sample Account'.

Pre-Authorized Purchases

Diversification by 'Time' Continues

The activity in the Study Portfolio ("Portfolio") since the first purchases were made is recorded in the accompanying Tables. So far $22,188 of capital has been invested (not including reinvested dividends).

Diversification by 'Weight' Continues

A total of $3,193 was invested in May. Pre-authorized purchases were as follows:

* $67 in each of AFLAC, Citigroup, Power Corp, Total System, Johnson & Johnson, Stryker, Patheon, Home Depot and Loblaw;

* Cinram ($104);

* Creo ($350), which reflects an additional purchase of $200 (see May/June issue for reasons);

* $267 in each of Axcan, Cangene, Lineare, Intel, MacDonald Dettwiler, Microsoft; and,

* New position initiated in both Stratos Global and Alimentation Couche-Tard ($267).

All pre-authorized purchases were made through the Gold Service option in ShareOwner's Low Cost Investing Program. Next purchases are scheduled for July 2004.

The data in Table 1 show that scheduled, preauthorized purchases, initial purchases of new stocks, and price changes (reflecting the ebb and flow of market sentiment for stocks) continue to vary the 'weight' that each stock has in the portfolio's asset mix. Total System and MacDonald Dettwiler have the largest weight (8.2%) due to a combination of extra purchases and price appreciation.

Performance

Since August 2001, Portfolio stocks that trade on the TSX (48%) are up an average of 7.4%; stocks traded on U.S. exchanges (52%) are up 11.7%. In comparison, the S&P/TSX Composite Index is up 15.2% and the S&P 500 is down -3.0%.

Averaging 'Up' & 'Down'

At the end of May, 16 stocks (84% of the Portfolio's names) were 'averaging up' in that they were trading at prices higher than their average cost (maximum gain, Stryker 47% higher; median gain 9%). Of the 3 stocks trading lower, Creo was down the most at 14% with the median decline being 6%. Overall, the Portfolio's weighted increase is 9.6%.

New Developments

New 'Big Picture' Information

Stock markets moved generally sideways during last two month as investors' expectations for the future became more uncertain than earlier in the year. The roots of that uncertainty included: almost 'sure thing' prospects for modest increases in interest rates; big increases in the price of oil; more disintegration in U.S. control over the insurgency in Iraq; and, a less likely re-election for George Bush. All in all, pretty much the same things that markets often worry about.

Overwhelming the negativity of the Iraq situation, is the recent U.N. resolution supporting efforts to give Iraq a chance at democracy. That event significantly increases prospects for greater homeland security in Iraq - and George Bush's re-election. A victory in November could help to re-establish the new world order announced in the 1990s.

Alan Greenspan (recently re-appointed to head the U.S. Federal Reserve) has indicated that he expects a series of only modest interest rate increases that are unlikely to stifle growth. Oil producing countries are expected to increase output to restrain further price increases in the short term. Unemployment is declining. Both businesses and consumers are now spending vigorously. It's positives like these - and the absence of new political scandals and terrorist activity, in the U.S. and abroad - that can take markets significantly higher following a Bush re-election, and on into 2005.

New 'Company Specific' Information

Press releases reporting recent quarterly and/or year-end results were reviewed. So far, 16 of the Portfolio's 19 companies have reported earnings increases over the comparable period last year. Topping the list of year-over-year increases in quarterly earnings are Intel (86%), Cinram (70%), and Creo (55%).

Hands-On Management

The allocation of money in the Portfolio seems appropriate for the current market and economic situation. In addition, the selection of stocks seems to have quite promising reward/risk ratios. Furthermore, the slide in the US$ seems to have ended - and may be reversing. Overall, the Portfolio needs only 'watering' with more cash.