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Investing/Strategies / Drip Investing - Companies
|Subject: Re: Drip FAQ Help||Date: 2/5/1999 6:52 PM|
|Author: Peckham||Number: 8995 of 36486|
Q: How do I combine Drips with the Foolish Four?
A: Combining the Foolish Four with Drips is kind of like combining mustard with chocolate syrup. This is because each works well in it's own realm but the combination falls short of possible expectations.
The mechanics of Drip investing tends to work at cross purposes with mechanical trading methods such as the Foolish Four in the following ways:
1) Not all companies have Drip plans for their stock. This means that it may not be possible to purchase the desired stocks through a Drip plan.
2) The time delays involved in Drip investing work against regularly scheduled trades. Mechanical trading methods such as the Foolish Four generally assume that all sales and purchases during a period rebalancing are performed during a single trading day. This is because the specific stocks that are selected by a mechanical trading method generally change each trading day. Rebalancing with Drips could take several months instead of several hours.
3) Drip Investing is based upon a methodical process of making multiple small purchases over a period of time. This tends to compund the problems with rebalancing as not all the purchases are made at the same time.
4) Drips use long-term growth of a company to build value while mechanical trading methods use short to mid-term aspects of a stock. The Foolish Four uses the rebound in price of out of favor Dow stocks to generate a return.
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