The Daily Dow
Wednesday, May 22, 1996
by Robert Sheard

LEXINGTON, Ky. (May 22): ****Dow Order Alert**** General Electric and DuPont have switched places again in the Dow Order. DuPont takes over the final spot on the current Foolish Four list (Beating the Dow position number 5) and General Electric drops to the next lower slot as a result of GE's recent price run-up. Also worth watching, Merck is only fractions of a point away from joining the top ten yielding group.

In the 1996 Foolish Four Model, Chevron and Eastman Kodak reversed yesterday's stumble and propped up the Foolish Four today, while 3M picked up a fraction and DuPont slipped a bit. Nothing unusual there, of course. This approach typically turns in snooze-inducing performance on a daily basis. Yet, by the end of the year, Dow investors are usually looking at returns that have whipped the market (and by extension, the majority of Wall Street money managers).

It stands to prove that looking at anything too closely or over too short a time-span gives one a distorted view. We rarely see these Dow stocks move in the dramatic fashion of the smaller-cap growth stocks, but like glaciers, they DO move, and with quite a bit of force once they get started.

We probably make a mistake even writing about this bunch daily because there is usually little to report of any great consequence. Yet we have so many new visitors to the Fool and this corner of Fooldom each day that it's worthwhile to keep an active discussion running here to help new Dow investors become comfortable with the approach. Plus, it keeps me off the streets!

One very basic issue that has come up much too frequently for my comfort lately is how the process of selecting the stocks is performed. We're getting many e-mails and message board posts asking whether we recommend buying so many oil stocks in the Foolish Four (that is, Texaco, Chevron and Exxon, etc.) The problem there, of course, is that two of those three stocks AREN'T Foolish Four stocks right now and the repeated question suggests that far too many readers are glossing over the details of the approach.

Forgive me for the Dow 101 lesson, but this element is crucial. After one takes the top ten yielding Dow stocks, there's still one more step to go. Don't skip it!!!! Take those top ten stocks and re-rank them by share price, from lowest-priced to highest. The cheapest stock, for example, is #1 and so on. Only then do you eliminate the #1 stock and select the next four.

The real point, of course, is that, even with a strategy as basic and mechanical as the Dow Dividend Approach, it's important to understand the method thoroughly. Our goal here is to give you the tools whereby you could use the strategy confidently and successfully even if the Fool were to close its doors and leave you on your own. (Don't worry; we're not headed off to Bimini with the grocery money.)

We're primarily in the education business here at the Fool and we want all of our readers who use the approaches we teach to understand the why and the how first; otherwise, we haven't done our job thoroughly. But that means you, the reader, have to be willing to do your homework as well, to understand what's behind the Dow Approach and everything else here at the Fool. Don't follow anyone's advice blindly, even ours.

One final piece of information. 3M traded ex-dividend today, paying $0.47 per share in cash. That dividend is reflected in the cash balance for the Foolish Four Model Portfolio as of today.

Transmitted: 5/22/96

THE FOOLISH FOUR MODEL (5/22/96)  

          Day   Week   Quarter  Year  History
Fool-4   0.88%  2.79%   7.61%  16.08%  16.08%
DJIA     0.73%  1.59%   3.42%  12.92%  12.92%
S&P 500  0.84%  1.42%   5.10%  10.15%  10.15%
NASDAQ   0.24%  0.44%  13.26%  18.55%  18.55%


Rec'd    #   Security  In At   Now   Change

1/2/96  142  DuPont    69.88  82.75  18.43%
1/2/96  380  Chevron   52.38  61.88  18.14%
1/2/96  148  E. Kodak  67.00  76.88  14.74%
1/2/96  149  3M        66.38  69.63   4.90%

Rec'd    #   Security       Cost       Value     Change

1/2/96  142  DuPont      $9,922.25  $11,750.50  $1,828.25      
1/2/96  380  Chevron    $19,902.50  $23,512.50  $3,610.00      
1/2/96  148  E. Kodak    $9,916.00  $11,377.50  $1,461.50      
1/2/96  149  3M          $9,889.88  $10,374.13    $484.25     

      CASH      $1,023.41        
      TOTAL    $58,038.04         



Transmitted: 5/22/96

      
      

      
      

        

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