The Daily Dow
Wednesday, June 5, 1996
by Robert Sheard

LEXINGTON, Ky. (June 5): It was another fair day for the Blue Chips this mid-week session. The DJIA tacked on a half a percent gain, bringing its return this year above 11%. That's what we normally expect from the Dow for an entire year, so it's hard to get grumpy with the market's performance thus far in 1996, even though it doesn't feel as spectacular as last year's impressive gains. Think long term, though, and it looks pretty sweet. If only the market could go up 11% EVERY six months!

The Foolish Four went two-and-two today, with Eastman Kodak and 3M picking up nice moves, in excess of a full percentage point each. Chevron and DuPont, however, each dropped roughly a percentage point, leaving the portfolio down a fraction. A pretty tame day overall, but disappointing in that the model portfolio lost a little ground to its benchmark index.

The only news for the stocks today concerned DuPont. Conoco, DuPont's energy subsidiary, plans to shuffle headquarters and home office workers around into its various business units as part of this summer's restructuring. About 850 workers will be displaced in the move but Conoco executives have yet to decide how many of these workers will be let go. A spokesman for the firm, Carlton Adams said "there would be some job reductions, but I think [they] would be minimal."

Conoco is also engaged in discussions with Phillips Petroleum <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:P)") else Response.Write("(NYSE:P)") end if %> to combine the companies' refining, marketing and transportation operations in a joint venture to make them more efficient.

More importantly for DuPont, however, was today's earnings estimate reduction by Bill Young, chemical analyst for Donaldson, Lufkin, and Jenrette. Young cut his numbers for DuPont's second quarter from $1.90 to $1.80, amid similar cuts on several chemical stocks.

There have been a number of recent inquiries about how taxes would affect the Foolish Four returns over the years. Of course, the answer is that if you make money in stocks, eventually, you'll pay taxes. But I think too many investors let tax considerations cloud the purpose of investing. As Warren Buffett said, "What is one really trying to do in the investment world? Not pay the least taxes, although that may be a factor to be considered in achieving the end. Means and ends should not be confused, however, and the end is to come away with the largest after-tax rate of compound."

I've written a fribble or two on the taxes issue which you can read at your leisure, but in short, even under the most burdensome taxation possible (assuming the full long-term capital gains rate of 28% and a 100% turnover in the Foolish Four each year, an unlikely occurrence), the after-tax return is still 16%. I have yet to see a mutual fund strategy or buy-and-hold forever approach that has equaled that return over the last 25 years PRE-TAX, let alone after tax. If it's out there, please, let us know about it. We don't eschew mutual funds because they're evil; we eschew them because we have found something that has proven consistently better and amazingly easy to implement. How Foolish!

Transmitted: 6/5/96

THE FOOLISH FOUR MODEL (6/5/96)  

          Day   Week   Quarter  Year  History
Fool-4  -0.04%  0.20%   4.57%  12.80%  12.80%
DJIA     0.56%  0.96%   1.97%  11.34%  11.34%
S&P 500  0.87%  1.39%   5.10%  10.15%  10.15%
NASDAQ   0.44%  0.46%  13.42%  18.72%  18.72%


Rec'd    #   Security  In At   Now   Change

1/2/96  142  DuPont    69.88  80.00  14.49%
1/2/96  148  E. Kodak  67.00  75.88  13.25%
1/2/96  380  Chevron   52.38  58.88  12.41%
1/2/96  149  3M        66.38  69.50   4.71%

Rec'd    #   Security       Cost       Value      Change

1/2/96  142  DuPont      $9,922.25  $11,360.00  $1,437.75      
1/2/96  148  E. Kodak    $9,916.00  $11,229.50  $1,313.50      
1/2/96  380  Chevron    $19,902.50  $22,372.50  $2,470.00      
1/2/96  149  3M          $9,889.88  $10,355.50    $465.63     

      CASH      $1,082.61        
      TOTAL    $56,400.11         



Transmitted: 6/5/96

      
      

      
      

        

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