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The Daily Dow LEXINGTON, Ky. (June 28): As the second quarter ends, let's step back and look at the first half of 1996 as a whole. Year-to-date, the Dow Jones Industrial Average is ahead by 10.5%. Our two other major indices, the S&P 500 and the Nasdaq Composite, are up 8.9% and 12.6% respectively. And for the year, our Foolish Four model is up 13.0%.
Let's annualize those returns and compare them against the historical averages. If the second half of 1996 produces the same results s the first, we would have returns for the three indices of 22.1% (DJIA), 18.6% (S&P 500), and 26.8% (Nasdaq). In a year that seems to pale in comparison to last year's terrific market, those returns are still nothing to complain of. They're well above an "average" year for the market.
And the Foolish Four's return, when annualized, would be 27.7%. That's also above the average annual return for the model. In other words, it's been a pretty fair, if unexciting, six months, just what the Dow Approach is geared to.
Given that 75% to 80% of all mutual funds fail to keep pace with the overall market, and an even more dismal performance by newsletter writers (85% of them lose to the market according to the Hulbert Financial Digest), the Dow approach looks better and better. But what about the worries that the market's about to crash and that the Dow approach won't work any more?
The first worry is one that's pointless to try to predict. No one knows when or if the market will "crash" again, but let's look at the two worst periods for the market in the last 25 years, the bear market of 1973-74 and the crash of 1987. While the world was collapsing around the "market's" head, how did the no-market-timing low-maintenance Dow approach do?
In 1973 and 1974, the Foolish Four racked up gains of 35.25% and 2.67% while the overall market was getting creamed. And in 1987, the Foolish Four, while trailing the overall Dow return, still made a modest 2.28% -- not too awful for a crash year.
In fact, in the last 25 years, the approach has only had three losing years, 1981 (-1.56%), 1990 (-15.06%), and 1994 (-6.70%). So, while the approach isn't a guaranteed money machine, it's amazingly successful in all types of markets and consistently thrashes the professionals who charge high fees for their "help."
So, the next broker or money manager who tells you the approach can't work any more, just wink and tell him, "yeah sure, you're right, I must be a Fool to think I could go it alone!"
Transmitted: 6/28/96
Today's Dow Numbers THE FOOLISH FOUR MODEL (6/28/96) |
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