The Daily Dow
Wednesday, September 25, 1996
by Robert Sheard

LEXINGTON, KY. (September 25): The Dow ended a nondescript day just about where it opened this morning, picking up all of three points. And our own Foolish Four stocks had a mixed day. Chevron, 3M, and Imation were all down slightly. DuPont lost a full dollar per share and Kodak tried its best to buoy the rest by picking up a dollar share.

In other words, not much happened today, so let me steal the space to go over the Unemotional Value approach again, my variation on the Beating the Dow concept we teach here in The Motley Fool.

With this approach, you start with the original Beating the Dow approach explained by Michael O'Higgins in his book of that name. That is, you take the ten Dow Jones Industrial Average stocks with the highest dividend yields and then rank them by stock price, from lowest to highest.

In O'Higgins' basic model, you simply buy the five lowest-priced stocks on that list of ten and hold for one year. Then repeat the process.

In the Unemotional Value approach, there's one slight twist. In any year where the #1 stock on that list of ten (that is, the cheapest of those ten stocks) is also the highest yielding stock, eliminate it from the list. Historically, a stock which has been both the cheapest of the ten and the highest yielding of the ten has been a big loser for the approach.

Amazingly, over the last 35 years, this approach, used to select four stocks (in other words, the UV4) has performed better than the Foolish Four approach. And that's without doubling up on any positions! If you're a thrill-seeker and like doubling up on the hottest stocks (like the Foolish Four approach does), then double up on the UV2 each year and the model has done even better. I'll get some comparative return figures and share them with you in a Fribble later this week or next.

Does this mean the Foolish Four approach is suddenly no good? Of course not. But sometimes a refinement can make a good thing better. The UV approach would have provided better returns at lower risk than the Foolish Four approach over the last 35 years. To me, that's what the game's all about.

Stay Foolish!

Transmitted: 9/25/96

      THE FOOLISH FOUR MODEL (9/25/96)  

          Day    Week  Quarter  Year  History
Fool-4  -0.15%   0.43%  5.48%  19.24%  19.24%
DJIA     0.06%  -0.19%  3.94%  14.86%  14.86%
S&P 500  0.03%  -0.17%  2.27%  11.35%  11.35%
NASDAQ   0.77%   0.41%  3.35%  16.40%  16.40%


Bought  #    Stock     In At   Now   Change

1/2/96  142  DuPont    69.88  86.88  24.33%
1/2/96  380  Chevron   52.38  62.13  18.62%
1/2/96  148  E. Kodak  67.00  77.25  15.30%
1/2/96  149  3M        63.76  69.63   9.20%
7/16/96  14  Imation   26.16  24.75  -5.38%

Bought  #    Stock          Cost       Value      Change

1/2/96  142  DuPont      $9,922.25  $12,336.25  $2,414.00    
1/2/96  380  Chevron    $19,902.50  $23,607.50  $3,705.00    
1/2/96  148  E. Kodak    $9,916.00  $11,433.00  $1,517.00    
1/2/96  149  3M          $9,500.09  $10,374.13    $874.03   
7/16/96  14  Imation       $366.21     $346.50    $(19.71)  

      CASH      $1,524.50      
      TOTAL    $59,621.88      



Transmitted: 9/25/96

      
      

      
      

        

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