The Dow Approach - Tuesday, October 22, 1996

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BTD 10
As Of 10/22/96

1. ATT
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2. International Paper
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3. General Motors
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4. Chevron Corp
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5. Minnesota Mining & Mfg
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6. J.P. Morgan
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7. Exxon
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8. Philip Morris
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9. Du Pont de Nemours & Co.
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10. Texaco
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***NOTE: FOOLISH FOUR
STOCKS ARE ITALICISED

Last Update: 10/21/96

The Daily Dow
Tuesday, October 22, 1996
by Robert Sheard (MF DowMan)

LEXINGTON, KY. (October 22): The market didn't have a very good day if you're a Bull, plain and simple. And yet the Foolish Four managed to eke out a small gain. But since this is one of those days where there's no company-specific news to explain the behavior of any of the model's holdings, I won't waste any space trying to examine it. The market went down; the Foolish Four went up. It happens.

What I will do is take the chance from this news lull to discuss an aspect of Dow investing that comes up frequently on the AOL message boards: how do I update my holdings after the year is up?

Here's the step-by-step method, followed by a reason why you might want to break the rules.

Step One - Get the list of current Dow stocks and sell any of yours that aren't still on the top list.

Step Two - Calculate the total value of whatever holdings you will carry over through the next year and your cash on hand (from the sale of old stocks, dividends throughout the past year, and any new cash you're adding now), and divide that total value by the number of positions you plan to hold the next year. (If you double up on any stocks like the Foolish Four does, count those doubled stocks as two positions.) That result is the new amount per position you want to hold for the next year.

Step Three - Adjust the stocks you're holding over for another year so that their values equal the number calculated in Step Two (buying or selling shares as necessary).

Step Four - And finally, buy the new stocks on the list, also in amounts equal to the value calculated in Step Two.

Those steps will get you to an equally weighted portfolio to begin the new year. So which Step should you ignore and why? Occasionally it makes sense to modify or ignore Step Three (adjusting your current holdings). If you find yourself needing to buy or sell just a couple of shares to make your new balances equal, it's not worth the extra commission costs to make the adjustment. So with Step Three, use your own judgment. If the extra commission seems ridiculous, this is one case where close enough is indeed close enough.

Transmitted: 10/22/96

Today's Dow Numbers

THE FOOLISH FOUR MODEL (10/22/96) Day Week Quarter Year History Fool-4 0.20% -0.08% 6.00% 27.60% 27.60% DJIA -0.48% -0.53% 3.05% 18.46% 18.46% S&P 500 -0.46% -0.60% 2.80% 14.72% 14.72% NASDAQ -1.33% -1.81% -0.56% 15.95% 15.95% Bought # Stock In At Now Change 1/2/96 142 DuPont 69.88 97.25 39.18% 1/2/96 380 Chevron 52.38 67.75 29.36% 1/2/96 148 E. Kodak 67.00 79.00 17.91% 1/2/96 149 3M 63.76 71.75 12.53% 7/16/96 14 Imation 26.16 24.13 -7.77% Bought # Stock Cost Value Change 1/2/96 142 DuPont $9,922.25 $13,809.50 $3,887.25 1/2/96 380 Chevron $19,902.50 $25,745.00 $5,842.50 1/2/96 148 E. Kodak $9,916.00 $11,692.00 $1,776.00 1/2/96 149 3M $9,500.09 $10,690.75 $1,190.66 7/16/96 14 Imation $366.21 $337.75 $(28.46) CASH $1,524.50 TOTAL $63,799.50 Transmitted: 10/22/96

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