The Dow Approach

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Monday, February 10, 1997
The Daily Dow FOOL GLOBAL WIRE by Robert Sheard LEXINGTON, KY. (Feb. 10, 1997) -- The Dow 30 didn't do an awful lot today, although it looks like the overall average was weak. But the vast majority of today's loss can be attributed to two stocks, IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> which continues to slide a bit with the technology sector, and DUPONT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %>, which dropped on a brokerage downgrade, shaking up the overall top ten rankings again. [DuPont knocked GOODYEAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GT)") else Response.Write("(NYSE: GT)") end if %> out of the top ten by a fraction.] But as a result of the price-weighting of the Dow Jones Average, where high-priced stocks skew the index, these two stocks drove the overall average down for the session. Several new readers have been confused, and rightfully so, about our Daily Dow numbers of late. The portfolio return marked "History," however, is not the decades-long out-performance we talk about so frequently and record in the Dow Statistics Center. The History number listed here, which is trailing the major market indices, only represents the model portfolio since we began tracking it daily in the Motley Fool in January 1996. It's only a 13-month record, then. Don't make too much of the model's recent performance in light of the much longer record we've documented online. What the example portfolio does demonstrate, however, is that even this marvelous approach can lag the market at times. That doesn't mean the approach is "broken" or that the market's suddenly different this time. It's just part of the game of long-term averages. And when we talk long-term, we mean decades, not months or even a few years. Last week I asked for assistance in locating the article regarding optimal holding periods for Dow stocks. I've got a copy now, thanks to a local reader who saw my request and mailed me a copy (thanks, John). I haven't read the entire piece yet, but it looks interesting. My immediate concern, though, is why did it only look at the High-Yield order of the Dow stocks and not the Beating the Dow order? (Pratt includes O'Higgins's book in the Recommended Reading list, so he's obviously aware of the approach.) If you're unfamiliar with this whole subject, the article I'm referring to is called "Toward an Optimal Stock Selection Strategy," by Lawrence S. Pratt. It was printed in the Economic Education Bulletin, Volume 35, Number 6 (June 1995). The journal is published by the American Institute for Economic Research in Great Barrington, Massachusetts (01230). After I've had a chance to review the article more closely, I'll comment on it further. In the meantime, how about those Kentucky Wildcats yesterday? (Sorry, couldn't resist!) (c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.	The Current BTD 10 1. AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:T)") else Response.Write("(NYSE:T)") end if %> 2. *International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:IP)") else Response.Write("(NYSE:IP)") end if %> 3. *General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GM)") else Response.Write("(NYSE:GM)") end if %> 4. *Chevron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CHV)") else Response.Write("(NYSE:CHV)") end if %> 5. *Minnesota Mining <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MMM)") else Response.Write("(NYSE:MMM)") end if %> 6. Exxon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:XON)") else Response.Write("(NYSE:XON)") end if %> 7. Texaco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TX)") else Response.Write("(NYSE:TX)") end if %> 8. J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:JPM)") else Response.Write("(NYSE:JPM)") end if %> 9. DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:DD)") else Response.Write("(NYSE:DD)") end if %> 10. Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MO)") else Response.Write("(NYSE:MO)") end if %> ***NOTE: FOOLISH FOUR STOCKS ARE PRECEDED BY AN ASTERISK AND ARE ITALICISED Last Update: 02/05/97
Today's Dow Numbers Stock Change Last -------------------- T + 5/8 38.88 GM - 3/8 56.38 CHV - 5/8 65.13 MMM - 7/8 83.50 Day Month Year History FOOL-4 +0.06% -1.93% -2.40% 26.18% DJIA -0.75% -0.10% 5.56% 33.02% S&P 500 -0.52% -0.09% 6.03% 27.52% NASDAQ -1.65% -3.23% 3.43% 26.92% Rec'd # Security In At Now Change 1/2/96 155 3M 64.50 83.50 29.45% 1/2/96 198 Chevron 52.38 65.13 24.34% 1/2/97 231 Gen. Motor 55.75 56.38 1.12% 1/2/97 618 AT&T 41.75 38.88 -6.89% Rec'd # Security In At Value Change 1/2/96 155 3M 9998.09 12942.50 $2944.41 1/2/96 198 Chevron 10370.25 12894.75 $2524.50 1/2/97 231 Gen. Motor 12878.25 13022.63 $144.38 1/2/97 618 AT&T 25801.50 24024.75 -$1776.75 CASH $207.10 TOTAL $63091.73

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