The Dow Approach

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Wednesday, February 12, 1997
The Daily Dow FOOL GLOBAL WIRE by Robert Sheard LEXINGTON, KY. (Feb. 12, 1997) -- In last evening's report, I discussed a number of options for adding new money to a Dow portfolio throughout the year: using DRiPs, running multiple portfolios, or keeping an index fund open as a holding account for savings deposits in between portfolio updates. But I overlooked a very good option that has several advantages over all the others. For those of you using the Dow Approach in a taxable account, one way to combine the best of several possibilities is to start out the year buying your Dow stocks and borrowing a certain percentage on margin. Then throughout the year, you send your regular deposits to your brokerage account, which pays down your margin balance, yet the new money's already been at work for you in the market since the beginning of the year. Let's look at an example. Say you have a $20,000 Dow portfolio and you want to deposit $200 a month into your portfolio but don't want to bother with DRiPs, index funds or multiple Dow portfolios. You could begin the year buying $22,000 or $23,000 worth of your stocks, borrowing an amount roughly equivalent to what you plan to add during the year (10% to 15% on margin). The interest rate you'll pay on the margin balance, in addition to being a deductible expense on your taxes, is generally considerably lower than the average return for a Dow approach portfolio over the last several decades. Then as you add your $200 a month, the margin balance shrinks but the additional money has already been working for you since the beginning of the year. And with a relatively stable approach like the Dow strategies, as long as you keep your margin borrowing conservative (under 20% of the total invested), your likelihood of getting a margin call in a downturn is very small. So if you're looking for a way to add regularly without increasing the trading costs or taking on a lot of extra hassles, consider using a small margin amount. Borrow an amount roughly equal to the amount you expect to add during the year and let it be working for you while you're saving month to month. It's a way of being aggressive and conservative at the same time. A pretty neat savings plan. (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. *Goodyear Tire <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GT)") else Response.Write("(NYSE:GT)") end if %> 4. *General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GM)") else Response.Write("(NYSE:GM)") end if %> 5. *Chevron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CHV)") else Response.Write("(NYSE:CHV)") end if %> 6. Minnesota Mining <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MMM)") else Response.Write("(NYSE:MMM)") end if %> 7. Exxon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:XON)") else Response.Write("(NYSE:XON)") end if %> 8. J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:JPM)") else Response.Write("(NYSE:JPM)") end if %> 9. Texaco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TX)") else Response.Write("(NYSE:TX)") 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: 02/12/97
Today's Dow Numbers Stock Change Last -------------------- T + 7/8 39.63 GM +1 57.75 CHV +1 3/4 69.13 MMM +2 1/8 86.25 Day Month Year Since 1996 FOOL-4 +2.27% 1.18% 0.69% 30.18% DJIA +1.51% 2.18% 7.96% 36.05% S&P 500 +1.67% 2.11% 8.37% 30.33% NASDAQ +2.06% -1.51% 5.26% 29.16% Rec'd # Security In At Now Change 1/2/96 155 3M 64.50 86.25 33.71% 1/2/96 198 Chevron 52.38 69.13 31.98% 1/2/97 231 Gen. Motor 55.75 57.75 3.59% 1/2/97 618 AT&T 41.75 39.63 -5.09% Rec'd # Security In At Value Change 1/2/96 155 3M 9998.09 13368.75 $3370.66 1/2/96 198 Chevron 10370.25 13686.75 $3316.50 1/2/97 231 Gen. Motor 12878.25 13340.25 $462.00 1/2/97 618 AT&T 25801.50 24488.25 -$1313.25 CASH $207.10 TOTAL $65091.10

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