The
Dow Approach
The
Dow Approach
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FOOL GLOBAL WIRE CHICAGO, IL. (Mar. 14, 1997) -- Some of the most common questions I've encountered recently regarding the Foolish Four have concerned the daily changes of late in the positioning of the components in the Foolish Four approach. The questions can all be answered with one word: Volatility. But just where does market volatility fit in? How does it truly affect the Dow Jones Industrial Average Index? In past years, the Dow index could always be counted on to remain fairly stable. Yet, in recent years, this hasn't always held true. So what is happening to the market that is causing such swings in the Dow components? The new and improved interest rate scares initiated by Federal Reserve Chairman Alan Greenspan have had the biggest impact in the Dow's volatility. Mr. Greenspan is afraid inflation is getting out of hand and that the market is pushing towards some major over-valuations. Whether this is true or not requires more speculation than I care to indulge in for this particular report. Too many questions need answering. For example, while stock prices seem way too high, can these companies support such prices? Can companies back these prices with continued rising earnings and profit margins? Have these companies reached a point of stasis? Will they be able to continue to grow at the pace they have been over last two years? Will inflation rear it's ugly head and take a bite out of margins by forcing price wars among manufacturers? Will these subsequent cost-to-customers reductions hurt the manufacturers when the tallies for revenues finally come in? And on, and on... The bottom line in all this, the one factor that seems to have the most impact, is whether or not the Fed will raise interest rates. It's this fear that has caused extreme volatility in the bond market, which in turn has caused fear in investors in the stock market. As long as an air of uncertainty surrounds the market, it will remain highly volatile. And this fear has sparked a lot of profit taking, as well as inspiring many investors to exit the market and move their assets to cash to wait for things to calm down. The fact that this fear has moved beyond the Nasdaq and into the more stable NYSE has caused the Dow components to fluctuate as dramatically as the smallest small cap stocks. So, how does this affect us? It doesn't. Period. When you invest in the Dow Dividend Approach, you're investing for the long haul. This approach has weathered all kinds of market fluctuations in the past and will continue to do so in the future. Why? When investing with this approach, you're investing in good, solid companies strong enough to be DJIA Index components. These are companies that have been tested by time to be leaders in their industries. If you've already invested in this approach, sit back and relax. You've made a sound choice. If you're just now getting started with this approach, rest assured that you've chosen an investment approach that has proven successful time and time again.
(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. |
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