The Daily Dow
Wednesday, May 14, 1997
by Robert Sheard (TMF Sheard)
LEXINGTON, KY. (May 14, 1997) -- This morning a reader sent me a note, asking my thoughts on the slow start for the Foolish Four this year (thanks to Ma Bell), and whether we can expect a comeback in the second half of the year. In other words, is now a good time to buy since it's lagging the overall market?
On the surface, the answer to the simple question is yes, now would seem to be a good time to buy since it's been lagging. But the situation is more complicated than that.
It's not unusual for the Dow Approach stocks to start one's year slowly. After all, you're buying out-of-favor issues that might continue to flounder (or sink further) before the rebound we expect comes to pass. 3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %> is a good example of this phenomenon. For months and months last year, 3M never got out of neutral, but then all at once, the recovery got started and 3M posted rapid and powerful gains. The patient investor was repaid handsomely.
But this year's weak start for the Foolish Four is almost the sole result of AT&T's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> 20% drop. The rest of the portfolio is holding its own for now. But buying the stock here becomes a problem if you're following the Foolish Four guidelines. AT&T is the highest yielding issue among the Dow 30 and it's also the lowest-priced stock among the ten high yielders that make up the Beating the Dow rankings. In both the Foolish Four and Unemotional Value approaches, then, the guidelines would have you skip AT&T entirely.
If you listen to the analysts on AT&T, you'll hear everything from "Strong Buy" to "Strong Sell," with the bulk of analysts sitting on the fence (according to Zacks). How to play this stock, then, is anyone's guess. If you hold it in your Dow Approach portfolio, based on previous rankings, you should forget the current rankings and stay the course and cheer for a strong recovery.
If you're updating or starting a new portfolio, however, I'm a firm believer in the past results of the approach and would avoid buying the stock today. Remember the primary rule of Dow Approach investing: Keep It Simple! That means letting the rankings do the hard work for you by eliminating all the second guessing. You won't be right every time, but that's not what it takes to be a good investor. You just have to be right much of the time. The Dow Approach has met that test.
I'm aware that's not a firm answer on the future of AT&T. But that's exactly the point. This approach removes the necessity for you to agonize over each decision. For a stable method like this, with over a quarter of a century of better-than-20% annual returns, it's reasonable to let the numbers make the decision for you. Save the agonizing and extra research for growth stocks, where it can serve you the best.
Forget market timing, don't second-guess the approach, and save and invest regularly. It's a time-tested recipe for tremendous wealth building. Fool on!
(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. ________________________________
Stock Change Last -------------------- T - 1/8 32.75 GM - 7/8 56.00 CHV - 3/8 72.13 MMM +1 1/4 92.88
Day Month Year
FOOL-4 -0.07% 1.37% -3.18%
DJIA +0.16% 3.95% 12.99%
S&P 500 +0.35% 4.33% 12.87%
NASDAQ +0.15% 5.93% 3.45%
Rec'd # Security In At Now Change
1/2/97 120 3M 83.00 92.88 11.90%
1/2/97 153 Chevron 65.00 72.13 10.96%
1/2/97 179 Gen. Motor 55.75 56.00 0.45%
1/2/97 479 AT&T 41.75 32.75 -21.56%
Rec'd # Security In At Value Change
1/2/97 120 3M 9960.00 11145.00 $1185.00
1/2/97 153 Chevron 9945.00 11035.13 $1090.13
1/2/97 179 Gen. Motor 9979.25 10024.00 $44.75
1/2/97 479 AT&T 19998.25 15687.25 -$4311.00
CASH $520.79
TOTAL $48412.17