The Daily Dow
Monday, June 16, 1997
by Randy Befumo (TMF Templr)

WILLIAMSBURG, VA. (June 16, 1997) -- After considering the sheer size (or quantity) of the Dow behemoths as well as the kind of quality inherent in the way that these big fellas operate, what else could explain the success that the Dow Approach has consistently enjoyed? That investors are forced to adopt a time frame of at least one year seems to be another crucial element to the Dow Dividend Approach alchemy. In a world where six months seems long-term, holding a stock for a year is an enormous commitment that few institutional managers are willing to make judging by the average portfolio turnover for a mutual fund.

"If it cannot perform for me this quarter, I don't want it in the portfolio." How many times do you think this has been said in the corridors of mutual fund companies across the country? The fact that investors consistently overreact to short-term bad news is because they are looking for short-term price performance. "I want a stock that goes up," the high-octane manager of a "performance" hedge fund cries. "Don't give me those boring old stalwarts that make you money over the course of a year. I want stuff that will skitter around like grease on a skillet over the next three days!"

As the stock market becomes more institutionalized over time, the competition becomes more intense. Mutual funds and pension funds now own more than 40% of all outstanding stock, up from 10% in the 1960s. This figure does not even count hedge funds, which are prone to even more daunting feats of daring-do. Much like in Vietnam, the investor who actually lasted a year in the misbegotten jungle owning the same shares of the same stock can really be legitimately called "old-timer."

By buying and holding a stock for at least a year, the Dow Dividend investor plays a different "game" than the mass of churning money the media likes to watch every day. In fact, some have suggested that eighteen months, not one year, might be the optimal time period for holding your Dow goodies. (Fret not, fearless readers, mad scientists at Fool HQ are testing this hypothesis as we speak.) Holding very large, quality companies for long periods of time allows investors to own a business for a time rather than "rent" the stock.

A bias towards the long term does more than help the investor overcome the churning, day-to-day movements driven by short-term investors. Long-term holding minimizes costs and also increases tax efficiency, as you always pay the lowest tax rate on your gains possible. When considering the long-term performance of the Dow Dividend Approach, you must consider the holding period as part of the reason such a simple little screen has created so much wealth. Large companies that cannot be shaken by short-term setbacks, quality companies with deep management and years of operating experience, holding for long periods of time, and... collect a dividend. We will cover the power of the dividend in tomorrow's installment.

DOW STOCK NEWS

GENERAL MOTORS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> is not giving up Europe! The company's European subsidiary, Opel, is concocting a new small car to take on rivals Volkswagen and Ford in what it considers one of its key global markets. The company also unveiled a new seven-seater van called Zafira that it anticipates will allow it to take market share in that product category. Talks to avoid costly strikes also continue, as agreements reached Sunday to extend strike deadlines kept Oak Creek and Grand Rapids operating today. Relieved investors sent GM up a whole $1/4 to close at $57 1/2.

3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>, also known as Minnesota Mining and Manufacturing, has formed a new Adhesives Division out of its former Industrial Adhesives and Aerospace Department and its Industrial Tape and Specialties Division. Why a company that has made a bundle on putting an adhesive on the back of square pieces of paper has only now formed a unit dedicated to exploring the frontiers of adhesive technology is unknown. Perhaps it was the realization by many investors that 3M has not been dedicated full-throttle to adhesives until today that sent the stock down $1 to $97 3/4.

(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        38.25
GM   +   1/2   57.38
CHV  +2        76.88
MMM  -   3/4   97.75

               Day   Month    Year
        FOOL-4   +1.51%   4.94%   5.39%
        DJIA     +0.79%   6.02%  20.53%
        S&P 500  +1.18%   5.38%  20.68%
        NASDAQ   +1.46%   2.26%  10.92%

     Rec'd   #  Security     In At       Now    Change
   1/2/97  153 Chevron       65.00     76.88    18.27%
   1/2/97  120 3M            83.00     97.75    17.77%
   1/2/97  179 Gen. Motor    55.75     57.38     2.91%
   1/2/97  479 AT&T          41.75     38.25    -8.38%


     Rec'd   #  Security     In At     Value    Change
   1/2/97  153 Chevron     9945.00  11761.88  $1816.88
   1/2/97  120 3M          9960.00  11730.00  $1770.00
   1/2/97  179 Gen. Motor  9979.25  10270.13   $290.88
   1/2/97  479 AT&T       19998.25  18321.75 -$1676.50


                             CASH    $609.53
                            TOTAL  $52693.28