The Daily Dow
Monday, September 8, 1997
by Robert Sheard

LEXINGTON, KY. (Sept. 8, 1997) -- Every once in a while it helps me to step back from the world of stock models and historical databases and reaffirm my conviction in the approach I write about in this column daily. To do that, I look at the most likely alternative -- mutual funds.

Fortunately, such comparisons are easy to make with today's technology and the wealth of free information on the Internet. For example, from our own database on the Dow stocks (available in FoolMart), I know that for the last nine years and eight months, the Foolish Four has returned an annualized gain of 21.5%. (I rounded off the return for 1997 to date at 10%.)

To compare that to mutual funds, one can quickly call up the rankings for the very best mutual funds over the last decade at the link to Lipper's mutual fund resources at quote.com.

Pulling up the best mutual funds over the last ten years, we find a list dominated by a few groups of sector funds (financial, electronics, and communications sectors). But the genuinely amazing fact that drives home the point I'm looking to reinforce for myself as well as Foolish readers is just how few mutual funds have performed better than our once-a-year (or perhaps once-every-18-months), 30-minutes-of-research, low-cost, low-turnover Dow Approach.

Of the thousands of mutual funds out there, each clamoring for your life savings, exactly four have a better record over the last ten years than the Foolish Four's record since 1988. (A longer-term test would undoubtedly prove similarly grim for mutual funds, but the Lipper records here only incorporate ten-year records.)

I continually get mail expressing disbelief that an approach so simple could perform so much better than the over-marketed mutual fund alternatives out there. It's kind of like energy companies and the sun. I suspect if there was an easy way for them to market solar power and reap huge profits from it, we'd probably all be in solar-powered homes by now.

The same is true for the Dow Approach; if the big brokerage houses could market it easily, they would. The Unit Investment Trusts they do offer for the approach typically carry sales charges approaching 3% a year. You can do it yourself for $40 to $60 a year at a deep-discount broker, so there's not much incentive to give a Wall Street firm a much bigger chunk of change to do the same thing for you. Let them pay for their own marble foyers and luxury boxes at the U.S. Open. Don't you fund them.

The Dow Approach is essentially a do-it-yourselfer's dream. It's easy, it's cheap, and it works better than the vast majority of professional options out there. How Foolish!

(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    +   1/16  40.19
GM   -   9/16  65.69
CHV  +2  3/8   80.75
MMM  +   3/16  92.06

               Day   Month    Year
        FOOL-4   +0.57%   4.65%  10.84%
        DJIA     +0.16%   2.79%  21.51%
        S&P 500  +0.23%   3.53%  25.71%
        NASDAQ   +0.59%   3.66%  27.44%

    Rec'd   #  Security     In At       Now    Change
   1/2/97  153 Chevron       65.00     80.75    24.23%
   1/2/97  179 Gen. Motor    55.75     65.69    17.83%
   1/2/97  120 3M            83.00     92.06    10.92%
   1/2/97  479 AT&T          41.75     40.19    -3.74%


    Rec'd   #  Security     In At     Value    Change
   1/2/97  153 Chevron     9945.00  12354.75  $2409.75
   1/2/97  179 Gen. Motor  9979.25  11758.06  $1778.81
   1/2/97  120 3M          9960.00  11047.50  $1087.50
   1/2/97  479 AT&T       19998.25  19249.81  -$748.44


                             CASH   $1009.44
                            TOTAL  $55419.57