The Daily Dow
Thursday, September 11, 1997
by Robert Sheard
LEXINGTON, KY. (Sept. 11, 1997) -- The watchword with the Foolish Four approach is patience, my friends. Because the approach forces one to buy stocks that are relatively out of favor and doesn't make any attempt to time such a cycle other than to compare a stock to its index peers, it's not unusual to see a new Foolish Four stock under-perform the market for several months, even a year, before starting to show signs of life.
Watching these stocks daily over the last few years as we've done here in the Motley Fool Dow Area, a consistent pattern has become apparent. The first part of the annual cycle is usually a disappointing one. The stocks we've just added will often simply sit still, or worse, continue to fall for a while. But then as the year progresses, it's not unusual to see the early laggards storm back in the year's closing months, sometimes even to overtake the other holdings in the portfolio for total return on the year.
The same pattern is beginning to emerge with our year-to-date poster child for disappointment, AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>. In a year when the market sustained gains no one really expected after 1995 and 1996, AT&T kept sliding. Between management snafus and the sell-off of arguably the best unit in the business, now trading as LUCENT TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %>, AT&T was beginning to look not just like a Dow Dog, but one needing an industrial-strength flea dip.
Over the last five months, though, AT&T has performed extremely well, one of the best stocks in the Dow. In mid-April, the stock bottomed out at a closing low price of $31.25. Today, even with the recent 5% drop in the major indices, AT&T is trading above $43 and continues to rise in the face of a slumping Dow. That's a 38% gain in five months, pulling AT&T back onto positive ground for the first time this year. Granted, it's still not even with the overall market, but it's a whole lot closer than it was five months ago.
I've no idea where either the market or AT&T will end up in 1997 (or in 1998 for that matter), but the point is that judging this strategy based on short-term performance is meaningless. We heard the nay-sayers come out of the closet a few months ago when the Foolish Four return was essentially flat and the market was going great guns. But this approach has to be measured in decades, not months -- not even in individual years. If a lagging portfolio during part of an individual year is unacceptable to you, this isn't the right approach for you. If you're patient, though, and can wait out slow stretches and focus on a long-term discipline, the Dow Approach can do remarkable things for your net worth. You have to let it do its job, though. Patience with a solid strategy is usually rewarded handsomely.
(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 1/16 43.13 GM - 15/16 66.38 CHV - 5/16 80.81 MMM --- 90.06
Day Month Year
FOOL-4 +0.52% 7.11% 13.44%
DJIA -0.76% 0.51% 18.81%
S&P 500 -0.70% 1.46% 23.20%
NASDAQ +0.04% 3.32% 27.02%
Rec'd # Security In At Now Change
1/2/97 153 Chevron 65.00 80.81 24.33%
1/2/97 179 Gen. Motor 55.75 66.38 19.06%
1/2/97 120 3M 83.00 90.06 8.51%
1/2/97 479 AT&T 41.75 43.13 3.29%
Rec'd # Security In At Value Change
1/2/97 153 Chevron 9945.00 12364.31 $2419.31
1/2/97 179 Gen. Motor 9979.25 11881.13 $1901.88
1/2/97 120 3M 9960.00 10807.50 $847.50
1/2/97 479 AT&T 19998.25 20656.88 $658.63
CASH $1009.44
TOTAL $56719.25