The Daily Dow
Tuesday, September 23, 1997
by Deborah Tidwell (TMF Debit)
ALEXANDRIA, VA (Sept. 23, 1997) -- Today I want to wish my first husband, Montgomery Tidwell, a happy birthday. Yes, technically, he is my current and only husband so far, but he's still the first and will always be the first. I decided to mention his birthday because he inspired the subject for tonight's recap by asking me about his portfolio. With the Foolish Four currently consisting of an ailing AT&T, an ailing Eastman Kodak, DuPont, and Exxon, and Philip Morris rounding out the BTD 5, he wondered about how well the model would work. He doesn't really like most of the current choices. I think it's a valid point, and probably one that a lot of Fools are facing right now if they want to start a Beat the Dow portfolio or are ready to switch out of last year's picks.
Beat the Dow purists would argue that it's not a valid point and that if you are following the model, you just buy the stocks and forget them until next year. I really think it depends on what your goal is. If your goal is to have a "no-brainer" investment approach -- very little work, no real significant research required, with a good market-average-beating track record... then yeah, Beat the Dow fits that criteria. Like anything else, past performance is not an indication of future results, but there are some good arguments why the model is likely to continue to work pretty well over time.
If your goal is to use the Beat the Dow approach to narrow the focus of possible investments to a handful of blue chip companies that may be "on sale" right now and then do some research from there to make investment selections from the group, that's another very good use of the approach I think. But, this requires you to do some research and understand the industry dynamics and what is going on with each of the companies.
One reason I tend to favor the second approach is that sometimes companies appearing in the Foolish Four or the BTD 5 are facing challenges that, in my opinion, will take a longer time horizon than one year to fix. That is why I talked about the prospects for EASTMAN KODAK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> in last week's reports on Tuesday (A Long-Term Pop) and Thursday (Is Kodak Cheap?). Kodak even stated in its conference call that it is facing issues that don't get fixed overnight and considers 1998 too short a time period to look for results.
AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>, once considered a buy-and-hold-forever stock, has a revolving door with a "Help Wanted" sign on its executive suite. AT&T also faces some difficult challenges that will likely take more than a year's time to solve. It is having a rough time re-entering local phone service, faces stiff ongoing competition from MCI and Sprint in the long-distance and overseas markets, faces an onslaught of Baby Bells who want to do long distance, and faces competition from just about everyone you can think of in the Internet access business.
The stock has been climbing recently on expectations that, after a year of disappointing results, AT&T might have some good news coming. One favorably received news story talked about a business strategy to "franchise" the AT&T brand name to wireless and local telephone companies. It's not a bad idea in the sense that it enjoys the franchise fee income without having to shoulder the infrastructure costs to establish a presence in local markets. AT&T is certainly not going to disappear from the landscape, and even though the stock hasn't done much over the last year, it did treat stockholders to some Lucent Technology shares that have nearly doubled over the past year. It is also still the industry leader in long-distance services and a number of other businesses and a dominant force in global telecommunications. It also maintains a very positive brand image despite its choice of the "Death Star" as its corporate logo.
I don't personally have a problem with PHILIP MORRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %>, but many people are concerned over the outcome of tobacco litigation. For many, investing in a company that makes cigarettes is also a moral dilemma. My only real concern is the time it will take to settle the litigation, not the financial impact of the outcome. The fact of life for Philip Morris over the past year is that the share price fluctuates in tandem with each speck of positive or negative news. But, since it will likely stay in the Foolish Four until there is an answer one way or another, it fits the benefits of the Beat the Dow model very well. People holding the stock will likely benefit when the litigation is settled or is solidly on its way to being settled.
Stop into the Beating the Dow message folder and talk about what you like and don't like about these stocks or what you think about the Beat the Dow strategy with these picks.
I'll be back again on Thursday to talk about something else (topic suggestions are welcome). Tomorrow, enjoy TMF Edible's return to the land of the Dow.
(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 3/8 44.56 GM -1 3/32 66.50 CHV + 9/32 85.44 MMM +1 1/8 88.06
Day Month Year
FOOL-4 -1.15% 9.33% 15.80% DJIA -0.21% 4.56% 23.60% S&P 500 -0.41% 5.83% 28.51% NASDAQ +0.25% 6.94% 31.47% Rec'd # Security In At Now Change 1/2/97 153 Chevron 65.00 85.44 31.44% 1/2/97 179 Gen. Motor 55.75 66.50 19.28% 1/2/97 479 AT&T 41.75 44.56 6.74% 1/2/97 120 3M 83.00 88.06 6.10% Rec'd # Security In At Value Change 1/2/97 153 Chevron 9945.00 13071.94 $3126.94 1/2/97 179 Gen. Motor 9979.25 11903.50 $1924.25 1/2/97 479 AT&T 19998.25 21345.44 $1347.19 1/2/97 120 3M 9960.00 10567.50 $607.50 CASH $1009.44 TOTAL $57897.82