Wednesday, November 19, 1997


The Daily Dow
by Robert Sheard

LEXINGTON, KY. (Nov. 19, 1997) -- Fairly frequently, a reader new to the Dow Dividend Approaches will ask a perfectly understandable question: "If the goal is always to invest in the most undervalued stocks, why wouldn't we update our holdings every time the rankings changed?"

It's true that the goal of this mechanical strategy is to identify the stocks representing the best values at any given time, but that's only half of the program. The other element involves sitting patiently with a stock as it struggles to turn around and recover.

Stocks, like the overall market, go through cycles of peaks and valleys. The Dow Approach identifies those stocks, we hope, which are in valleys. Sometimes they're still falling when we first select them, as was the case in January with AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>. Sometimes we're a little luckier and pick them up as they're beginning their recovery. But either way, we plan to hold them until they've made a significant rebound.

It's crucial to remember, however, that these segments of the stock-cycle often last for quite some time and once a stock starts its rebound, the gains can continue for many months, even long after the stock has fallen out of the ten highest yielders.

If you were to adjust your portfolio every time the rankings changed (besides the obvious increase in trading costs and potentially higher taxes), you would be cheating yourself out of the best part of the holding period -- the time when the stock really begins to post big gains. It's true, you'd always be in the most undervalued stocks, but you'd be ditching them each time before they've really made their big advances, the kinds of gains that propel this approach to consistent market-beating profits.

Be patient with these stocks. Some will stick around for a second, even a third year in your portfolio before you're to replace them. But it's by holding these stocks through their whole recoveries that you'll record the best gains. Don't cut off your profits prematurely in trying to finesse the theory too precisely. Fool on!

TODAY'S NUMBERS
Stock  Change   Last
--------------------
T    +   7/16  52.94
GM   -   3/16  61.19
CHV  -   1/4   82.31
MMM  +   3/16  94.31

           
                  Day   Month    Year
        FOOL-4   +0.36%   3.12%  23.26%
        DJIA     +0.97%   3.80%  19.80%
        S&P 500  +0.68%   3.28%  27.52%
        NASDAQ   +0.05%   0.48%  24.03%

    Rec'd   #  Security     In At       Now    Change

   1/2/97  479 AT&T          41.75     52.94    26.80%
   1/2/97  153 Chevron       65.00     82.31    26.63%
   1/2/97  120 3M            83.00     94.31    13.63%
   1/2/97  179 Gen. Motor    55.75     61.19     9.75%


    Rec'd   #  Security     In At     Value    Change

   1/2/97  479 AT&T       19998.25  25357.06  $5358.81
   1/2/97  153 Chevron     9945.00  12593.81  $2648.81
   1/2/97  120 3M          9960.00  11317.50  $1357.50
   1/2/97  179 Gen. Motor  9979.25  10952.56   $973.31


                             CASH   $1409.35
                            TOTAL  $61630.29