Let me first say that I love the Beating the Dow strategy and invest in it. It's incredibly simple, has a proven track record, and even leaves me time to play with my kids now and then. It gives me a foundation portfolio of large-cap stocks that not only can outperform when the bulls are running, but won't get trampled when those bears come clawing.

But can we BTD investors do better? And why do I ask?

I have some concerns when my work associates, mail carrier, and even my great Aunt Millie start investing in Beating the Dow. The heart of BTD theory is its contrarian nature, which says to buy the "Dogs of the Dow" just when they're becoming bargains, as indicated by their high yields and low prices. If Aunt Millie and multimillion dollar Unit Investment Trusts offered by most of the big brokerages are doing it, then these bargain stocks might not get quite so low, and thus might not soar quite so high. Maybe, just maybe, another universe of large-cap companies could provide a suitable alternative for the next millennium.

We don't have to look far. It's relatively easy to find the largest capitalized companies in America, and numerous stock screens are available to help. What if, once a year, we compile a list of these large companies? From that list we'd toss out the Dow 30 stocks, toss out the utilities (almost always high-yielders, and not traditionally in the Dow 30), and ignore those companies not paying dividends. Then, to assure diversity, we'd take only the three highest-cap stocks from any one industry. For example, we throw out the fourth largest oil stock and the fourth largest drug stock.

Finally, we'd take the 30 highest-capitalized, dividend-paying stocks on the list and rank them by yield and price, just like Beating the Dow does. In other words, we'd choose the 10 stocks with the highest yield, and of those pick the five with the lowest price per share.

Voila! We've got *BEATING THE S&P!*

Yes, it's all theory of course. But let's see how this strategy did when followed prospectively, investing on January 1, 1995. Listed are the five Beating the S&P stocks with 1995 returns (not including dividends), listed in increasing price order:

1)   Ford                +3.6%
2)   BankAmerica        +77.7%
3)   Bristol Myers      +48.4%
4)   Amoco              +20.9%
5)   Am Home Products   +54.6%

The yearly portfolio returns?

Beating the S&P 5     +41.0%   (add about 3% to include the dividends)
Beating the S&P 4*      +50.4%  (add about 3% to include the dividends)

Dow Jones 30            +33.5%
S&P 500                 +34.1%
Beating the Dow 5        + 30.4%   (includes dividends)
Beating the Dow 4*        +41.0%     (includes dividends)

* [BSP 4 and BTD 4 portfolios throw out the lowest of the five lowest
priced high-yielders and invest in the remaining four.] 

Not bad for our new model! And as usual we also trounced the vast majority of mutual funds. All this with just a handful of the largest, safest companies in America!

Of course, I'm not quite ready yet to quit work, take out a second mortgage on the house, and dump it all into Beating the S&P. There's some back testing that needs to be done. There may be some refinements that could improve the system. Many on-line Fools have been instrumental in helping out thus far, but there's more work to do. I invite any and all of you to contribute your ideas to get this project moving---E-mail me with your thoughts so we can get a task force working on this.

In any case, if you're looking for an extra four or five rock-solid stocks for your portfolio, ones that just might perform as well as (or possibly better than) Beating the Dow, this strategy---Beating the S&P---may make sense.

**NEWS FLASH** The year-to-date returns for the 1996 BSP portfolio are kicking butt again! As of March 1, the BSP 5 and BSP 4 are up 9.9% and 10.2% respectively (not including dividends) vs. 4.6% for the S&P 500. The current BSP stocks? As of March 1, they are Ford, Chrysler, Amoco, Bank of America, and NationsBank. Stay tuned for more details.