Monday, June 17, 1996
Dump the Dow?
The year Fools saved Memorial Day weekend
by MF Buck

(Part One)

It was Friday, May 24, 1996. Fools were gearing up for a festive Memorial Day weekend. I joked in the Teen Folder that the Foolish Four on that holiday weekend were not Beating the Dow (BTD) stocks, but were hot dogs, sunscreen, Frisbees and families getting together.

Then the bomb dropped. Suddenly there were alarming messages throughout Fooldom about a Herb Greenberg article in the San Francisco Chronicle and at keyword:BIZINSIDER that made heads spin. In a nutshell, the article said that Michael O'Higgins, author of "Beating the Dow," is not currently using his own BTD system, a cornerstone of Foolish investing. Fools had known this for quite awhile, but this confirmation came just two days before the world would be celebrating the Dow Jones Industrial Average's 100th birthday. Naturally, it got lots of attention. Worse yet, Head BTDer MF DowMan had just packed his suitcase and left Fools high and dry while he vacationed in colonial Williamsburg. Playing up colonial authenticity to the hilt, he didn't take a laptop. Our leader was completely out of the loop. What was a Fool to do? Would Memorial Day weekend be ruined?

In the Beating the Dow folder we took a long look at the article. Then we pulled up 35 years of BTD data in MF Templar's spreadsheet (available in FoolMart -- had to get that ad in!). But before we recount how Fools saved the big weekend, let's first hit the main points of what Mr. Greenberg's article said. O'Higgins made two basic claims. The first is that the BTD strategy has become so popular through the likes of brokerage firms and the Motley Fool -- yes, he specifically cited Fooldom -- that the system is no longer effective. The second is that prices are simply too high to invest in stocks right now. He theorizes that the reason prices are high is not just because of the popularity of the BTD system, but also due to the love affair people have with the stock market in general.

Stocks are too high? Just two days before the Dow's 100th anniversary Mr. O'Higgins conveniently forgets the value of long-term investing and ignores the gradual upward movement of the DJIA in its first centennial. Fools don't forget that. We were miffed to say the least.

Coincidentally, Fools spent that very week talking about CSPAN's broadcast of Tom and David Gardner's appearance at the National Press Club luncheon. It was during the question and answer session that the host stopped to recognize their 93-year-old grandfather in the audience. Seeing him made Fools think that weekend of what he has seen and what the market has done during his life that nearly mirrors the 100-year span of the Dow index, from the internal combustion engine to the computers which make this medium possible.

Thinking of him, Fools talked about what happened to the stock market and the Dow during all those monumental changes. Over time the market has gone up because our nation's economy has expanded. We talked about how the world economy will also continue to grow over time. Fools believe our country's best companies (represented by the Dow) will continue to enjoy a technological superiority and stay flush with cash to take advantage of that position.

(Continued tomorrow)

Transmitted: 6/17/96