Friday, October 10, 1997
What If the Fool
Went Away?
by Eric Desch
([email protected])
The other day I was working out. I don't relish the act of working out, but it gives me time to daydream, and that is an act I cherish. As I worked out, I remembered a story about a 20th-century man who time traveled back to the days of King Arthur's court (the actual story may be a bit different, but this is how I remember it). He told King Arthur about all the great conveniences of modern-day life: computers, cars, telephones, etc. King Arthur was, of course, impressed by the descriptions of these devices. The King asked the man to use his knowledge of these devices to build examples of them so that life in medieval England could be improved by their application. Unfortunately, the man quickly realized his limitations: he knew nothing of electronic circuits, digital storage devices, and only understood the basic principles of the internal combustion engine. King Arthur was not impressed and had the man thrown into a dungeon or beheaded or sentenced to some other equally miserable fate.
As I climbed on the StairMaster, I wondered how I would fare if I were put in this man's position? I quickly realized that I understood how to operate a computer, how to drive a car, how to use a phone, but knew next to nothing about how these devices actually worked and would be equally helpless if asked to build one of them. But what about investing? Surely I could extol the benefits of the Foolish Four approach to old King Arthur (pretending, for a moment, that the Dow existed back then). (And with the added benefit of all those years of compounding, make myself a very rich person!) Or could I? Hmm. I realized that I was using the Fool as a crutch: when it came time to update my Foolish Four positions, I blindly relied on the rankings as published in the Daily Dow. This, I realized, wasn't very Foolish. What would I do if the Fool went away? What would I do if I had to generate the rankings myself?
I decided to find out. Without referring to the Fool, I proceeded to find the relevant data for the thirty Dow stocks. I ranked them by yield, and then ranked them by price. Would I get the correct rankings? Was I a self-sufficient Fool or a slave to the rankings generated by others? Turns out, I did okay; I got all of the rankings correct except one (it turned out that my source for yield data was incorrect; once I got the correct value, my rankings matched those at Fool HQ). Good for me, I passed my test! Could you? The greatest thing about the Fool is what it teaches us about investing, not the numbers it crunches for us. Learn the methods, learn the concepts, and then you will still be reaping Foolish returns if the Fool should ever go away.
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