Like Newton and Liebniz with The Calculus, Darwin and Wallace with the Theory of Evolution, Bell and Gray with the telephone, sometimes great ideas are just "in the air." Our RP variation also has two discoverers. Bob Price discovered it in early 1997 and shared it with Robert Sheard but did not publish it on our message board. In late 1997, Elan Caspi discovered it independently and did publish it. In Fair Foolish Fashion we credit them both with the discovery.

The genius of the RP method is that it does away with the somewhat cumbersome sort-by-yield, sort-by-price methodology used by Beating the Dow and earlier versions of the Foolish Four. Instead the RP variation relates yield and price using a simple ratio: yield divided by the square root of price.

Stocks are ranked by this ratio (highest first), then the second through fifth stocks are selected. This method selects stocks with a high yield and low price, but by using the square root of price it selects stocks with higher beta. (Beta, a measure of stock volatility, correlates inversely with price but more closely with the square root of price. Inverse correlation means low price = high beta.) High beta stocks exhibit greater price movement. Since high yield correlates with a positive price movement, high yielding, high beta stocks should exhibit greater price movement in a positive direction. And indeed they do.

Not surprisingly the RP method selects many stocks that are also picked by the other Foolish Four methods, but when it reaches out and touches a stock not selected by the other methods, it tends to pick good ones.

The Foolish 4.2 strategy returned 24.67% from 1973 to 1993*, and 30.52% from 1995 to 1997. Its 25-year compound average annual return is 24.62% from 1973 to 1997.

*A note on these numbers: The returns quoted here are Compound Annual Growth Rates (compounded Average Annual Returns) for each strategy. We used the returns starting with 1973 because Beating the Dow (1992 edition) is based on data starting in 1973. The first set of returns goes from 1973 through 1993. 1993 was the cut off because that was the last year of full returns available for research when the original Foolish Four was developed.

These returns won't match those in Beating the Dow because they include two additional years and because BTD uses a December 31 renewal data while our spreadsheet uses a January 2 renewal date. They are all directly comparable with other returns quoted here, however, and they are very close to the BTD returns quoted at the end of the book, which covers 1973-1991.

The recent returns start in 1995 because that was the first full year during which the original Foolish Four strategy could be used. It happens that 1994, which is left out of each of these periods, was also a rather bad year for investing but that's not why it was left out. It just happened to be the watershed year. It is included in the 25-year compound returns, of course.