The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Aug. 25, 1997) -- One of the purposes of this Foolish Workshop is, of course, experimentation and speculation about the usefulness of strategies. With the core of all mechanical screens in the Fool resting in the Dow Approach, there's always an effort to build an even better mousetrap.

Obviously, even with the impressive long-term record of the Dow models we use now, there are many stocks each year that perform even better than our selections. Your mission, should you decide to accept it, is find them -- ahead of time.

One possible area for study that surfaces on the message board from time to time is the use of Relative Strength with the Dow stocks. I have played around with this factor myself but haven't spent enough time with it to say whether it works well or not. In the interest of providing some information for those of you wishing to experiment on paper, let's look at some possibilities.

The simplest approach, of course, would be to select the top few Dow stocks (let's say five just for simplicity's sake) with the highest Relative Strength, but over what period? Performance over the last year seems to have worked well in Jim O'Shaughnessy's research, but not out-performing high yield. Nevertheless, over the last year, here are the top five performers (through 8/20):

123% Travelers Group (TRV)
99% Int'l Business Machines (IBM)
94% American Express (AXP)
74% General Electric (GE)
73% Caterpillar (CAT)

Perhaps looking at the Dow stocks with more recent momentum is a way of catching the "tiger by the tail." Here are the five stocks with the best returns over the last six months:

53% Wal-Mart (WMT)
53% Caterpillar (CAT)
51% Int'l Business Machines (IBM)
33% Int'l Paper (IP)
27% General Electric (GE)

Or perhaps even more recent? Here are the top performers over the past quarter:

27% Caterpillar (CAT)
24% Wal-Mart (WMT)
24% Int'l Business Machines (IBM)
24% Travelers Group (TRV)
22% DuPont (DD)

Another possibility might be to start with our High-Yield screen and then rather than sort by stock price, sort by Relative Strength. Using the same data as above, here then are the current stocks from the High-Yield 10 with the best performance over the past year, six months, and quarter:

Over the Last Year:
70% DuPont (DD)
65% Merck (MRK)
62% Exxon (XON)
51% Minnesota Mining (MMM)
42% Chevron (CHV)

Over the Last Six Months:
25% DuPont (DD)
24% Exxon (XON)
20% Chevron (CHV)
12% Minnesota Mining (MMM)
12% General Motors (GM)

Over the Last Quarter:
22% DuPont (DD)
18% AT&T (T)
14% Chevron (CHV)
13% General Motors (GM)
11% J.P. Morgan (JPM)

As I said, I have no data to support any of these possibilities as good or bad ones, so take these data in the spirit they're being presented, as potential tests for you to run. If anyone's interested in tracking them more formally, I may be able to help with screening recent price performance occasionally. If you do start tracking any such model, please keep us posted in the message folders. Fool on!

Monthly Growth Screens
(Jan. 3 to present)
76.52%  Relative Strength  
35.13%  Investing for Growth  
25.67%  YPEG Potential  
23.02%  S&P 500 Index  
21.99%  EPS Plus RS  
17.22%  Low Price/Sales  
14.45%  Unemotional Growth  
11.86%  Formula 90  

Annual Value Screens
(Jan. 1 to present)
21.89%  Dow Jones Ind Avg  
21.59%  Dogs of the Dow  
18.94%  Dow Combo  
18.33%  Unemotional Value  
18.33%  Beating the Dow  
17.51%  Beating the S&P  
10.64%  Foolish Four