Wednesday, February 25, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (February 25, 1998) -- Readers of recent columns here and in the Daily Dow area know that I've begun following two new simple portfolios: the Keystone Dozen and the Dow Dozen. In both cases, the portfolios select the highest-ranked stock each month that's not already in the portfolio and add a new position. Then as each position becomes a year old, it's replaced with the latest top stock.

For those of you who would like to see more attention paid to relative strength in conjunction with the 30 Dow Jones Industrials, I'd like to add a third such portfolio today (retroactive to the first of the year) -- The Dow Racers.

The Dow Racers will follow the same principles as the Keystone Dozen and Dow Dozen in that one new stock will be added each month. But instead of using the Foolish Four and Keystone rankings to choose the stock, I'll select the DJIA component with the best total return over the previous six months.

On 12/31/97, for example, AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> was far and away the candidate with the best relative strength, so it would have been the first addition to the Dow Racers. Putting $1,000 into AT&T at $61.25 would have paid for 16 shares. After an $8 commission, the portfolio would still have $12 in cash.

At the end of January, AT&T was still the top relative strength Dow stocks, but since it's already in the portfolio, we pick up the next stock in the rankings, which was Walt Disney Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>. At $106.875 per share, we could afford only 9 shares. After the $8 commission, we're left with $42.12 in cash.

As of late this afternoon, then, here's how the Dow Racers Portfolio stands:

Shares  Stock   Price      Value 
     16      T   62.00    $992.00 
      9    DIS  111.69  $1,005.19 
          cash             $42.12 
 --------------------------------- 
         Total          $2,039.31 
 

So far, that represents an annualized growth rate of 18.9%. Nothing to brag about yet, but it's early in the portfolio. Stay tuned as I keep track of these three "dozens" portfolios. Fool on!

[Want to be the first Fool on your block to get a copy of Robert Sheard's forthcoming book? Click here to pre-order your copy of The Unemotional Investor.]