The Motley Fool: The Foolish Workshop, Tuesday, March 10, 1998

Tuesday, March 10, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (Mar. 10, 1998) -- The last week has been a good one for the Dow Dozen. For those of you new to our five "Dozens" portfolios, each one uses a mechanical screen to select a top stock once a month. The mythical portfolios began with $1,000 on 12/31/97 and add a new $1,000 to purchase an additional stock each month. The stock selected is simply the highest-ranking stock at the time that's not already in the portfolio. Once the portfolio is filled with 12 stocks, we'll begin replacing the oldest stock each month (a year and a day after it was included). We use the closing price as our official buy/sell price and we account for commissions at $8 per trade.

The Dow Dozen uses the Foolish Four rankings to select the stocks, and started off a little roughly. But recently, all three stocks currently in the portfolio have performed well.

The first "purchase" on 12/31/97 was 23 shares of Union Carbide <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UK)") else Response.Write("(NYSE: UK)") end if %> at $42.9375 a share. Since then the stock has gained 9%. Late today it traded at $47.1875.

At the end of January the Dow Dozen added $1,000 and picked up 21 shares of International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> at $45.6875 per share. The stock has gained nearly 10% since being added, and traded late today at $50.50.

The most recent purchase was 16 shares of AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> on 2/27/98 at $60.875 per share. In the brief 10 days AT&T has been in the portfolio it has gained slightly less than 3%, trading at $63.00 today.

Overall the portfolio has invested $3,000 in cash staggered over three months. The value of the three stocks, together with the cash on hand ($55.00), is $3,208.81 as of this afternoon.

As I've mentioned on several occasions, the XIRR function in Microsoft Excel that I use to calculate gains on portfolios with cash flows only gives us an annualized return, which for a young portfolio like this one can be extraordinarily misleading and volatile. Every price change up or down can dramatically alter the returns. Nevertheless, year-to-date the Dow Dozen is outperforming the S&P 500 Index.

The annualized return for the S&P 500 year-to-date is 63%. In other words, if the index maintains its early torrid pace for the entire year (who believes it can?), it would record a 63% gain for the year. The Dow Dozen are on a pace to record an 84% gain. To put this on a total return basis, it's approximately 12.3%.

Of the five "Dozens" portfolios, three are currently ahead of the S&P 500 Index. Here are the approximate total returns through March 10:

 
 19.7%  Formula90 Dozen 
 17.8%  Low PSR Dozen 
 12.3%  Dow Dozen 
  1.3%  Keystone Dozen 
  0.9%  Dow Racers Dozen

I'll profile and update another one of the "Dozens" Portfolios tomorrow or Thursday. 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.]