The Dow Approach

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Wednesday, February 19, 1997
The Daily Dow FOOL GLOBAL WIRE by Robert Sheard LEXINGTON, KY. (Feb. 19, 1997) -- Welcome to the revolving door of Beating the Dow rankings. Yes, we're seeing nearly daily changes continue in the top ten rankings. Is it a sign of a market top? Are we about to relive 1987? Is it a sign of the apocalypse. Nah. Actually it's not a big deal at all. It's simply the result of GOODYEAR TIRE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GT)") else Response.Write("(NYSE: GT)") end if %> and DUPONT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> alternating between slots 10 and 11 on the Dow high-yield list. I wrote about this phenomenon on February 6 here in this report, but it bears repeating since the rankings have still not become clear cut. Since the Dow Approach uses a two-part screen (high yield, then low price), changes in the rankings, while actually very subtle, can appear to be volatile. For example, Goodyear was among the Foolish Four on Monday, the elite Dow stocks one should include in a new Dow portfolio. Yet after Tuesday's session, Goodyear wasn't even among the top ten. Did the company fall apart? Quite the opposite. Goodyear moved very little, in fact, but DuPont's price dropped just enough that its yield eclipsed Goodyear's -- for the moment. At today's close, there's still just a fraction separating these two stocks' yields. This should cause you no great concern, however, if you're buying your stocks soon. Think of the Dow Approach as buying a basket of potential market outperformers. There's no guarantee which of the basket components is going to be the star in any given year, although it's often one the lower-priced stocks. So if one of your eggs is Goodyear and someone else a day later gets 3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>, don't panic. The name of the Dow game is long-term averages. That means that you won't have the perfect mix of stocks every year, but you should have enough market outperformers over the years to provide you with a terrific long-term portfolio record. And that's what the whole purpose is: great long-term performance with a minimum of fuss. So when you see a stock magically evaporate from the top ten list, it's usually just slipped down the high-yield list to spot number 11 or 12 and may well show right back up a day or two later. If it doesn't, that means its relative yield is dropping, a good thing if you own the stock since the yield drops as the price rises. If you're still confused about the way this two-screen process works (high yield first, then low price), pick up Michael O'Higgins's book Beating the Dow and/or The Motley Fool Investment Guide in our FoolMart. And if you're reading this on America Online, join me tonight for a chat at 9:00 (Eastern). (c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.	The Current BTD 10 1. AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:T)") else Response.Write("(NYSE:T)") end if %> 2. *International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:IP)") else Response.Write("(NYSE:IP)") end if %> 3. *General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GM)") else Response.Write("(NYSE:GM)") end if %> 4. *Chevron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CHV)") else Response.Write("(NYSE:CHV)") end if %> 5. *Minnesota Mining <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MMM)") else Response.Write("(NYSE:MMM)") end if %> 6. Texaco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TX)") else Response.Write("(NYSE:TX)") end if %> 7. Exxon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:XON)") else Response.Write("(NYSE:XON)") end if %> 8. J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:JPM)") else Response.Write("(NYSE:JPM)") end if %> 9. DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:DD)") else Response.Write("(NYSE:DD)") end if %> 10. Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MO)") else Response.Write("(NYSE:MO)") end if %> ***NOTE: FOOLISH FOUR STOCKS ARE PRECEDED BY AN ASTERISK AND ARE ITALICISED Last Update: 02/18/97
Today's Dow Numbers Stock Change Last -------------------- T - 1/8 40.13 GM -1 1/4 57.75 CHV - 3/4 67.25 MMM -1 1/8 84.38 Day Month Year Since 1996 FOOL-4 -0.93% 0.92% 0.43% 29.85% DJIA -0.67% 3.04% 8.87% 37.19% S&P 500 -0.47% 3.35% 9.68% 31.91% NASDAQ -0.01% -1.03% 5.78% 29.79% Rec'd # Security In At Now Change 1/2/96 155 3M 64.50 84.38 30.81% 1/2/96 198 Chevron 52.38 67.25 28.40% 1/2/97 231 Gen. Motor 55.75 57.75 3.59% 1/2/97 618 AT&T 41.75 40.13 -3.89% Rec'd # Security In At Value Change 1/2/96 155 3M 9998.09 13078.13 $3080.04 1/2/96 198 Chevron 10370.25 13315.50 $2945.25 1/2/97 231 Gen. Motor 12878.25 13340.25 $462.00 1/2/97 618 AT&T 25801.50 24797.25 -$1004.25 CASH $396.17 TOTAL $64927.30

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