<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (Jan. 6, 1998) -- Why are Fools so adamant about not listening to experts and about making one's own decisions? Why do we argue that one shouldn't time the market? Why do we argue that beginning and experienced investors alike can profit in starting with such a simple and time-tested approach as the Foolish Four? Let's look at some recent history.

At the beginning of 1997, we had just completed one of the most spectacular (if not the most spectacular) two-year runs for stocks in the history of the U.S. markets. In 1995, the Dow Jones Industrial Average gained 33.5% and in 1996 it gained 26.0%. Never in the history of the Dow had the index posted gains of 20% for three consecutive years.

So the bearish gooroos were loud in their predictions that the Dow would suffer a weak year, perhaps even a major loss. There was absolutely no way it could post another 20% gain in 1997. And yet it did.

Early in 1997, the Wise were clamoring for attention to proclaim Asia as the best place to put money. Asian and international mutual funds were all the rage. The U.S. and Europe, the theory went, were in for tough sledding. Yet Asia collapsed, America posted a third straight impressive gain, and many of the European markets far surpassed even the gains America recorded.

The Wise also thoroughly disregarded AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>. Its epitaph had been engraved and re-engraved weekly by the Wall Street Wisemen. Yet by the end of the year, AT&T proved to be among the two or three best-performing stocks from the 30 stocks in the index at the beginning of 1997. In March, four stocks were revised in the index and two of the newcomers -- Travelers Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %> and Wal-Mart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> -- also had terrific years.

Am I trying to claim that I knew better? Absolutely not. I can't predict the market any better than any of the Wise seers who get paid to do so. The difference, however, is that Fools don't pretend to make such predictions. We know how futile they can be.

So if such predictions are worthless, what's an individual investor to do? The Foolish course of action is to forget the market. Stay as fully invested as possible in the best individual stocks you can find and use strategies with patience and discipline that have been time-tested. The patient Fools who bought AT&T despite their intuition a year ago and held on despite its continued decline in the first quarter of 1997 are now enjoying more than 50% gains in the stock.

Successful long-term investing doesn't require market-timing or accurate economic predictions. In fact, the old saw about over-analysis leading to paralysis may never be more appropriate than it is when it comes to investing. To be successful, however, you must give your strategies time to work. All strategies fail and succeed at different times. But the ones with the best long-term results are the ones you're rewarded handsomely for sticking with, even in what seems like bad times. The Foolish Four is just such an approach.

Two footnotes today: On our AOL site, the Foolish Four area will only be accessible through the Fool's School as of tomorrow. Its current position in the Hall of Portfolios is being taken by a new real-money portfolio based on Tom Gardner's Cash-King approach.

Second, with today's trading, Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> became both the lowest-priced of the high-yield Dow stocks and the highest yielder. The Foolish Four approach skips such a stock, so the current Foolish Four are the next four stocks on the list (positions two through five).

On a personal note, I'd like to thank each of you who has written me a kind e-mail in the past 24 hours. Scores of such messages filled my box today and it was with great pleasure that I witnessed the extent of Foolishness that really is evident (if silent at times) among our readership. I only wish I were able to thank each of you individually. Fool on!

TODAY'S NUMBERS
Stock  Change   Last 
 -------------------- 
 UK   +1  1/4   43.88 
 IP   +   3/16  46.31 
 MO   ---       45.88 
 EK   +1  5/8   64.56 
 
            
                    Day   Month    Year 
         FOOL-4   +1.46%   4.38%   4.38% 
         DJIA     -0.91%  -0.03%  -0.03% 
         S&P 500  -1.07%  -0.40%  -0.40% 
         NASDAQ   -0.88%   0.62%   0.62% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  289 Int'l Pape    43.13     46.31     7.39% 
  12/31/97  206 Eastman Ko    60.56     64.56     6.60% 
  12/31/97  291 Union Carb    42.94     43.88     2.18% 
  12/31/97  276 Philip Mor    45.25     45.88     1.38% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  289 Int'l Pape 12463.13  13384.31   $921.19 
  12/31/97  206 Eastman Ko 12475.88  13299.88   $824.00 
  12/31/97  291 Union Carb 12494.81  12767.63   $272.81 
  12/31/97  276 Philip Mor 12489.00  12661.50   $172.50 
  
  
                              CASH     $77.19 
                             TOTAL  $52190.50