<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (Mar. 10, 1998) -- Yesterday I reported here that Bob Price was revising his thoughts on the RP Variation of the Dow Dividend Approach. In some tests he is running, Bob's original belief that one should skip the top-ranked RP stock and take the next four wasn't supported by some of his recent experiments. But Bob has since decided to hold off on any such recommendations because so much of this depends on what period one tests. It's possible to get different answers from different vantage points.

All of this uncertainty over the fine print brings up a crucial point. While examing the arcana of the approach, it's easy for us to lose sight of the simple fact that there's probably not one best way to do the Dow Approach. All of the variations we have discussed in the three years I've been writing for the Fool have beaten the market indices over the long haul. Even the most basic of all approaches, simply buying the ten high yielders, has outperformed the S&P 500 for seven decades. (Jim O'Shaughnessy tested this back to the late 1920s, when the DJIA first included 30 stocks.)

Today, there are three basic approaches, with endless variations growing from them. The most basic approach is buying the stocks with the highest yields, period. And the approach works.

The second approach is taking those high yielders and then focusing on the ones with the lowest prices. Whether that means two, four, or five stocks is up to your individual portfolio needs. The variations are too many to keep track of. But again, the approach works.

The third approach is somehow to combine the High Yield and Low Price elements into a combination ranking, which is what the RP Variation accomplishes. Again, one can choose any number of stocks using this approach. And it, too, works. It's one more way to get the Dow Dividend Approach to work for you.

Which is best? That's for you to decide. We'll be putting together all the appropriate numbers for the Dow Spreadsheet as Bob finishes his study, but what each investor really needs to do is sit down with those data and pick out the approach that fits his or her portfolio, whether it's a taxable or an IRA account, whether money will be added monthly or annually or not at all. Any of these questions, and perhaps a dozen more, might influence that final answer regarding which model is best. In fact, the question really is which model is best for you, and that's best answered by you.

If you'd like a look at the current daily rankings, I post the top ten stocks using the high yield, yield and price, and RP ratio every day in our Dow Statistics Center file called Current Dow Order. Stay tuned as we learn more, and work with us for that ultimate in Dow goals: keeping it simple. 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.]

TODAY'S NUMBERS
Stock  Change   Last 
 -------------------- 
 UK   +   5/8   47.13 
 IP   +   3/8   50.44 
 MO   -   5/16  44.00 
 EK   -  11/16  63.06 
 
 
                    Day   Month    Year 
         FOOL-4   +0.12%   1.77%   7.00% 
         DJIA     +0.89%   1.14%   9.29% 
         S&P 500  +1.14%   1.42%   9.67% 
         NASDAQ   +1.35%  -1.24%  11.34% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  289 Int'l Pape    43.13     50.44    16.96% 
  12/31/97  291 Union Carb    42.94     47.13     9.75% 
  12/31/97  206 Eastman Ko    60.56     63.06     4.13% 
  12/31/97  276 Philip Mor    45.25     44.00    -2.76% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  289 Int'l Pape 12463.13  14576.44  $2113.31 
  12/31/97  291 Union Carb 12494.81  13713.38  $1218.56 
  12/31/97  206 Eastman Ko 12475.88  12990.88   $515.00 
  12/31/97  276 Philip Mor 12489.00  12144.00  -$345.00 
  
  
                              CASH     $77.19 
                             TOTAL  $53501.88