<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (April 2, 1998) -- There's been a great deal of confusion lately on the message boards about the "real" returns for the Foolish Four approach. So before any more rumors, gossip, and misperceptions get spread around, let me lay out the details regarding the approach's historical results.

Many readers are confused by the reported returns for the Foolish Four in Tom and David's first book, The Motley Fool Investment Guide. As the book discusses, the Foolish Four returns listed there (25.5%) were only for a 20-year period from the mid '70s through the mid '90s, and they were derived from the database published in Michael O'Higgins's book Beating the Dow.

Since The Motley Fool Investment Guide was published, the Fool staff has built its own annual Dow database which covers a much longer period than that included in the original write-up. Our own database also corrected some data errors we discovered in O'Higgins's book, mostly by accounting properly for the AT&T divestiture and similar spin-offs.

Our own database begins with 1961 and covers the 37 years from that point through the end of 1997, so our own database is much more complete than our original source.

That can be confusing enough if one doesn't read the introductory material associated with any write-up of the historical results, but to make matters a tiny bit messier, what we call the Foolish Four has also changed with the publication of Tom and David's second book this January, You Have More Than You Think. What we had been calling the Unemotional Value approach (the subject of the first part of my own forthcoming book, The Unemotional Investor) has now been adopted as the "official" Foolish Four plan.

So to clear the air of misinformation (especially in light of yesterday's April Fool's Day joke, which many readers failed to recognize as satire), let me lay out the actual historical returns of the current Foolish Four method as we have tracked it in our own database. (If you're not familiar with the changes to the Foolish Four method, please see this special report. And if you'd like to verify the return numbers independently, please pick up a copy of the Dow Spreadsheet in FoolMart to see our work.)

Foolish Four Annualized Returns (excluding taxes and trading costs)

Past Five Years (1993 - 1997) 21.29%
Past Ten Years (1988 - 1997) 20.92%
Past Fifteen Years (1983 - 1997) 21.66%
Past Twenty Years (1978 - 1997) 20.87%
Past Twenty-Seven Years (1971 - 1997) 21.97%
Past Thirty-Seven Years (1961 - 1997) 18.20%

Some readers are tracking the RP4 Variation rather than the Foolish Four, so to get a direct comparison between the two versions, here are the returns using the same periods:

RP4 Variation Annualized Returns (excluding taxes and trading costs)

Past Five Years (1993 - 1997) 25.53%
Past Ten Years (1988 - 1997) 23.26%
Past Fifteen Years (1983 - 1997) 25.04%
Past Twenty Years (1978 - 1997) 24.32%
Past Twenty-Seven Years (1971 - 1997) 24.16%
Past Thirty-Seven Years (1961 - 1997) 19.64%

Please be careful when comparing historical returns that you're using identical periods in your comparisons. Even a slight difference (a year or two) can make a huge difference in your results.

We generally report historical returns for the Dow Approach using the period since 1971, agreeing in essence with Michael O'Higgins that the market regulations and securities changes that took place around the turn of the decade going into the 1970s make comparisons between today and periods before 1970 somewhat weak.

The Foolish Four number I refer to in the Dow Area, then, is a historical return of 22% (21.97%) a year for the past 27 years. I hope this helps clear up the confusion. If not, please pick up a copy of the Dow Spreadsheet to see the detailed figures for each of the Dow stocks and a slew of Dow variations for each year back to 1961. Fool on!

Current Dow Order | 1998 Dow Returns

[Robert Sheard is the author of the forthcoming book, The Unemotional Investor, due out from Simon & Schuster on May 12. To pre-order your copy, please visit Amazon.com, where it's available at a discounted price.]

TODAY'S NUMBERS
Stock  Change   Last 
 -------------------- 
 UK   -   5/8   51.00 
 IP   +1  3/8   49.94 
 MO   +   1/16  40.00 
 EK   +   1/2   66.38 
 
 
                    Day   Month    Year 
         FOOL-4   +0.62%   1.87%   8.80% 
         DJIA     +1.33%   2.12%  13.64% 
         S&P 500  +1.07%   1.66%  15.41% 
         NASDAQ   +0.29%   0.94%  18.00% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  291 Union Carb    42.94     51.00    18.78% 
  12/31/97  289 Int'l Pape    43.13     49.94    15.80% 
  12/31/97  206 Eastman Ko    60.56     66.38     9.60% 
  12/31/97  276 Philip Mor    45.25     40.00   -11.60% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  291 Union Carb 12494.81  14841.00  $2346.19 
  12/31/97  289 Int'l Pape 12463.13  14431.94  $1968.81 
  12/31/97  206 Eastman Ko 12475.88  13673.25  $1197.38 
  12/31/97  276 Philip Mor 12489.00  11040.00 -$1449.00 
  
  
                              CASH    $415.96 
                             TOTAL  $54402.15