<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (June 1, 1998) -- As many of you have pointed out in e-mails and message board postings, there are a number of critics who believe the Dow High-Yield Approach has run its course. It's too popular, it doesn't match today's market, it's simply a back-tested phenomenon, and other arguments running the gamut from speculative possibilities to downright inanities, have been floating around in the popular financial press.

Because of FCC regulations, I can't write the response that would sum up my feelings in a short and non-sweet manner, so let me go the boring alternative and quote from others.

In January 1965, pondering why so many professional investors underperform the market, this is what Warren Buffett had to say, "Why in the world does this happen to very intelligent managements working with (1) bright, energetic staff people, (2) virtually unlimited resources, (3) the most extensive business contacts, and (4) literally centuries of aggregate investment experience?"

That date's correct, by the way. It hasn't gotten any better in the last three decades, and yet the Wise are telling individuals that they're soon to be road-kill if they try to go it alone. [Insert my unprintable response here, too.]

In Harvey Knowles and Damon Petty's The Dividend Investor, we have an answer:

"The answer may be that professional investors must battle all the obstacles that plague individual investors, plus a few more. All investors must master their emotions before they manage their money successfully. Fear and uncertainty tend to push individuals and professionals alike into a common mindset that is reassured by peer support. Thus, many investors wind up buying stocks that are overpriced but that nonetheless offer the security of popular approval. Collectively, these popular issues have limited potential for capital growth. They also pose the threat of a quick loss to the investor when popular opinion reverses itself."

Sound familiar? In other words, to profit in the market, one terrific plan (there are others) is to be a contrarian, buying quality stocks no one really wants right now. And then it requires patience to wait for the stocks to come back into favor -- sometimes a wait of two or three years.

According to C.D.A. Investment Technologies, the performance of the Dow Approaches equals that of the top one percent of professional money managers. Now if I came up to you at a cocktail party and told you I could give you a system requiring thirty minutes a year, and you'd outperform 99% of professional money managers, you'd think I was drunk, lying, or both. And yet that's how well the Dow Approach continues to work. So let the skeptics scoff. The ultimate arbiter is the objective results. Over the long haul, the High-Yield approaches are simply awesome, baby! (Sorry, college basketball's over, but I still have Dick Vitale flashbacks.) Current Dow Order | 1998 Dow Returns

[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]

TODAY'S NUMBERS

Stock Change Last -------------------- UK - 9/16 49.38 IP + 15/16 46.94 MO + 5/16 37.69 EK +1 3/16 72.56

Day Month Year FOOL-4 +0.82% 0.82% 7.40% DJIA +0.25% 0.25% 12.82% S&P 500 +0.01% 0.01% 12.42% NASDAQ -1.80% -1.80% 11.24% Rec'd # Security In At Now Change 12/31/97 206 Eastman Ko 60.56 72.56 19.81% 12/31/97 291 Union Carb 42.94 49.38 14.99% 12/31/97 289 Int'l Pape 43.13 46.94 8.84% 12/31/97 276 Philip Mor 45.25 37.69 -16.71% Rec'd # Security In At Value Change 12/31/97 206 Eastman Ko 12475.88 14947.88 $2472.00 12/31/97 291 Union Carb 12494.81 14368.13 $1873.31 12/31/97 289 Int'l Pape 12463.13 13564.94 $1101.81 12/31/97 276 Philip Mor 12489.00 10401.75 -$2087.25 CASH $415.96 TOTAL $53698.65