<THE FOOLISH FOUR>
Foolish Four Report
by Robert Sheard
LEXINGTON, KY. (June 2, 1998) -- A lot of readers have asked me about whether the Dow High-Yield approaches will ever get too popular to be effective. After all, there are now a number of Unit Investment Trusts set up to track the approach, and Michael O'Higgins's book was a bestseller close to a decade ago.
For a number of reasons, I don't believe popularity will ever do in this approach. We're talking about a core sample from among the largest publicly traded companies, so the combined power of all the Dow High-Yield investors out there is still a pretty small proportion of the trading volume in these Dow behemoths. And given the added factor of different anniversary dates for each investor, the effect on the stocks is diffused even further.
Another question we overlook sometimes is just how well-known this approach is. It's been around forever, it seems. Benjamin Graham was even preaching a version of it decades ago. Since we discuss it daily and teach it as a cornerstone of our area, we assume everyone's heard of it. But
Foolish reader Carl Compton attended the Las Vegas MoneyShow and went to a presentation at Bally's by Microsoft's Lewis Levin, called "The Internet and Your Personal Finance." Obviously we're talking about an audience that's interested in investing enough to attend such a program and linked to the internet. And yet, when Mr. Levin discussed the research available online concerning the Dogs of the Dow and asked how many in the audience were familiar with the approach, only one in twenty in the room raised his hand. Maybe it's not quite as universally followed as we tend to believe.
But let's assume everyone did know about the approach and had easy access to use it. Would they? Nope.
The approach is contrarian by nature, meaning it goes against intuitive behavior, and with human nature what it is, most investors simply can't go against the grain again and again and be patient once they've done it. When investors start with this approach, sitting on their hands for a full year (now perhaps a year and a half) is about the hardest thing they have to do. A great number will give up when the first three to six months doesn't bring them immediate gratification.
Sad as it is to say, our society is one of the most impatient imaginable. If the returns don't spring forth in full bloom, too many investors will exit in search of the next overnight double. For those patient Fools who have the discipline to ignore the fads and foibles of the moment, the long-term returns will continue to pile up. Human nature makes the high-yield approach impervious to over-popularity. It's a sad commentary on human nature, perhaps, but no one beats the market simply by following it. One has to go against the grain to outperform the market. The Dow Approach champions this contrarian bent. Fool on!
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 + 1/2 49.88
IP + 1/16 47.00
MO - 1/8 37.56
EK -1 5/16 71.25
Day Month Year
FOOL-4 -0.26% 0.56% 7.11%
DJIA -0.35% -0.10% 12.43%
S&P 500 +0.19% 0.20% 12.63%
NASDAQ +0.86% -0.96% 12.19%
Rec'd # Security In At Now Change
12/31/97 206 Eastman Ko 60.56 71.25 17.65%
12/31/97 291 Union Carb 42.94 49.88 16.16%
12/31/97 289 Int'l Pape 43.13 47.00 8.99%
12/31/97 276 Philip Mor 45.25 37.56 -16.99%
Rec'd # Security In At Value Change
12/31/97 206 Eastman Ko 12475.88 14677.50 $2201.63
12/31/97 291 Union Carb 12494.81 14513.63 $2018.81
12/31/97 289 Int'l Pape 12463.13 13583.00 $1119.88
12/31/97 276 Philip Mor 12489.00 10367.25 -$2121.75
CASH $415.96
TOTAL $53557.34