<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (June 11, 1998) -- After three consecutive years when the market indices have posted far-better-than-average gains, it's no surprise that we're hearing bearish predictions about the market's future. And they may well be right.

But I went browsing through the Foolish archives this morning, and sure enough, I found a Fribble I wrote on September 7, 1995. Nearly three years ago, we were hearing exactly the same kinds of gloom-and-doom predictions about the market being over-valued. (The Dow closed that day at 4,669.72.)

The fact that such bearish cries were dismally wrong then doesn't mean they will be again this time, however. So let me update that Fribble and ask the same question: what would it mean if we experienced another big sell-off similar to the one in 1987 and the market shed 25% of its value?

The Dow's current record closing high is 9,211.84 on May 13, 1998. If we drop 25% from that level we'll be roughly at 6,910. We opened 1998 at 7,908.25, so the 25% "crash" would mean we'd be sitting on a loss of 12.6% for the year. I can't speak for you, but a 12.6% loss on the Dow after three terrific years in a row doesn't seem so awful compared to the opportunity lost to those bears and market timers who sat out the last three years waiting for the crash.

And you know that if (or when) it happens, everyone who's ever made a bearish claim in the past three years will claim a victory. But as I said in 1995, "What's the point? Simply put, moral victories don't add to your retirement account. With a fully-invested strategy, you have the benefit of the long-term probabilities on your side. Over the last seven decades, the market has had one long-term trend -- up. If you'll wait out the short-term blips, even painful ones like 25% drops in 1987 (and in 1995? [or make that 1998?]), the fully-invested approach still beats the market timers."

If the market drops 25% later this year� oh well� then 1998 is a moderately poor year, but nothing fatal to the long-term investor. If it doesn't drop, chill the champagne and kiss a Fool in celebration of a fourth consecutive good year! Either way, you're better off having been invested for the four years than you would have been if in 1995 you decided it was Wiser to "sit this one out."

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   -   3/16  47.69 
 IP   -1  3/8   44.81 
 MO   -1  1/2   36.88 
 EK   -  13/16  69.44 
  
 
 
                    Day   Month    Year 
         FOOL-4   -1.96%  -2.88%   3.45% 
         DJIA     -1.78%  -0.99%  11.43% 
         S&P 500  -1.59%   0.34%  12.79% 
         NASDAQ   -1.33%  -1.64%  11.42% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  206 Eastman Ko    60.56     69.44    14.65% 
  12/31/97  291 Union Carb    42.94     47.69    11.06% 
  12/31/97  289 Int'l Pape    43.13     44.81     3.91% 
  12/31/97  276 Philip Mor    45.25     36.88   -18.51% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  206 Eastman Ko 12475.88  14304.13  $1828.25 
  12/31/97  291 Union Carb 12494.81  13877.06  $1382.25 
  12/31/97  289 Int'l Pape 12463.13  12950.81   $487.69 
  12/31/97  276 Philip Mor 12489.00  10177.50 -$2311.50 
  
  
                              CASH    $415.96 
                             TOTAL  $51725.46