<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (June 17, 1998) -- Golf fans are eagerly awaiting the start of the U.S. Open tomorrow morning, so you shouldn't be surprised that I'm going to torture another golf metaphor or two in today's column. This is my favorite of the four major championships because, in addition to being our national championship, it's the most democratic of the majors. Anyone good enough to qualify can enter. No good old boy's dues to pay or backs to scratch.

But let's sit on the tee box of a long par five hole and see it as if it were an investment event. For most good golfers, par fives represent some choices from the tee box. Does one play it relatively safe and try to play the hole as it was designed (three shots to reach the green and two putts for one's par, or a single putt for a birdie), or does one try to take advantage of the hole and attempt to reach the green in two, thereby securing an eagle with a good putt, or at worst, a birdie with a two-putt?

The same is true in investing to a degree, as one decides how aggressive to be with stock choices and strategies. Does one go for the relatively safe blue chips? Or the more aggressive growth stocks? (And in golf, different holes may elicit different answers to that question.)

Perhaps an even more crucial set of questions arises when one's tee shot goes awry and the fairway is nowhere to be seen. If you're in the woods or another hazard, how do you play the next shot? You can make a simple short chip shot back into the fairway and take four shots to reach the green. The hope is your fourth shot will still put you close enough to one-putt and save your par. Or you can go for the glory shot, hitting a high-risk shot to go for the green in the regulation number of strokes.

In investing, the same type of question arises when a stock blows up. Do you buy more because the company's story is still intact and it's an even bigger bargain? Or do you cut your losses (chip out into the fairway), and make up your loss with another investment, hoping to save your par with a good short game?

There is no right or wrong answer in every situation. The good golfer is one who manages the course well (including one's mistakes). When he gets in trouble, he measures the risks versus the rewards and makes an intelligent decision based on the odds.

Naturally, this is true for investing as well. The decision based on risks and rewards is the key to portfolio management as well as course management. Think of the Dow Approach as one awesome caddie, helping you around an unknown course. You've got a huge advantage over the golfer who's playing the course for the first time on his own.

And to show you the futility of making predictions in golf as well as in the markets, here are my five top choices to win the Open this week: Jim Furyk, Colin Montgomerie, David Duval, Fred Couples, and Justin Leonard.

If you'd like to chat with me and/or get an autographed copy of my book, please join us tomorrow evening at 9:00 (Eastern) in the America Online Motley Fool auditorium. I'll be answering questions and we'll be taking online orders for autographed copies of The Unemotional Investor until roughly 9:45 (or whenever they kick us out). If you'd like an autographed copy of the book but can't attend the chat, you may still order a book using the special AOL order form anytime up until the time of the chat. Hope to see you Thursday night!

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  5/16  48.19 
 IP   +  17/32  44.09 
 MO   +1  3/4   38.38 
 EK   +   9/16  67.94 
  
 
 
                    Day   Month    Year 
         FOOL-4   +2.24%  -2.80%   3.54% 
         DJIA     +1.89%  -0.79%  11.65% 
         S&P 500  +1.80%   1.50%  14.09% 
         NASDAQ   +1.33%  -0.14%  13.12% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  291 Union Carb    42.94     48.19    12.23% 
  12/31/97  206 Eastman Ko    60.56     67.94    12.18% 
  12/31/97  289 Int'l Pape    43.13     44.09     2.25% 
  12/31/97  276 Philip Mor    45.25     38.38   -15.19% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  291 Union Carb 12494.81  14022.56  $1527.75 
  12/31/97  206 Eastman Ko 12475.88  13995.13  $1519.25 
  12/31/97  289 Int'l Pape 12463.13  12743.09   $279.97 
  12/31/97  276 Philip Mor 12489.00  10591.50 -$1897.50 
  
  
                              CASH    $415.96 
                             TOTAL  $51768.24