<THE FOOLISH FOUR>
by Robert Sheard
LEXINGTON, KY. (July 16, 1998) -- While still lagging the market indices, the Foolish Four portfolio took a healthy step closer to the benchmarks today as two of the four stocks outpaced the "market" with strong moves.
Basking in the afterglow of yesterday's big earnings surprise, Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> picked up another 6% today. By far the portfolio's strongest performer, Kodak is now up more than 45% on the year (including dividends).
Also sprinting ahead in today's action was International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %>. Along with several other cyclicals posting solid earnings for the quarter this week, International Paper gained approximately 4% for the session. Unfortunately, the stock's been on a bit of a roller coaster ride this year, spurting to nice gains in April, but then giving them all back plus some recently. Today's gain for International Paper just about equals the stock's entire gain for the year. Not wonderful, but perhaps heading back in the right direction for us now.
In addition, on a day that was fairly strong for the entire Dow, our other two stocks also tacked on a little gain. Union Carbide <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UK)") else Response.Write("(NYSE: UK)") end if %> gained 1.2% and Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> gained 0.8% today.
Having followed the Foolish Four model on a daily basis now for a few years, I've grown convinced of a couple of things. One is that no one ever wants to buy these stocks. Every week someone will post a message asking whether we should skip so-and-so because this or that element looks so gruesome at this stage.
That's the whole point of the strategy, of course. These are the stocks no one else really wants, yet they're strong enough financially to weather the rough seas and eventually they do right their ships. When they do, the Dow investor profits. And even while they're getting tossed about on high seas, their higher-than-average dividends are somewhat comforting life preservers. (Where did this maritime metaphor come from?)
Before I sink under this wave of symbolism, let me wrap up. This approach isn't glamorous. It purposefully chooses stocks that seem about to get wiped out. But these Dow giants are much more stable than the short-term fortune hunters on Wall Street care to see. Bargain hunters can take the risk that these huge companies are not about to go out of business and wait patiently for the companies to recover. And they inevitably do, at least to a degree enough to make the Dow investor a healthy profit.
Don't measure or worry about the returns over a short period. That's not the true measure of this approach, and it's the flaw in every one of the Wise articles arguing that the approach is hobbled. It's worked, and very well, thank you, for seven decades. During that time there have been any number of periods where it lagged the Standard & Poor's 500 Index. But unless you believe basic rules of business economics and market interaction have been repealed, there's not a shred of convincing evidence that "it's different this time" or to suggest high-yield investing won't work over long periods for the next 70 years.
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.]
07/16/98 Close
Stock Change Last -------------------- UK + 1/2 52.69 IP +1 7/8 44.81 MO + 5/16 39.56 EK +4 13/16 87.31 |
Day Month Year
FOOL-4 +3.14% 6.72% 15.89%
DJIA +1.01% 4.20% 17.96%
S&P 500 +0.78% 4.42% 22.01%
NASDAQ +0.30% 5.58% 27.39%
Rec'd # Security In At Now Change
12/31/97 206 Eastman Ko 60.56 87.31 44.17%
12/31/97 291 Union Carb 42.94 52.69 22.71%
12/31/97 289 Int'l Pape 43.13 44.81 3.91%
12/31/97 276 Philip Mor 45.25 39.56 -12.57%
Rec'd # Security In At Value Change
12/31/97 206 Eastman Ko 12475.88 17986.38 $5510.50
12/31/97 291 Union Carb 12494.81 15332.06 $2837.25
12/31/97 289 Int'l Pape 12463.13 12950.81 $487.69
12/31/97 276 Philip Mor 12489.00 10919.25 -$1569.75
CASH $754.73
TOTAL $57943.23
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