<THE FOOLISH FOUR>
by Robert Sheard
LEXINGTON, KY. (August 10, 1998) -- Have I got a sure-fire market-timing system for you. Four years in a row now, I've managed to be on vacation during a week when the market had at least one day of significant losses. Just short everything when I head out of town. What a deal!
Needless to say, I'm not serious. Like the Super Bowl indicator and other illogical correlations, there's nothing about such a market timing scheme that makes any sense. Just another curious item to plunk down in the almanac of goofy coincidences.
The good news, however, is that in my absence and while the market drove through a pothole, the Foolish Four model portfolio held up comparatively well and now the gap between the model portfolio and the Dow and Standard & Poor's 500 indices has been closed. It's going to be tight for a while, and the year's final results are anything but assured, but the performance of the model in a swift downturn isn't surprising.
The Dow high-yield models have traditionally been good in good markets, but where they really outpace the overall benchmarks is in mediocre and poor markets. When a stock is already out of favor, a total market dump doesn't typically hurt such a Dog as much because a lot of the investors likely to throw such a stock overboard have already sold it. It typically has less room to fall than a stock that's in better favor.
So with Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> scrambling to break out of the negative column for the year and the fact that everyone already seems to have sold International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> and Union Carbide <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UK)") else Response.Write("(NYSE: UK)") end if %>, the Foolish Four made up ground when the more popular Dow stocks dipped last week.
Of the four holdings, only Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> can really be considered an in-favor stock at the moment. After months and months of restructuring efforts, Kodak has seen some impressive stock price appreciation and is now, in fact, one of the better performing large-cap stocks in the S&P 500. It's even recently appeared in my Keystone Growth model rankings, which among other factors, uses relative strength to select the candidates.
So while the market as a whole swooned a few percentage points last week, the Foolish Four managed to hold up nicely, thank you. And now that it's caught the Dow and the S&P 500, it's setting its sight on the Nasdaq Composite return.
It's good to be back at my computer after a week on an island with no Internet access. Well, that's not entirely true, but I felt compelled to pretend to prefer work over lounging on the beach.
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.]
08/10/98 Close
Stock Change Last -------------------- UK - 5/8 47.19 IP + 3/4 44.00 MO - 1/4 42.75 EK + 5/16 83.88 |
Day Month Year
FOOL-4 +0.05% -1.25% 12.56%
DJIA -0.27% -3.47% 8.43%
S&P 500 -0.58% -3.35% 11.61%
NASDAQ -0.41% -1.77% 17.12%
Rec'd # Security In At Now Change
12/31/97 206 Eastman Ko 60.56 83.88 38.49%
12/31/97 291 Union Carb 42.94 47.19 9.90%
12/31/97 289 Int'l Pape 43.13 44.00 2.03%
12/31/97 276 Philip Mor 45.25 42.75 -5.52%
Rec'd # Security In At Value Change
12/31/97 206 Eastman Ko 12475.88 17278.25 $4802.38
12/31/97 291 Union Carb 12494.81 13731.56 $1236.75
12/31/97 289 Int'l Pape 12463.13 12716.00 $252.88
12/31/97 276 Philip Mor 12489.00 11799.00 -$690.00
CASH $754.73
TOTAL $56279.54
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