<THE FOOLISH FOUR>

The World Turns
by Robert Sheard

LEXINGTON, KY. (August 17, 1998) -- Let's see, after swearing they wouldn't do it,
Russia devalued the ruble. After swearing he didn't do it, the prez is apparently going to admit he did. Rumors floating about that Elf Aquitaine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELF)") else Response.Write("(NYSE: ELF)") end if %> is after DuPont's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> Conoco division. What a news day! And the market popped, despite anemic volume.

What's it all mean? Got me. It could be vital; it could be noise. So rather than add to the din of gooroos' predictions and commentary, let's answer a question that is more relevant to Dow Dividend investing. A reader asked today whether one should try to apply the Dow high-yield approach to one of the many new indices like the Money 30, a group of stocks tracked by the editors of Money Magazine.

While the Dow approach works on many indices, primarily those of industrial groups of stocks around the world, it's not suitable for non-industrial stocks or non-dividend-paying stocks. And the Money 30, at least in part, fits this definition.

Several of the stocks in the Money 30 aren't paying any (or at least not significant) dividends. Industry powerhouses like Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> and Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> aren't going to show up on a high-yield screen, even though they're obviously blue chip stocks one should consider in one's decision making process. And I believe the Money 30 also contains at least one utility and/or railroad stock, both sectors that the Dow approach excludes in favor of more traditional industrial giants.

So while the Money 30 may be a terrific index, and perhaps more representative of the overall economy even than the Dow Jones Industrial Average, I wouldn't try to impose a high-yield screen onto it in the hopes of beating Beating the Dow. You'd be better off expanding your universe with an approach like Ethan Haskel's Beating the S&P, which chooses Dow-like stocks from outside the Dow itself.

Another question that's coming up frequently of late is how one should track returns. Back on October 9 and 10 of 1997, I wrote a two-part series called "Motley Math." It's also featured in the final section of The Unemotional Investor. It will take you through the calculations necessary to find your simple return on a single investment, a whole portfolio, and even a portfolio with a series of cash flows (for you regular savers in the room). You might want to print that pair of columns out for future reference if you're setting up your own spreadsheets.

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.]

08/17/98 Close
Stock  Change   Last 
 -------------------- 
 UK   +   1/8   46.19 
 IP   +   1/16  41.69 
 MO   +   1/2   42.81 
 EK   +3  1/16  85.56 
  
 
 
                    Day   Month    Year 
         FOOL-4   +1.50%  -2.29%  11.37% 
         DJIA     +1.78%  -3.47%   8.43% 
         S&P 500  +1.97%  -3.30%  11.67% 
         NASDAQ   +1.55%  -2.90%  15.77% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  206 Eastman Ko    60.56     85.56    41.28% 
  12/31/97  291 Union Carb    42.94     46.19     7.57% 
  12/31/97  289 Int'l Pape    43.13     41.69    -3.33% 
  12/31/97  276 Philip Mor    45.25     42.81    -5.39% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  206 Eastman Ko 12475.88  17625.88  $5150.00 
  12/31/97  291 Union Carb 12494.81  13440.56   $945.75 
  12/31/97  289 Int'l Pape 12463.13  12047.69  -$415.44 
  12/31/97  276 Philip Mor 12489.00  11816.25  -$672.75 
  
  
                              CASH    $754.73 
                             TOTAL  $55685.11