<THE FOOLISH FOUR>

Fear and Loathing on Wall Street
by Ann Coleman
(TMF AnnC)

RESTON, VA (August 31, 1998) -- Since the market appears to be going south in a handbasket, this might be a good time to review the performance of the Foolish Four during bad years. NOT that I am predicting that 1998 will end up as a bad year. A bad month (even a really, really, really bad month like this one) does not a bad year make. But in the interest of developing one's long-term perspective, let's look at how the Foolish Four has performed in (Cue the horror movie music) BAD YEARS FROM THE PAST.

First, let's define a "bad" year. Obviously, losing money qualifies as a bad year. Over the last 25 years (1973-1997) for January portfolios with one-year holding periods, the Foolish Four strategy has lost money twice -- 1981 and 1990. "The Market" (represented by the S&P 500) lost money in five of those years -- 1973, 1974, 1977, 1981 and 1990.

Even moderately bad years aren't much fun. Let's define moderately bad as any year that returns less than 10%. In addition to those five really bad years, the S&P 500 has had six moderately bad years since 1973, and the Foolish 4 has had five. So the Foolish Four has had seven bad or moderately bad years out of the last 25 years (28%) and the Market has had 11 (44%). I'm pretty sure that not one of them heralded the end of the world. (Someone email me if I missed the final trump.)

Hmmm. Something else interesting is emerging from the swarm of numbers on my spreadsheet. Three of those five really bad years for the S&P were followed by the four best years for the Foolish Four. Take a look at the chart below. 

 
 Year  Foolish   S&P 
         Four                                      
 1973  125.74%  85.34%  Bad year 
 1974  105.25%  73.53%  Really bad year 
 1975  168.71% 137.20%  Second best year 
                        for the F4 (since 1973) 
 ~~~~ 
 1977  105.32%  92.82%   Crummy year 
 1978  109.89% 106.56%  Not such-a-much for 
                        the Foolish Four, either 
 ~~~~ 
 1981   95.37%  95.09%  Lousy year 
 1982  141.58% 121.41%  Fourth best year for Fool-4 
 1983  141.74% 122.51%  Third best year for Fool-4 
 ~~~~ 
 1990   78.88% 96.83%   Miserable year 
 1991  181.61% 130.55%  Best year for the Fool-4
Now, please don't take the above as any kind of prediction or as statistically significant. That's not the point. It's merely an interesting exercise to put bad years into perspective.

I don't know about you, but I feel better.

Our Foolish Four stocks, while taking a beating, seem to have actually fared very well in this bloodbath. With Merck down 11, IBM down almost 10, American Express down 9, and Coke down 7 (getting queasy?), our modest losses below are a welcome relief.

Not every Foolish Four portfolio will have fared as well, of course, but one of the advantages of buying stocks when they are down is that they often don't fall as far in bad times as the high flyers.

Current Dow Order | 1998 Dow Returns

What Happened to Robert Sheard?

08/31/98 Close
Stock  Change   Last 
 -------------------- 
 UK   -1 46/73  40.00 
 IP   -2        37.00 
 MO   -1  3/16  41.56 
 EK   -3 10/23  78.13 
  
 
 
                    Day   Month    Year 
         FOOL-4   -3.96% -11.12%   1.31% 
         DJIA     -6.37% -15.13%  -4.67% 
         S&P 500  -6.78% -14.56%  -1.33% 
         NASDAQ   -8.57% -19.93%  -4.53% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  206 Eastman Ko    60.56     78.13    29.00% 
  12/31/97  291 Union Carb    42.94     40.00    -6.84% 
  12/31/97  276 Philip Mor    45.25     41.56    -8.15% 
  12/31/97  289 Int'l Pape    43.13     37.00   -14.20% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  206 Eastman Ko 12475.88  16093.75  $3617.88 
  12/31/97  291 Union Carb 12494.81  11640.00  -$854.81 
  12/31/97  276 Philip Mor 12489.00  11471.25 -$1017.75 
  12/31/97  289 Int'l Pape 12463.13  10693.00 -$1770.13 
  
  
                              CASH    $754.73 
                             TOTAL  $50652.73