<THE FOOLISH FOUR>

Bad Days and Weeks
by Chris Rugaber
(TMF RFK)

ALEXANDRIA, VA. (September 1, 1998) -- The market's current gyrations have left many investors nervous, but if you're not yet invested in stocks, then don't let the recent ups-and-downs discourage you. One reason that Dow Dividend Approach stocks are good beginning investments, as recommended in Step 6 of the 13 Steps to Investing Foolishly, is that they are usually less volatile than other stocks. Yesterday Ann Coleman gave us a long-term perspective on how Foolish Four stocks fare in bad years; today, let's take a look at how they fare on bad days and weeks. Of course, it's not very Foolish to focus on such short-term periods, but it never hurts to see how the Foolish Four can limit your losses on bad days.

Compared to our other portfolios here in Fooldom, the Foolish Four is much less volatile. From the market's close on Wednesday, August 26th, through yesterday's close, the Fool Portfolio lost a whopping 22.6% of its value (though it was still up 15% for the year). This is not too surprising given the volatile nature of some of its holdings, such as Amazon.com and America Online. The Boring Portfolio, meanwhile, was down 15.1%, and the Cash-King lost 14.3% of its value. The Fool Four declined only 8.7% during this three-day trading period, about one-third of what the Fool Portfolio lost, and less than the Dow's drop of 11.5%.

In addition, if we go back to the market's recent high point, July 17th's 9337.97, we see that by August 31st the Dow declined 19.3% and the Fool Port dropped 28%. The Fool Four stocks, however, declined only 12.1%. Not only were they better off than a volatile portfolio like the Fool Port, but they did noticeably better than the Dow as a whole.

In the end, these are just numbers games, of course, but they remind us that the Dow Approach is not just about growth but also about reduced volatility -- and that's why the Foolish Four may be easier for a novice investor to stomach. If you are interested in beginning with some variation of the Foolish Four approach, we have plenty of tools here at The Motley Fool to assist you.

You may want to begin with the book that started it all, Michael O'Higgins' Beating the Dow. Though it was published in 1991, much of O'Higgins book is worth reading today for its basic explanation of the Dow Dividend Approach and for its generally Foolish attitude towards investing. Also a must-read (of course) is The Unemotional Investor, by the former denizen of this space, Robert Sheard. Sheard's book provides an updated and more expansive look at the Dow Approach and other stock screens.

Next, if you're a numbers type, consider our Dow Dividend Spreadsheet, a Microsoft Excel file containing yearly data on all thirty Dow Stocks for the past 37 years and yearly and total returns for various Dow strategies. Research such as Ann Coleman's from last night can be done with the raw data in the spreadsheet, and probably an infinite number of other queries can be explored. Want to check some general numbers without spending any money? Click here for the returns on the Foolish Four for the past several years.

Finally, some of the best information regarding the Dow approach comes not from any member of the Fool staff or any book author, but from Fools out on the message boards. Dave Goldman has compiled an excellent FAQ (Frequently Asked Questions) list on the web board at Message #9637. Please give that a look -- it will make you a Dow Dividend Approach expert!

Current Dow Order | 1998 Dow Returns

What Happened to Robert Sheard?

09/01/98 Close
Stock  Change   Last 
 -------------------- 
 UK   +1 11/16  41.69 
 IP   +  13/16  37.81 
 MO   +   7/8   42.44 
 EK   +1 13/16  79.94 
  
 
 
                    Day   Month    Year 
         FOOL-4   +2.65%   2.65%   3.99% 
         DJIA     +3.82%   3.82%  -1.02% 
         S&P 500  +3.83%   3.83%   2.45% 
         NASDAQ   +5.06%   5.06%   0.30% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  206 Eastman Ko    60.56     79.94    31.99% 
  12/31/97  291 Union Carb    42.94     41.69    -2.91% 
  12/31/97  276 Philip Mor    45.25     42.44    -6.22% 
  12/31/97  289 Int'l Pape    43.13     37.81   -12.32% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  206 Eastman Ko 12475.88  16467.13  $3991.25 
  12/31/97  291 Union Carb 12494.81  12131.06  -$363.75 
  12/31/97  276 Philip Mor 12489.00  11712.75  -$776.25 
  12/31/97  289 Int'l Pape 12463.13  10927.81 -$1535.31 
  
  
                              CASH    $754.73 
                             TOTAL  $51993.48