<THE FOOLISH FOUR>

Doing Disney
by Chris Rugaber
(TMF RFK)

Alexandria, VA. (Sep. 8, 1998) -- I first heard of last Monday's stock market downturn when a radio DJ warned everyone that there had been a "huge" drop in the stock market -- "and I mean huge!" he bellowed. (This from a guy who was earlier playing music by bands like Barenaked Ladies). Despite my Foolish training, I was still somewhat vulnerable to the hype -- I began to brace myself. Given the tone, I was expecting a lot -- maybe a 1,000 point drop? A 1,500 point drop? Then the DJ announced, in tones of doom and destruction, a "FIVE HUNDRED point drop!!" Oh, okay. Never mind.

I was especially blas� because I had just visited a Dow 30 company, and it was an excellent opportunity to see one of these huge corporations in action. My visit helped clarify for me a primary characteristic of the Dow companies: their size and staying power regardless of market ups and downs.

To be more specific, I took a short trip to Disney World. While theme parks represented only 26% of Walt Disney's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> revenues in 1997, as anyone who has been there knows, Walt Disney World is huge. It's practically its own county -- at 47 square miles, it's bigger than many counties. Disney's stock may have declined recently, but Disney World is doing just fine. And while Disney has never been a Foolish Four stock, at least not for any appreciable period of time, it's nevertheless relevant to Dow Dividend Approach investing.

Aside from the high-yield/low-price formula, Dow Dividend Approach investing is based on the size and reliability of Dow stocks, so that even when they experience tough times, they are far more likely to recover than other companies. In the words of Michael O'Higgins, author of Beating the Dow, these corporations possess "strength, adaptability, and resilience." Disney is an excellent example.

Disney is also interesting because its 1991 inclusion in the Dow, when it replaced steel company USX, represented a shift from smokestack industries to the entertainment-oriented service sector. Yet Disney is still a solid business, even if steel might seem to be a more tangible product than movies like Armageddon.

Consider that Disney earned over $5 billion last year just from its theme parks and resorts, and that Walt Disney World is in its 26th year and still increasing revenue and profits. Part of this is due to the Disney brand name, and partly because of the quality of its "attractions," as it likes to call its rides.

But it's also a result of the kind of capital investments a company like Disney can make, especially in response to competition. For example, when a Universal Studios' theme park opened nearby, Disney World responded with Disney-MGM Studios. When several independent water parks tried to lure Disney customers, Disney World added "Typhoon Lagoon" and "Blizzard Beach." Busch Gardens opens a park with rides and animals? Disney opens Animal Kingdom.

By responding in such a manner, Disney can keep vacationers in its Disney World parks for an entire vacation week, easily, whereas back in the days of the Magic Kingdom and Epcot Center, vacationers might actually have been able to visit someone else's park. Given the amount of capital investment these parks take -- the company spent $1.9 billion in 1997 on theme parks and resorts -- Disney's ability to respond to these challenges is a pretty good indication of their strength and resilience.

In fact, prior to its inclusion in the Dow, Disney experienced a Dogs of the Dow-style fluctuation in 1990 and '91. While the recession and Gulf War progressed, Disney's earnings suffered as vacations were pared back (at that time, theme parks provided over 50% of Disney's revenue). But as the economy recovered and Disney entered new ventures, the stock rebounded.

This may be cold comfort for those shareholders who've watched Disney's stock decline in recent weeks. But this is not to recommend Disney one way or the other; it's just a quick example of how the ideas behind the Dow Dividend Approach continue to work, even as the companies that make up the Dow change.

Current Dow Order | 1998 Dow Returns

What Happened to Robert Sheard?

09/08/98 Close
Stock  Change   Last 
 -------------------- 
 UK   +2  7/16  42.31 
 IP   +2 11/16  42.31 
 MO   +  15/16  42.94 
 EK   +   1/4   81.25 
  
 
 
                    Day   Month    Year 
         FOOL-4   +3.45%   6.38%   7.77% 
         DJIA     +4.98%   6.39%   1.42% 
         S&P 500  +5.09%   6.89%   5.46% 
         NASDAQ   +6.02%  10.78%   5.76% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  206 Eastman Ko    60.56     81.25    34.16% 
  12/31/97  291 Union Carb    42.94     42.31    -1.46% 
  12/31/97  289 Int'l Pape    43.13     42.31    -1.88% 
  12/31/97  276 Philip Mor    45.25     42.94    -5.11% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  206 Eastman Ko 12475.88  16737.50  $4261.63 
  12/31/97  291 Union Carb 12494.81  12312.94  -$181.88 
  12/31/97  289 Int'l Pape 12463.13  12228.31  -$234.81 
  12/31/97  276 Philip Mor 12489.00  11850.75  -$638.25 
  
  
                              CASH    $754.73 
                             TOTAL  $53884.23