<THE FOOLISH FOUR>

Manic-Depressive Market
by Ann Coleman
(TMF AnnC)

Reston, VA. (October 2, 1998) -- Talk about a roller-coaster ride! What's next?

Historically, October is the worst month for stocks. Yesterday market watchers were shuddering, today some optimism returned. This manic-depressive market (the new term is bipolar, and it, too, seems appropriate) is interesting to watch, and tragic for some, but do Fools need to fear the scary month of October?

Will it get worse? Maybe. If you've been hanging around the Fool for very long, you probably know that we don't make short-term predictions. The market could free fall and end the year (an artificial cutoff point, but we are stuck with it) down the tubes and in the trash; it could continue to bounce like a superball in a squash court, essentially ending the year where we started; it could recover nicely and we could have an unprecedented 4 year stretch of above average market growth; or it could be somewhere (anywhere!) in between.

Have I covered everything?

I will make a prediction, though. One year we are going to have a terrible market -- the Dow and the Standard & Poor's 500 will lose money. Maybe even two years, maybe even three. Are you ready for that?

You have to be ready for it if you are to enjoy the rewards of investing. It is the nature of stock markets that there are no guaranteed returns. Even with something as safe as the Foolish Four, there will be times, even multi-year stretches, when your returns will be negative or flat or, at least, well below what you expected.

We hear a lot about risk in relation to investing, but there are two kinds of risk. (There are more than that, but we are talking about risk to your money at the moment.) Many people confuse these two kinds of risk, causing them to perceive investing as more risky that it really is.

The first kind of risk is an absolute risk -- the risk that you could lose all or most of your money. Options investing offers quite a bit of that kind of risk, which is why, when you are right about an option investment, the rewards can be very high. Of course, that could happen with the Foolish Four -- but it is highly unlikely that four companies (or even one!) as large and well-regarded as any of the Dow stocks could turn out to be worthless within a year -� barring global catastrophe. If an ELE (Extinction Level Event) hits, all bets are off. See Chris Rugaber's excellent Foolish Four column from yesterday on Dow Disasters.

The risk that Foolish Four investors need to concern themselves with is that of volatility. The risk of volatility isn't so much that you will lose all or most your money. With stocks like the Dow companies, the more worrisome risk is that your investment may not be worth what you put into it AT THE TIME YOU NEED TO TAKE YOUR MONEY OUT.

That's why we keep saying that you should not have money you will need within the next 3 to 5 years in the market. Put it in a money-market fund or short term bonds! That's also why we keep saying that you must be prepared to leave your money in the market through the bad times. Investors who let their fears overwhelm their Foolish good sense are the ones who lose when the market gets freaky.

Monday: Numbers to back up that claim.

Fool on and prosper!

Current Dow Order | 1998 Dow Returns

What Happened to Robert Sheard?

10/02/98 Close

Stock Change Last -------------------- UK + 3/8 43.25 IP + 7/16 45.31 MO + 5/8 47.13 EK +1 1/4 76.00

Day Month Year FOOL-4 +1.22% -0.58% 10.20% DJIA +1.99% -0.74% -1.56% S&P 500 +1.64% -1.42% 3.32% NASDAQ +0.16% -4.66% 2.84% Rec'd # Security In At Now Change 12/31/97 206 Eastman Ko 60.56 76.00 25.49% 12/31/97 289 Int'l Pape 43.13 45.31 5.07% 12/31/97 276 Philip Mor 45.25 47.13 4.14% 12/31/97 291 Union Carb 42.94 43.25 0.73% Rec'd # Security In At Value Change 12/31/97 206 Eastman Ko 12475.88 15656.00 $3180.13 12/31/97 289 Int'l Pape 12463.13 13095.31 $632.19 12/31/97 276 Philip Mor 12489.00 13006.50 $517.50 12/31/97 291 Union Carb 12494.81 12585.75 $90.94 CASH $754.73 TOTAL $55098.29