<THE FOOLISH FOUR>

Rolling Returns
by Ann Coleman
(TMF AnnC)

Reston, VA. (October 5, 1998) -- Friday, I rather categorically stated, "Investors who let their fears overwhelm their Foolish good sense are the ones who lose when the market gets freaky."

That's not just my opinion. Of course, there will undoubtedly be exceptions sometime in the next hundred years, but your chances are excellent that riding out the bad times will reward your patience. Sometimes it might take longer to recover, but for as far back as we have data, the market has usually (not always) recovered within 5 to 10 years.

Let's look at some numbers. Below are three sets of returns: First, the yearly returns for the Standard & Poor's 500 and the Foolish Four from 1973 through the end of last year. Next, the rolling 5 year averages and 10 year averages for the same period.

A rolling average gives you the annualized average return for the period ending with the listed year, so the 5 year rolling return for 1973 covers January 1, 1969, through December 31, 1973; the 5 year rolling return for 1974 gives you the average annual return for 1970 through 1974; etc. It represents what your average return would have been had you liquidated your account at the end of that period.

Note: The return is not cumulative. When the S&P's rolling return for 1974 says -2.35% it means that your losses would have averaged 2% per year over the previous 5 years (although all of your losses would have come in the last 2 years). Conversely, the 13% return for the Foolish Four is your compounded average return over the 5 year period from 1970 to 1974 -- not your total return for those 5 years. The cumulative return for that period was 86% -- put in $1,000, get back $1,860. (For the S&P, the cumulative loss was just over 11%.) As the S&P rolling returns indicate, the 5 year period before the '73-'74 recession was not so hot. This was a not a fun time to invest.

The first thing to note is that the table starts 25 years back, which puts us right at the worst two-year period for stocks since the '30s. Plunk your money into the S&P 500 on the first day of 1973 and watch it drop like a rock -- and '74 was worse! But the market struggled back valiantly, and by the end of 1977 you were almost even (or well ahead of the game if you had invested in the Foolish Four, which seemed to be immune to that particular recession).

Take a look farther down at the next worse year: 1990. Whoa, the Foolish Four took a BIG hit that year. But for any 5 year period that included that year, the average returns were in the 18 to 23% range, except for the period that ended with 1990. Anyone who started investing in the Foolish Four stocks in 1986 would have gone through both the crash of '87 (remember that?), and the invasion of Kuwait in 1990, and still managed to average 10% a year. If they held on through the recovery in 1991, of course, they did much better.

I don't know about you, but I sleep a lot better when I remember 5 year rolling returns. The 10 year rolling returns will absolutely put me in a coma.

G'night!

 
       Annual Returns     5 Yr Rolling  10 Year Rolling  
                               Returns          Returns 
          F4   S&P500     F4     S&P500    F4     S&P500 
 1973  25.74% -14.66%    10.55%   2.01%    12.04%  6.01% 
 1974   5.25% -26.47%    13.24%  -2.35%     9.97%  1.24% 
 1975  68.71%  37.20%    27.27%   3.21%    14.53%  3.27% 
 1976  36.92%  23.84%    30.73%   4.87%    20.50%  6.63% 
 1977   5.32%  -7.18%    26.35%  -0.21%    17.04%  3.59% 
 1978   9.89%   6.56%    22.99%   4.32%    16.61%  3.16% 
 1979   2.17%  18.44%    22.26%  14.76%    17.66%  5.86% 
 1980  48.18%  32.42%    19.13%  13.95%    23.13%  8.44% 
 1981  -4.63%  -4.91%    10.82%   8.08%    20.36%  6.47% 
 1982  41.58%  21.41%    17.57%  14.05%    21.88%  6.68% 
 1983  41.74%  22.51%    23.71%  17.27%    23.35%  10.61% 
 1984  10.24%   6.27%    25.61%  14.76%    23.92%  14.76% 
 1985  22.85%  32.16%    20.98%  14.71%    20.05%  14.33% 
 1986  27.30%  18.47%    28.18%  19.87%    19.18%  13.82% 
 1987  18.75%   5.23%    23.75%  16.49%    20.62%  15.26% 
 1988  13.62%  16.81%    18.39%  15.38%    21.02%  16.33% 
 1989  15.28%  31.49%    19.46%  20.40%    22.49%  17.55% 
 1990 -17.61%  -3.17%    10.28%  13.14%    15.51%  13.93% 
 1991  81.61%  30.55%    18.41%  15.36%    23.19%  17.59% 
 1992  29.94%   7.67%    20.56%  15.89%    22.14%  16.19% 
 1993  26.22%   9.99%    23.12%  14.51%    20.73%  14.94% 
 1994   4.72%   1.31%    20.78%   8.69%    20.11%  14.40% 
 1995  30.42%  37.43%    32.40%  16.57%    20.84%  14.84% 
 1996  24.34%  23.07%    22.74%  15.20%    20.55%  15.28% 
 1997  22.31%  33.36%    21.26%  20.24%    20.91%  18.05% 
 

Current Dow Order | 1998 Dow Returns

What Happened to Robert Sheard?

10/05/98 Close

Stock Change Last -------------------- UK - 15/16 42.31 IP + 1/2 45.81 MO + 3/8 47.50 EK -1 1/8 74.88

Day Month Year FOOL-4 -0.47% -1.04% 9.68% DJIA -0.75% -1.48% -2.30% S&P 500 -1.40% -2.80% 1.87% NASDAQ -4.85% -9.28% -2.14% Rec'd # Security In At Now Change 12/31/97 206 Eastman Ko 60.56 74.88 23.63% 12/31/97 289 Int'l Pape 43.13 45.81 6.23% 12/31/97 276 Philip Mor 45.25 47.50 4.97% 12/31/97 291 Union Carb 42.94 42.31 -1.46% Rec'd # Security In At Value Change 12/31/97 206 Eastman Ko 12475.88 15424.25 $2948.38 12/31/97 289 Int'l Pape 12463.13 13239.81 $776.69 12/31/97 276 Philip Mor 12489.00 13110.00 $621.00 12/31/97 291 Union Carb 12494.81 12312.94 -$181.88 CASH $754.73 TOTAL $54841.73