<THE FOOLISH FOUR>

Looking at Best Cases
by Ann Coleman
([email protected])

Reston, VA (November 4, 1998) -- Monday, we looked into our Dow Database for the worst years to invest in our Dow strategies. Today we look at the best years. How do our strategies react when times are good?

First, I have to give credit to several alert readers. After reading Monday's column, they rightly pointed out that a single year is not a valid time period to use when evaluating the strategy. (You've been paying attention -- good!) A much better way to compare returns is to look at Rolling Returns.

Today, however, I want to take a shorter term look at performance as a way of illustrating just how the strategy works and what to expect from it as you watch it unfold in real time.

The table below selects the best years for the Dow (when the Dow as a whole rose more than 20%) and compares each year's performance to our strategies. The Foolish Four outperformed the Dow in 9 of those 14 years, and the High Yield 10 and RP outperformed in 10. Both the Foolish Four and the RP outperformed the Dow by about 7 percentage points on average. That's outstanding. When the market's hot, we're hotter. Mostly.

This limited sample indicates that the chances of our strategies beating a hot market are roughly 6 or 7 out of 10. Great -- we celebrate that. But it's also important to realize that it there will be years when that won't happen.

Anyone who is concerned because the strategy didn't beat the market last year would do well to study the history. Sure it's nice to beat the market most of the time, but it's unrealistic to expect it to happen every year.

Coming Friday -- the significance of these numbers. (Yes, statistics again!)

 
 "Good" Years (Returns > 20%) 
 14 years, 1961-1997 
          Dow30       HY10       F4         RP4     
 1961     22.74%     26.91%     23.45%     20.50% 
 1963     22.98%     21.06%     17.42%     18.62% 
 1967     21.75%     25.68%     40.91%     34.07% 
 1975     44.25%     52.17%     68.71%     68.71% 
 1976     29.36%     33.24%     36.92%     37.93% 
 1980     25.29%     32.95%     48.18%     24.20% 
 1983     35.35%     38.43%     41.74%     36.72% 
 1985     30.98%     30.61%     22.85%     49.82% 
 1986     21.87%     29.43%     27.30%     29.67% 
 1989     31.95%     29.64%     15.28%     47.35% 
 1991     30.36%     35.24%     81.61%     34.81% 
 1995     36.69%     37.10%     30.42%     47.05% 
 1996     24.32%     27.47%     24.34%     26.56% 
 1997     22.33%     20.39%     22.31%     19.49% 
  
 Mean     28.59%     31.45%     35.82%     35.39% 
 Difference      2.86%      7.23%      6.81% 
 SD        6.81%      8.03%     19.40%     14.14%
For a complete chart (good, bad, and indifferent years) see last Friday's column.

Fool on and prosper!

Current Dow Order | 1998 Dow Returns

11/04/98 Close
Stock  Change   Last 
 -------------------- 
 UK   +   5/16  42.94 
 IP   -   5/8   45.31 
 MO   +   5/8   53.63 
 EK   +   9/16  76.50 
 
 
                    Day   Month    Year 
         FOOL-4   +0.35%   2.62%  13.81% 
         DJIA     +0.88%   2.22%  11.06% 
         S&P 500  +0.70%   1.82%  15.28% 
         NASDAQ   +1.96%   2.95%  16.12% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  206 Eastman Ko    60.56     76.50    26.32% 
  12/31/97  276 Philip Mor    45.25     53.63    18.51% 
  12/31/97  289 Int'l Pape    43.13     45.31     5.07% 
  12/31/97  291 Union Carb    42.94     42.94     0.00% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  206 Eastman Ko 12475.88  15759.00  $3283.13 
  12/31/97  276 Philip Mor 12489.00  14800.50  $2311.50 
  12/31/97  289 Int'l Pape 12463.13  13095.31   $632.19 
  12/31/97  291 Union Carb 12494.81  12494.81     $0.00 
  
  
                              CASH    $754.73 
                             TOTAL  $56904.36