<FOOLISH FOUR PORTFOLIO>

Last Leftover Day
And a few things to clear up

by Ann Coleman
([email protected])

Reston, VA (December 9, 1998) -- The freezer's gettin' bare. The dressing ran out last week. The last bit of turkey and gravy goes on the table tonight. It's Last Leftover Day, a sad, sad time. Now I have to cook again. There's one cheerful thought, though. Since I am the only one in my family with a palate sensitive enough to appreciate my homemade cranberry-orange relish, there will be some of that in the back of the refrigerator for a good while yet.

Apparently, we have some leftover ideas that need to be cleared away, too. My mail has been going nuts ever since I mentioned the real money portfolio. It looks like I wasn't as precise as I should have been about what is happening, so I think I'd better go over it again. To those of you who are perfectly clear on the whole concept, my apologies.

First: Our demonstration Foolish Four portfolio goes live this year. I am in the process of setting up a separate IRA account with $4000 to use for this purpose. Please don't ask if I will be adding cash next year -- I don't know yet. Please don't worry if you only have $2000, there will be a recommendation for that. You don't need to do this in your IRA, although it's a good idea. If you need to set up an IRA account, brokers are very good at explaining the details.

Second: The stocks for this first year will be those selected by the strategy on December 23. (Which strategy exactly? Don't ask about that, either -- that's Friday's column.) We will take them straight off the Current Dow Order page. No mystery there. You can beat us to the punch by using the December 22 list, if you like, or wait until the next week. There's nothing magic about December 23 -- it just happens to have 5 market days behind it before we run out of year.

Trade mechanics: The Motley Fool's policy on portfolio trades says that trades are announced in advance and that the portfolio then has 5 days to complete the trade. That is obviously not consistent with our Foolish Four model, where you buy the stocks at the time they are "on the list" and that list is subject to daily change. But the inconsistency is only skin deep.

A bit of history is in order here. The original policy was that the trades would be announced the night before and a market order would be placed to buy "at the open" the next morning. The Fool Portfolio (soon to be the Rule Breakers Portfolio) found itself becoming a victim of its own success, though. It would announce a trade, and sure 'nuff, the next morning the stock would OPEN two or three points higher than it had closed at the night before.

How can that happen? Simple -- it's the Instinet at work. The Instinet is a network of mutual funds, pension plans, and other "institutional" investors that allows trading between Instinet members at any time. You often hear about prices going up (or down) in "after-hours trading." This is how. (Some after-hours trading also takes place on foreign exchanges, of course.)

Flattering as it was, David and Tom found it a bit discouraging to find their stocks bid up before they had a chance to buy them. They modified the rule to allow them 5 days to make a trade, in hopes that the price would drift back down again after the announcement. Sometimes that even works. Check out the most recent Fool Port trade, @Home <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATHM)") else Response.Write("(Nasdaq: ATHM)") end if %>, to see this phenomenon in action.

It would be perfectly consistent with both the Fool policy and the Foolish Four strategy simply to place a market order to buy at the next day's open. I'm going to hedge a bit, though, just in case that old Instinet fires up.

For stocks like our beloved Dow companies, it's not very likely that the little Foolish Four portfolio is going to influence the Wise. (If they want to be influenced, they can check the Current Dow Order page any day.)

Finally, I got a lot of mail from people who seemed to be distressed that they would not be able to do exactly what I was going to do. There no magic here -- if you have a self-directed IRA and want to put some or all of that money in the Foolish Four, that's your decision. If you want to use a regular brokerage account, that's your choice, too. If you want to buy before or after we do, or use a different variation of the strategy, that's always your prerogative. Given my personal investing luck, you may be better off!

Thanks for reading this far. If you were bored stiff, send me an e-mail and I'll send you the cranberry-orange relish recipe to make up for this boring column. (It's really very good.)

Fool on and prosper!

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Current Dow Order | 1998 Dow Returns

12/09/98 Close
Stock  Change   Last
--------------------
UK   -   1/2   41.50
IP   -   5/16  42.50
MO   -   1/16  54.44
EK   -  11/16  72.50

                   Day   Month    Year
        FOOL-4   -0.71%  -2.91%  10.82%
        DJIA     -0.21%  -1.18%  13.92%
        S&P 500  +0.18%   1.71%  21.96%
        NASDAQ   +0.77%   5.17%  30.57%

    Rec'd   #  Security     In At       Now    Change

 12/31/97  276 Philip Mor    45.25     54.44    20.30%
 12/31/97  206 Eastman Ko    60.56     72.50    19.71%
 12/31/97  289 Int'l Pape    43.13     42.50    -1.45%
 12/31/97  291 Union Carb    42.94     41.50    -3.35%


    Rec'd   #  Security     In At     Value    Change

 12/31/97  276 Philip Mor 12489.00  15024.75  $2535.75
 12/31/97  206 Eastman Ko 12475.88  14935.00  $2459.13
 12/31/97  289 Int'l Pape 12463.13  12282.50  -$180.63
 12/31/97  291 Union Carb 12494.81  12076.50  -$418.31


               Dividends Paid YTD  $1092.81
                            TOTAL  $55411.56

</FOOLISH FOUR PORTFOLIO>