<FOOLISH FOUR PORTFOLIO>

What Foolish Four?
Oh, yeah, those stocks we're following

by Ann Coleman (TMF [email protected])

Alexandria, VA (February 5, 1999) -- I haven't been talking much about our portfolio lately. This is a conscious decision -- a philosophical statement, if you will. The Foolish Four is the set-and-forget portfolio, remember? Buy it, wait a year, renew it, and forget it again. So dwelling at length on day-to-day price movements is not only boring, it's pointless.

Still, we can certainly take a peak every so often to see how our babies doing. Yesterday, Chris Rugaber took a look at 3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %> and Caterpillar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> and the market's reaction (overreaction?) to their decreased earnings announcements. Interestingly, today both stocks rose in the face of a down market and put our Foolish portfolio up 2.4%.

Darn it. When I said on Wednesday that I would be writing about portfolio performance today, I thought I would be writing about the portfolio when it was down. There was a terrific rise right around the first of the year, probably due to Unit Investment Trusts buying into the Dogs of the Dow. I seem to recall mentioning the portfolio rather more often then, so I was trying to compensate. Thanks a lot, Chris.

Well, let's pretend the portfolio wasn't up today. Would that worry me? Not a bit. The first lesson we learned when we started watching this portfolio in real time -- as opposed to looking at the backtests, which just take snapshots of prices once a year -- is that you can't expect it to be fast out of the gate.

The beginning-of-the-year rise was one of those short-term blips that the market is prone to. They may be driven by a short-term increase in demand (from UITs or other Dogs of the Dow investors) or hype (like a stock split announcement), but such blips are meaningless to any kind of long-term investor. What drives this strategy is a turnaround in the fundamental earning power of these companies. That doesn't happen overnight. The rise for CAT and MMM yesterday and again today may be the start of a rebound, or it may be another blip.

Remember, with this strategy we are playing the odds. That's a somewhat alarming way to put it for a Foolish investor, but it's true. We've identified companies that are likely turnaround candidates, and we believe, based on past history, that they will turn around within a year or two. There is nothing in that scenario that says they will turn around as soon as they get on the list.

In fact, it's rather unlikely that the timing will be so fortuitous. These are BIG companies. They don't turn on a dime. Think battleship, not speedboat. Once they do get turned around, though, they tend to keep going in that direction for a while.

Fool on and prosper!

Today's Stock Lists | 1998 Dow Returns

02/05/99 Close
Stock  Change   Last
--------------------
CAT  +2  1/8   46.25
JPM  +1  1/4   102.13
MMM  +1 11/16  78.19
IP   +   1/2   44.69

                   Day   Month    Year   History
        FOOL-4   +2.40%   4.04%   1.86%   3.38%
        DJIA     -0.00%  -0.58%   1.49%   1.08%
        S&P 500  -0.73%  -3.14%   1.15%   1.39%
        NASDAQ   -1.51%  -5.28%   8.25%   9.74%

    Rec'd   #  Security     In At       Now    Change

 12/24/98   24 Caterpillar   43.08     46.25     7.36%
 12/24/98   14 3M            73.57     78.19     6.28%
 12/24/98   22 Int'l Paper   43.55     44.69     2.61%
 12/24/98    9 JP Morgan    105.51    102.13    -3.21%


    Rec'd   #  Security     In At     Value    Change

 12/24/98   24 Caterpillar 1034.00   1110.00    $76.00
 12/24/98   14 3M          1030.00   1094.63    $64.63
 12/24/98   22 Int'l Paper  958.12    983.13    $25.01
 12/24/98    9 JP Morgan    949.62    919.13   -$30.50


                             Cash     $28.26
                            TOTAL   $4135.14

</FOOLISH FOUR PORTFOLIO>