<FOOLISH FOUR PORTFOLIO>

Adopting the BSP
And a new Foolish Four writer

by Ann Coleman (TMF AnnC)

Reston, VA (May 25, 1999) -- If laughter really is the best medicine, I must be very healthy right now. I've been having a wonderful time with the Foolish Four Invitational contest. Luckily for me and the entrants, I've recruited some judging help in the person of one of our editors, Jennifer Silber, whose Foolish screen name is -- get this -- TMF Amused.

We got some good stuff, here. (But really, folks, thanks loads, but you can spare me any future Pfizer/Viagra jokes... unless they are actually... how can I put it... funny.) Before we start on the real topic of this column, here's a sort of non-entry from our old friend Gary Grinaker of Bismarck, North Dakota.

I thought of merging Time Warner with Waste Management.

Sorry, never mind. I just realized that would be a waste of time.

Gary the PhotoPhool

OK, OK, serious stuff now. I'd like to announce that tomorrow a new writer will be moving into the Foolish Four virtual office, joining Chris Rugaber and myself. Ethan Haskel has been writing about his Beating the S&P strategy (BSP) in our Foolish Workshop area for some time, but I've wanted to steal him ever since I read his essay On the Proper Use of Lampposts last year. Finally, no one was looking, and I snagged him.

Ethan will be writing about whatever strikes his well-informed fancy and will also be keeping us up-to-data on how the BSP strategy is doing. If you aren't familiar with Beating the S&P, it is a strategy that uses the same criteria that we use to select Dow Stocks (High Yield/Low Price or the RP method) for the Foolish Four, but it applies the criteria to a list of alternative stocks, the S&P 30.

While the BPS strategy has not been backtested as thoroughly as our Dow strategies, it has shown excellent results since 1987. Getting the data to test this strategy is something I strongly hope to do in the near future. Don't expect wonders right away, though. Once you go back beyond the mid '80s, most of the data is not in electronic form, and all of it needs to be cross-checked and verified. Tracking down special dividends, mergers, spinoffs, etc., can be maddening, frustrating, and very time consuming. (Want to see the guardian of our Dow database TMF Sandy, a.k.a. Bob Price, go catatonic? Just whisper "AT&T break-up" in his ear.)

Still, having a long-term, historical S&P 30 database would be very valuable for two reasons: we can compare it with how the Dow-based strategies have done in the past, and the data would provide confirmation (or not) of the validity of the Foolish Four strategy.

What's in it for you? Having ready access to the Beating the S&P strategy may provide Foolish Four investors with a means of diversifying their investments and smoothing out the returns. For example, last year, the Standard & Poor's 500 Index whomped both the Dow and all of the Dow Strategies, while the RP4 version of Beating the S&P (the same strategy we are using to pick our Foolish Four this year) turned in a return of 41.7%. Of course, that's only one year.

Now this is only my opinion and it isn't supported by any numbers, but I like the idea of diversifying into a strategy that tends to zig when the Foolish Four zags. Whether or not BSP actually does that consistently, of course, is one of the things I would like to test. Having another strategy in our pockets can also help us avoid the Popularity problem that may or may not affect the High Yield Dow stocks.

So, while we don't have the numbers to proclaim BSP the eighth wonder of the investing world, for those who understand its limitations, it might be a good way to diversify one's Dow holdings while sticking with strong, relatively safe, large-cap stocks. And, of course, it doubles the number of companies we can have fun with. Take Ethan's entry to our contest:

What do you get when you merge Anheuser Busch and General Electric?

Bud Light!

Fool on and prosper!

Today's Stock Lists | 1999 Dow Returns

05/25/99 Close

Stock Change Last -------------------- CAT - 1/2 58.69 JPM -3 11/16 133.06 MMM - 3/16 89.63 IP - 5/8 54.94

Day Month Year History FOOL-4 -1.19% -2.05% 26.30% 28.18% DJIA -1.16% -2.39% 15.09% 14.63% S&P 500 -1.70% -3.80% 4.81% 5.06% NASDAQ -2.97% -6.37% 8.58% 10.07% Rec'd # Security In At Now Change 12/24/98 24 Caterpillar 43.08 58.69 36.23% 12/24/98 22 Int'l Paper 43.55 54.94 26.15% 12/24/98 9 JP Morgan 105.51 133.06 26.11% 12/24/98 14 3M 73.57 89.63 21.82% Rec'd # Security In At Value Change 12/24/98 24 Caterpillar 1034.00 1408.50 $374.50 12/24/98 22 Int'l Paper 958.12 1208.63 $250.51 12/24/98 9 JP Morgan 949.62 1197.56 $247.94 12/24/98 14 3M 1030.00 1254.75 $224.75 Dividends Received $29.45 Cash $28.26 TOTAL $5127.15