<FOOLISH FOUR PORTFOLIO>
Performance Update
And a CEO "in denial"?
by Chris Rugaber (TMF [email protected])
Alexandria, VA (June 10, 1999) -- As of Wednesday night's close, our real-money Foolish Four portfolio was up 27.71% since inception, more than ten points ahead of the Dow, and almost twenty points ahead of the Standard & Poor's 500 Index. This portfolio has done almost as well this year as the Rule Breaker, returning 25.84% to the Breaker Port's 25.87%.
The difference in our portfolio's returns "this year" and "since inception" results from the fact that the Foolish Four portfolio began on December 24, 1998, rather than the first trading day of this year. The gap between the two numbers essentially reflects the results of that last week in 1998.
Despite the two-percentage point benefit this portfolio received by buying its Foolish Four stocks in late December, rather than on the first trading day of 1999, investors should feel free to start anytime. For example, I didn't make my Foolish Four purchases until January 8th, when I bought the Foolish Four stocks based on the closing prices from the day before. They turned out to be the same as the stocks in our online portfolio, albeit at higher prices.
As of yesterday's close my Foolish Four return is 18.36%, compared to the S&P 500's 3.42% (both these numbers were easily available from the portfolio page that you can set up at the Fool). The Dow, meanwhile, returned 10.86%. My returns don't include dividends, by the way, while the Foolish Four portfolio's do. The returns of my portfolio may not be as good as our real-money portfolio's, but they're still way ahead of both market indices.
When will I re-balance? Probably in mid-January next year, as long as I continue to get decent returns. If I have a losing year, and therefore don't have short-term capital gains to worry about, I might rebalance in mid-December, which, as we've said before, is a better time, on average, to do so.
Nevertheless, what about those who begin at other times, like me, and may even end up with different stocks? Let's briefly consider what an alternative Foolish Four portfolio might look like. For example, let's assume you purchased equal dollar amounts of the Foolish Four stocks on February 2nd this year, a date I picked because only two of the Foolish Four stocks that day were the same as those in our real-money portfolio. Based on February 1st's closing prices, you would have bought Caterpillar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %>, DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %>, International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %>, and Chevron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHV)") else Response.Write("(NYSE: CHV)") end if %>. (Cat and IP are in our real-money portfolio, tracked at the bottom of this page.)
A $10,000 portfolio distributed more-or-less evenly among these four stocks would have returned approximately 32.25% by Wednesday night's close, against the S&P's 3.58%. Pretty impressive. Of course, this is just one possibility, but it serves as a simple example that there is no magic day or time to start the Foolish Four, and it demonstrates that Foolish Four portfolios with different stocks can do similarly well.
It's easy to track alternative Foolish Four portfolios. Pick a day, click into our archives on the web, click on the "D" next to each day's article, and you'll find the thirty Dow stocks ranked in order of their RP ratio as of that day. Use the share price data on that page to set up an alternate portfolio. Unfortunately, we only have this data archived for 1999.
Anyway, back to our Foolish Four stocks. In the news, Caterpillar announced yesterday that it will increase its quarterly dividend by 8.3%, from $0.30 a share to $0.325 a share. This is the first dividend increase for the company since its June 1998 jump from $0.25 to $0.30, and the annual dividend is now more than twice as much as it was in 1995. The dividend will be payable on August 20th to shareholders of record on July 20th. For more information on dividends, check out Ann Coleman's series starting April 19, 1999 in our archives.
While not earthshaking, Caterpillar's commitment to its dividend is good, since dividends are critical to Dow investing. Unfortunately, dividends are taxable, unlike share repurchases, which is another way a company can reward current shareholders, but for those in a tax-sheltered account this is no big deal. Moreover, Caterpillar is repurchasing its shares as well.
Meanwhile, the current issue of Fortune includes an article titled "CEOs in Denial," whom it describes as "high-profile chiefs who once basked in high praise and good press. They... lead companies with well-known brands, once secure market positions, and once golden reputations. They have tasted success, but now they are in clear and present danger of becoming tomorrow's case study in executive decline. And they may be the last to realize it." (Add foreboding mood music here.) Wow, I'd hate to own stock in a company run by someone like that! Oops, looks like I do, since one of the "CEOs in Denial," according to Fortune, is none other than Desi DeSimone, CEO of Foolish Four company 3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>.
The article discussed "CEO Denial" generally, and only offers DeSimone as a brief example, saying that his "problem" is that he "has frequently missed profit targets," and that "new product flow is like 'waiting for Godot,' says one analyst." Well, presumably that's why 3M is a Foolish Four stock. Certainly if Mr. DeSimone were to step down or get the boot, that would provide an excellent opportunity for a turnaround.
For better or worse, the article seems to think his departure is unlikely. Either way, I hope to provide a more useful look at 3M in a couple of weeks. Until then, Fool on!
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Stock Change Last
--------------------
CAT + 3/8 61.88
JPM -2 5/8 127.25
MMM - 3/16 87.06
IP +1 11/16 53.75
Day Month Year History
Day Month Year History
FOOL-4 +0.39% 3.67% 25.88% 27.75%
DJIA -0.65% 0.58% 16.07% 15.61%
S&P 500 -1.19% 0.09% 6.32% 6.57%
NASDAQ -1.38% 0.57% 13.31% 14.87%
Rec'd # Security In At Now Change
12/24/98 24 Caterpillar 43.08 61.88 43.63%
12/24/98 22 Int'l Paper 43.55 53.75 23.42%
12/24/98 9 JP Morgan 105.51 127.25 20.60%
12/24/98 14 3M 73.57 87.06 18.34%
Rec'd # Security In At Value Change
12/24/98 24 Caterpillar 1034.00 1485.00 $451.00
12/24/98 22 Int'l Paper 958.12 1182.50 $224.38
12/24/98 9 JP Morgan 949.62 1145.25 $195.63
12/24/98 14 3M 1030.00 1218.88 $188.88
Dividends Received $49.99
Cash $28.26
TOTAL $5109.88