Foolish Four Portfolio
By
Fresh Numbers
On Foolish Four performance
RESTON, VA (Sept. 21, 1999) -- We just put up a batch of new numbers in our Statistics Center and they are pretty impressive. I just have to share them with you, even if you hate numbers. (If you hate numbers, think of them as money.)
Speaking of money, let's look at the Cumulative Returns page first. This page is set up to compare the Foolish Four with the Dow and the S&P 500. (Since the Foolish Four returns always include dividends, both indices include dividends as well -- fair is fair.)
What we have done with this table is show, as closely as we can, the cumulative return, in dollar and percentage terms, that an investor would have received had they invested $10,000 in any of these strategies and just let it ride for various periods. We set it up this way as a direct parallel to the old "$10,000 becomes..." routine so loved by mutual funds.
If you look at the numbers, the first thing that should hit you is that over the past one-, three-, and five-year periods, you would have been better off in an S&P index fund. It's not news that the S&P has been on a tear the last few years, beating the Dow by over 10% in each of the last two years.
This year we seem to be seeing a reversion to a more normal relationship between the two. If you look at the long-term returns, you can see that the S&P and Dow performed almost identically. But they frequently diverge for a year or two (which you will be able to see when we get to the next page).
The next thing you will probably notice is the huge difference between the dollar value of the Foolish Four and the dollar return for the indices as you look at longer time periods. Will that hold true for the future as well? Sorry, we've got no guarantees here. The strategy is based on rational and easily understood investing principles and has a great track record for long-term performance. That's closer to a guarantee than you will get with most mutual funds.
For those who want to look beyond the money, we have the Performance History of the Foolish Four, 1961-1998. This table shows the year-by-year returns for the current version of the Foolish Four (F4.2), and the two-stock (RP2) and the five-stock (RP5) versions of the Foolish Four, with the Dow and S&P 500 included for comparison. We also include 5-, 10-, and 20-year rolling returns. (It's a rather long page.)
If you want to really understand how the Foolish Four works, take some time to study and compare the yearly returns with the rolling returns. The yearly returns are all over the map, but the rolling returns tables demonstrate that no matter when you start, the longer you follow the strategy, the more your return smoothes out and the closer it comes to the average.
We also ran the same numbers for some other popular Dow strategies, like the High Yield 10 (the Dogs of the Dow), the High Yield 5, Beating the Dow, and our two earlier versions of the Foolish Four, now designated Foolish 4.0 and 4.1. Those are reported in Performance History of Other Dow Strategies, 1961 - 1998. Once again, the longer you hold, the closer your return comes to the average.
I know what you are going to ask -- can you play with these numbers yourself? Well, sure! They were published as a simple text file. All you have to do is copy the portion you want into a word processing program, use the Search and Replace feature to change multiple spaces into a single space, then change that last space to a comma. Save it as "text only" and you can import the file into any spreadsheet.
I haven't mentioned the Foolish Four History file that is also in the Statistics Center. It's been up for a while and has already been discussed. If you haven't looked at it, you may find it worth your time as well. The Foolish Four History file shows the exact stocks selected by the strategy each year and the returns for each stock. It's an eye-opener for folks who expect that every stock selected should be a winner. (Note: This data is in a table and will copy and paste directly to Excel if you use a recent version of the Internet Explorer browser.)
Even if you aren't just itching to put all this data in a spreadsheet and play with it, it's really worth taking a close look at, especially if you tend to worry about every little up and down of the market. The long-term approach is very comforting.
Fool on and prosper!