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The beginning of a year is like a doorway, and this age-old symbolism apparently goes deep into our culture. In January we make resolutions (which we are going to keep this year) and are treated to such treats as the Best and Worst Dressed lists, Best and Worst (Blank) of Last Year (Century, Millennium) lists, and Oscar nominations.
OK, very amusing, but what's really important here?
A popular New Year's resolution is "getting your finances in order." Perhaps you made such a resolution a few weeks ago and are starting to feel it slip about now, hmmmm? You're not alone. I've got a pile of papers several inches thick that I WILL get filed by the end of the month.
We Fools do try to help. Have you seen Fool Year's Resolutions? If your resolve is weakening, hop over there and get a shot of inspiration.
Meanwhile, let's look back a bit and review what we are doing here in the Foolish Four. Our portfolio is based on the premise that a proven and tested mechanical stock-picking system can often perform better over the long run than selecting stocks on your own. It's especially applicable to beginning investors, but many experienced and, yes, wealthy investors seem to like it because it offers a hedge against more aggressive investing tactics. Our original real-money portfolio, Rule Breaker, has always used a Foolish Four strategy as an anchor for its more high-flying stocks.
A mechanical strategy like the Foolish Four is good for beginners because it lets you ease into the market and concentrate on the mechanics of buying and selling without also worrying about stock picking. Sometimes the little things can get you. I remember buying the same stock twice in one hour because I wasn't familiar with the online ordering process. Unfortunately, I didn't have the cash in my account to cover that second order, and several conversations with the brokerage ensued. Just getting familiar with the process is a major hurdle.
Of course, we like the Foolish Four best because it has a long-term history of beating the market. Right now, though, the Foolish Four is a strategy in transition. Recent changes to the Dow have altered the nature of that list somewhat, reducing the importance of strong dividends as a criteria for being a Dow stock. Although it has only become obvious recently, this trend has been going on since 1991, and at this point, I'm not so sure that the Dow is the best pond for us to be fishing in. A list of major blue-chip stocks that pay significant dividends, whether they are on the Dow or not, might provide more consistent returns. We are checking out that possibility.
In the meantime, our RP formula, which selects stocks with a combination of high dividend yield and low price, is still picking good stocks. Returns haven't been spectacular for the last several years, possibly because so much money is chasing the Internet and tech high-flyers. But our annualized return of 22% is certainly beating the S&P 500's 17% over the time period since the portfolio was started. (But is it beating the Dow? Well, no, it's about two points behind. And that's what's got me worried. See Today's Numbers below.)
If you are new to Foolish Four investing or just need a refresher on the basics of the strategy, we've just updated The Foolish Four Explained. Click on over there for all of the gory strategy details. You might want to print it out and flop on the couch to read it. It's long and lends itself to underlining and margin notes.
Looking forward, we have expectations of another good year with our four stocks and the expectation of some exciting research into alternative strategies. I hope you will stick around for the fun.
Fool on and prosper!