By
Not only had the Queen discovered that U.S. Steel would underperform the S&P 500 each and every year from 1967 to 1972, that magic mirror also indicated that the stock would remain a Foolish Four pick for seven consecutive years, from 1967 to 1973. Yikes!
This Queen also had a most annoying habit of gazing into her magic mirror, which would answer all sorts of questions. And, as we'll see, the question "Who's the fairest of them all?" was only a warm-up.
Another little-known fact, overlooked entirely by the Brothers Grimm, was that our wicked Queen enjoyed dabbling in the stock market almost as much as she liked torturing innocent relatives. In fact, over the years she'd come to think of that magic mirror as her own personal financial adviser.
And what a magical mirror it was! This looking glass could display the future returns for a stock for up to five years, accompanied by the comparison returns of the S&P 500 Index, the Queen's Foolish benchmark.
Yes, the Queen was an ardent fan of The Motley Fool. In fact, the Foolish Four Portfolio became the cornerstone of her investment strategy. But, armed with her wonderful, magical mirror, she aimed to improve on even the Foolish Four's superb long-term results.
As it turns out, that phrase "once upon a time" was just a convenient literary term we used to start our tale. Our fable actually begins at a very specific date, New Year's Day, 1968.
On this particular New Year's Day in 1968, The Foolish Four had just finished a rather profitable year, returning 34.1% for 1967, compared with 24.0% for the S&P 500. But was our Queen satisfied with these results? Evil monarchs never are, it seems.
You see, there was one particular Foolish Four stock that irked this Queen to no end. U.S. Steel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: X)") else Response.Write("(NYSE: X)") end if %> had a fairly disappointing year in 1967, underperforming the S&P 500 by over eight percentage points (returning 15.7% compared to the S&P's 24.0%). Not only did U.S. Steel lose out to the S&P 500, it underperformed her other three Foolish Four stocks by almost 25 percentage points. The pain, the pain!
But a worse agony was yet to come. This U.S. Steel was to remain in the Foolish Four for yet another year as her renewal date approached. Why should she, a winner among winners, stick with this loser? The time had come to consult her magic mirror.
"Mirror, mirror, on the wall, how will U.S. Steel's performance compare to all?"
Miraculously, numbers began to form on the mirror's shiny surface...
Annual Returns (%)
Year U.S. Steel S&P 500
1968 9.0 11.1
1969 -14.6 -8.5
1970 -0.3 4.0
1971 0.8 14.3
1972 7.3 19.0
The wicked Queen would have none of this. Despite her fondness for mechanical investing strategies (which left her more time to devise outlandish taxation schemes for the peasants), she just couldn't see investing in a company that would be a loser, year after year. Our malicious monarch decided to tinker a bit, certain that better results were sure to follow.
Instead of blindly investing in the Foolish Four companies, the Queen swore to renounce U.S. Steel each and every year it appeared on the Foolish Four list. Instead, she would invest the money she'd normally put into U.S. Steel into a S&P 500 Index mutual fund.
The Queen's wicked cackles echoed across the kingdom's mountaintops and valleys. She finally found a way to beat the system!
[Next Wednesday our tale continues, as we discover just what the lovely fugitive Snow White and those cute Dwarfs of hers were up to. Hint: They use discount brokers!]
Beating the S&P year-to-date returns
(as of 01-25-00):
Bank One <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %> -8.0%
PepsiCo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> -2.7%
Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> -6.0%
Bank of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> -10.1%
Fannie Mae <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNM)") else Response.Write("(NYSE: FNM)") end if %> -11.9%
Beating the S&P -7.7%
Standard & Poor's 500 Index -4.0%
Compound Annual Growth Rate from 1-2-87:
Beating the S&P +23.5%
S&P 500 +17.5%
$10,000 invested on 1-2-87 now equals:
Beating the S&P $154,900
S&P 500 $81,700