By Ethan Haskel (TMF Cormend)
May 18, 2000

[We're giving Ethan a break today and running an updated article that was originally published on January 3, 1997. Sometimes being a cardiologist means other things take priority.]

For the last decade or so there has been a raging debate in cardiology circles about which drug is the most appropriate for treating patients who arrive in hospital emergency rooms in the throes of a heart attack. As a practicing cardiologist and former researcher in the field, I've been an active player in this controversy for many years and, believe it or not, I think I can somehow draw an analogy to investing. (If I can't, I'm in big trouble; I'll just crawl back under my desk and let's forget we ever started this.)

You see, streptokinase and t-PA are drugs that are prescribed to open blocked heart arteries, restoring blood flow during a heart attack. There are many theoretical reasons to choose one drug over the other; their mechanisms of action are slightly different. Certainly there is no debate whatsoever concerning the effectiveness of the drugs themselves. When used properly, they cut the mortality rate for heart attack patients by approximately 25%. Not until a large randomized clinical trial comparing the two was completed did doctors have much direct evidence to choose one drug over the other.

In this direct comparison study, patients treated with t-PA fared slightly better than those given streptokinase. Of all the randomized patients, only 6.3% treated with t-PA died compared with 7.4% given streptokinase. Was this relatively small difference in results enough to justify the extra $1500 or so price tag for t-PA? Well, needless to say, the debate still rages.

(OK, Cormend, enough with this medical babble. How is this going to help me make some money?)

The streptokinase/t-PA controversy reminds me a lot of some of the current discussion regarding the Foolish Four and Beating the S&P. (Yeah, right.)

Much of the debate on the Foolish Four discussion board concerns the validity of one variation versus another. There's good ol' plain vanilla Foolish Four. But maybe the RP4+ or the RP2, or BPS or BSP-RP, or one of the older methods is just as good. After all, some strategies have returned 25% over the long run while others gained only 20%. Over the last 13 years BSP has beaten the Foolish Four, but only by about 1%. Is that significant? And what about the standard deviation and the Sharpe Ratio?

Don't get me wrong. I relish the theoretical discussions of these approaches just as much as the next Fool. I also enjoy discussing the superiority of t-PA over streptokinase. But I hope investors don't get so confused or thrown off course during these discourses that they miss the main point: All these strategies, like both heart drugs, are so superior to most anything out there that using any one of them should provide huge benefits in the long run, even if it might not be the exact optimal strategy.

It's long been known that a significant percentage of patients having heart attacks who are eligible for either streptokinase or t-PA receive neither or receive them with unnecessary delays. That's simply bad medicine.

Similarly, if one gets too caught up in the minutiae of high-yield investment theory, one just might miss the boat entirely: stock purchases might be limited, delayed, or dropped altogether in search of that elusive, perfect variation.

And that's simply bad investing.

Beating the S&P year-to-date returns

(as of 05-17-00):

Bank One <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %>           -4.4%
PepsiCo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %>           +11.0%
Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %>       +0.1%
Bank of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %>    -0.7%
Fannie Mae <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNM)") else Response.Write("(NYSE: FNM)") end if %>         +0.3%
Beating the S&P                 +1.2%
Standard & Poor's 500 Index     -1.5%

Compound Annual Growth Rate from 1-2-87:
Beating the S&P                +23.7%
S&P 500                        +17.3%

$10,000 invested on 1-2-87 now equals:
Beating the S&P              $169,900
S&P 500                       $84,200