The Motley Fool: The Foolish Workshop, Jan. 6, 1999

<FOOLISH WORKSHOP>

It Was a Very Good Year

Baltimore, MD (Jan. 6, 1999) -- Vince Lombardi said, "If winning isn't everything, why do they keep score?" I'm not sure winning is everything, but here in the Workshop we sure do like to keep score. Hey, the Beating the S&P (BSP) Portfolio did win in 1998 (barely), so let's pop open another bottle of that Dom Perignon....

Here are the final returns for 1998:

S & P 500 Index        +28.1%
Dow Jones
   Industrial Average  +16.1%
Nasdaq                 +39.6%

Beating the Dow (1-5)  +14.3%
Foolish 4              +12.6%
RP4 Variation          +17.8%
Beating the S&P (2-6)  +28.9%

BSP Variations:
BSP (1-5)    +41.6%
BSP (2-5)    +33.8%
BSP/RP4      +41.7%

BSP 1  Chrysler*       +72.8%
BSP 2  Anheuser Busch  +51.6%
BSP 3  Ford**          +70.3%
BSP 4  Kimberly-Clark  +12.6%
BSP 5  Texaco           +0.8%
BSP 6  Emerson Electric +9.4%

*Merged in November into DaimlerChrysler <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DCX)") else Response.Write("(NYSE: DCX)") end if %>
**Includes the March spin-off of Associates First Capital <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AFS)") else Response.Write("(NYSE: AFS)") end if %>

A few comments:

Overall, I'd say 1998 was a remarkable year for BSP, especially when placed in context. This year the large-cap technology stocks led the way, as demonstrated best by the soaring Nasdaq with its preponderance of Microsofts, Intels, and Ciscos. The large-cap non-tech stocks, probably best represented by the Dow 30, significantly underperformed the S&P 500. Even in this investment milieu, the BSP stocks more than held their own and outperformed all the major Dow Dividend variations. BSP also bested over 90% of equity mutual funds this year, but what else is new? Keep in mind that high yield strategies like BSP and the Dow Dividend approaches tend to shine even more when markets are not soaring.

One would have been hard pressed to choose the future BSP standout performers at the beginning of the year. Two of 1998's highfliers (Chrysler and Anheuser Busch) had very mediocre returns the prior year, each losing to the S&P 500 by over 20 percentage points in 1997. Ford, bucking the trend, has had two excellent years in a row. In contrast, the two big winners from the 1997 BSP Portfolio, Kellogg <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: K)") else Response.Write("(NYSE: K)") end if %> and Sara Lee <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLE)") else Response.Write("(NYSE: SLE)") end if %>, weren't part of the BSP portfolios at the start of 1998. This proved fortunate, since Kellogg lost about 30% this year and Sara Lee essentially ran in circles.

The pace of mergers, acquisitions, and spin-offs for the BSP 30 stocks was truly dizzying. Chrysler merged with Daimler-Benz, MCI with WorldCom, Citicorp with Travelers, BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> with Nations Bank, and Amoco with British Petroleum. Soon Mobil <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOB)") else Response.Write("(NYSE: MOB)") end if %> likely will join with Exxon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %>. Not to be left in the corporate dustbin, the BSP 30 stocks change annually to reflect the biggest and the best American success stories.

Most of the BSP variants produced even higher returns this year than BSP 2-6. When BSP was backtested about three years ago, the lowest-priced stock of the high yielders was clearly the underperformer. Research on the Dow Dividend approaches at the time indicated that the lowest-priced stock was a loser in general, so we dropped the BSP 1 stock. This approach caused the Official BSP 2-6 Portfolio to miss Ford's 56% gain in 1997 and also Chrysler's 73% gain this year. Note that the RP variation of BSP performed very well this year. You can bet we'll be reassessing some of these variants in the near future.

Finally, let's all keep in mind the long-term perspective. One year of returns doesn't really mean a thing. We now have 12 years of backtesting under our belt, which is certainly longer than the life span of most mutual funds out there. BSP has either beaten or tied the surging S&P 500 for six consecutive years now and has outperformed the index by about three percentage points on average each year. Not bad for a strategy that takes less than an hour annually to implement! Will the streak continue for 1999? Not even the shadow knows.

Next week we'll take a look at the new BSP Portfolio stocks for the year. Best of luck to Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %>, Kimberly-Clark, Campbell Soup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %>, Ford, and BankAmerica!

******
Beating the S&P year to date returns (as of 01-05-99):

Schlumberger     +3.0%
Kimberly-Clark   -3.0%
Campbell Soup    +0.7%
Ford             +1.4%
BankAmerica      +2.0%

Beating the S&P   +0.8%
S&P 500           +1.3%

Compound Annual Growth Rate
from 1-2-87:

Beating the S&P  +20.8%
S&P 500          +17.8%

$10,000 invested on 1-2-87 now equals:

Beating the S&P    $96,200   
S&P 500            $71,700

Check out the latest file updates for the Workshop:
New Rankings | Workshop Returns | New Database