The Daily Dow
Thursday, May 29, 1997
by Robert Sheard (TMF Sheard)
LEXINGTON, KY. (May 29, 1997) -- For those of you who aren't glued to CNBC in the mornings (for the rest of us, a new support group is being formed), let me bring up a topic discussed this morning by James O'Shaughnessy.
If you don't know Jim's work, he's the author of two fine books that are near and dear to my way of thinking, and have influenced my own research a number of ways (Invest Like the Best and What Works on Wall Street).
Jim referred to an academic study that supported his long-held contention (which I share) that if you simply choose a proven strategy and don't deviate from it, you're better off in the long run than trying to finesse it throughout the year, tinkering with it on a stock-by-stock basis. The study looked at a number of professional managers' records and found that if they had simply stuck with their original portfolios at the beginning of the year, they would have invariably outperformed their actual actively managed returns.
In other words, leave well enough alone and keep it simple (and any other cliches I can drag in here to keep you from hurting yourself by letting emotions creep in and ruin a good thing).
We will always get questions concerning individual stocks that join the Dow Approach group. ("But how can you buy International Paper at 40 times earnings?" I heard in December. It's now up 20% or so for the year. "How can you buy so-and-so? Isn't it facing troubles now?") But I try not to focus on the individual stocks that much and look at the group as a single unit that works together.
Our Dow Approach is a contrarian approach; it's specifically designed to
pick up stocks no one else wants, so all of the stocks on the list probably
"look awful" to someone somewhere. But the approach has a track record nearly
three-quarters of a century old. (Quite some time ago here in the Fool, Jim
O'Shaughnessy himself posted the returns back to the 1920s for the basic
Dow Dogs approach. It's buried somewhere in the archives if you want to go
hunting.) In other words, the Dow Approach works and it's worked for decades.
So beware that you mess with it at your own peril. Keep it simple!
(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. ________________________________
Stock Change Last -------------------- T - 1/2 36.38 GM - 7/8 56.88 CHV + 3/4 70.88 MMM - 3/8 92.63
Day Month Year FOOL-4 -0.65% 5.06% 0.35% DJIA -0.37% 4.58% 13.68% S&P 500 -0.37% 5.33% 13.95% NASDAQ -0.51% 11.29% 8.68% Rec'd # Security In At Now Change 1/2/97 120 3M 83.00 92.63 11.60% 1/2/97 153 Chevron 65.00 70.88 9.04% 1/2/97 179 Gen. Motor 55.75 56.88 2.02% 1/2/97 479 AT&T 41.75 36.38 -12.87% Rec'd # Security In At Value Change 1/2/97 120 3M 9960.00 11115.00 $1155.00 1/2/97 153 Chevron 9945.00 10843.88 $898.88 1/2/97 179 Gen. Motor 9979.25 10180.63 $201.38 1/2/97 479 AT&T 19998.25 17423.63 -$2574.63 CASH $609.53 TOTAL $50172.66