FOOLISH FOUR PORTFOLIO

Thursday, December 18, 1997


The Daily Dow
by Robert Sheard

LEXINGTON, KY. (Dec. 18, 1997) -- Be a long-term investor. That's one of the basic Foolish tenets. Yet we teach readers that their first step into stocks should be an approach that requires them to trade stocks once a year. A new reader of our forum recently wrote me asking how we reconcile these two seemingly opposing bits of Foolishness.

Today, then, let me define what it is that we mean by "long-term investing." There are very few investors who can generate terrific returns year after year by simply buying a collection of stocks and then sitting on them forever. Warren Buffett does it perhaps, but frankly, it takes a good measure of luck, genius, and good connections to pull that off. I'm no Warren Buffett, and I suspect you're not either.

Stocks go through cycles, coming in and out of favor with investors as business conditions and competition changes. To pick a group of stocks that will far surpass the market over the next two or three decades is extremely difficult. Sure, anyone can look back wistfully and wonder what they'd be worth if they'd only bought Microsoft and Intel fifteen years ago and held on. But that's not practical. Tell me who the Microsofts and Intels are for the next fifteen or twenty years and you've got something.

So we advocate long-term investing in the sense that you're always in stocks for the long-term, but not necessarily the same stocks always. You will rotate in and out as changes in the economy and the companies' fortunes dictate. Now we're not talking about day trading, where you're always in stocks, but never the same ones for more than a few hours or days. We believe in investing as opposed to short-term speculating, but at the same time, we don't believe in a wedded commitment to any one stock for life.

The pole we set up opposite long-term investing is "market timing," where one tries to predict the short-term future of the market and jumps back and forth between bonds, cash, gold, whatever, and stocks. We believe, despite stories to the contrary, that such a plan is futile and destined to under-perform compared to the investor who stays fully invested in the best stocks available at any given time.

So the contradiction between a rotational strategy like the Dow Approach, where you re-evaluate your stocks annually, and the goal of being long-term investors is really no contradiction at all.

Rankings note: Once again, Sears (NYSE: S) and DuPont (NYSE: DD) have swapped places on the high-yield list. For complete rankings information each evening, check out our Current Dow Order file in the Dow Statistics Center. Fool on!


TODAY'S NUMBERS
Stock  Change   Last
--------------------
T    +1  1/4   59.19
GM   -   5/8   63.56
CHV  -  13/16  74.06
MMM  +1  1/16  85.94
           
                  Day   Month    Year
        FOOL-4   +0.79%  -0.41%  25.56%
        DJIA     -1.39%   0.30%  21.68%
        S&P 500  -1.06%  -0.01%  28.97%
        NASDAQ   -1.56%  -4.83%  17.98%

    Rec'd   #  Security     In At       Now    Change

   1/2/97  479 AT&T          41.75     59.19    41.77%
   1/2/97  179 Gen. Motor    55.75     63.56    14.01%
   1/2/97  153 Chevron       65.00     74.06    13.94%
   1/2/97  120 3M            83.00     85.94     3.54%


    Rec'd   #  Security     In At     Value    Change

   1/2/97  479 AT&T       19998.25  28350.81  $8352.56
   1/2/97  179 Gen. Motor  9979.25  11377.69  $1398.44
   1/2/97  153 Chevron     9945.00  11331.56  $1386.56
   1/2/97  120 3M          9960.00  10312.50   $352.50


                             CASH   $1409.35
                            TOTAL  $62781.91