Monday, December 08, 1997

The Daily Dow
by Robert Sheard

LEXINGTON, KY. (Dec. 8, 1997) -- When the current Dow rankings get compressed, with several stocks bunched tightly surrounding three or four relative positions on our top ten list, it's not at all unusual for them to swap positions frequently -- even daily.

Readers seeing these almost daily changes in the rankings often worry that a stock they've just purchased is now in a different position on the list (or even off the list altogether). And the first question they ask is, "Did I make a mistake and should I sell the stock I just bought and replace it with the new one?"

My answer is always No and No. These rankings are simply not that precise and, in fact, we view all ten high-yield stocks as theoretical good candidates for the coming year. The further screens based on price are just a little focusing effort. In any given year, there's no way of telling which of the positions will produce the best returns, and trying to fine-tune our expectations on a year-to-year basis is unlikely to be successful.

Think of the Dow Approach as a cheap instamatic camera. You can use it to take a decent snapshot, but let's face it; its flexibility and resolution is limited when you stack it up against a state-of-the-art portrait camera.

If you put the two cameras to work on the same subject, you're going to get quite a different result. With the instamatic, you're able to take a fair picture easily and cheaply, and using one for years, you'll get many photo albums full of wonderful memories. But you're probably not going to win any photography contests for best picture.

So for investors who aren't financial analysts (and perhaps even the financial analysts could use a snapshot occasionally instead of losing the "picture" in the details), the Dow Approach Instamatic is a quick and inexpensive tool for creating a pretty good picture of the relative value of the high-yield Dow stocks. It's not perfect, but as long as it continues to generate better-than-average photos, you're going to be happy with its use. (And despite all the recent hoopla coming from O'Higgins about the Dow Dogs dying, it still works. Since O'Higgins claims to have abandoned the approach in 1990, his own BTD5 strategy has returned 27% a year.)

Don't work too hard at this Dow Approach stuff. Its real beauty is its simplicity. Enjoy it and look back on the great memories in 30 or 40 years. Fool on!

Stock  Change   Last
T    +   5/16  57.75
GM   +   9/16  63.81
CHV  +   1/8   79.38
MMM  -   9/16  96.00
                  Day   Month    Year
        FOOL-4   +0.32%   1.77%  28.32%
        DJIA     -0.47%   3.68%  25.78%
        S&P 500  -0.14%   2.82%  32.62%
        NASDAQ   +1.08%   3.19%  27.92%

    Rec'd   #  Security     In At       Now    Change

   1/2/97  479 AT&T          41.75     57.75    38.32%
   1/2/97  153 Chevron       65.00     79.38    22.12%
   1/2/97  120 3M            83.00     96.00    15.66%
   1/2/97  179 Gen. Motor    55.75     63.81    14.46%

    Rec'd   #  Security     In At     Value    Change

   1/2/97  479 AT&T       19998.25  27662.25  $7664.00
   1/2/97  153 Chevron     9945.00  12144.38  $2199.38
   1/2/97  120 3M          9960.00  11520.00  $1560.00
   1/2/97  179 Gen. Motor  9979.25  11422.44  $1443.19

                             CASH   $1409.35
                            TOTAL  $64158.41