Lake Woebegone Market
Where every year is above average

by Ann Coleman (TMF
and Chris Rugaber (TMF

Alexandria, VA (Dec. 31, 1998) -- You've probably read just about enough end-of-the-year stuff by now, so I will try to wrap things up quickly. Our paper Foolish Four portfolio, which started last December 31, has finished the year up 12.59% -- losing to both the Dow at 16.10% and the Standard & Poor's 500 Index at 28.58% (Wow!). Not one of our finest years, but historically, nothing unusual.

The fact that the strategy did poorly this year is disappointing, but it has had bad years before and will again. In fact, there have been times when the Foolish Four has lost to the market over a five-year period. Interestingly, these times tend to occur when the market as a whole is doing well over a sustained period.

And, boy are the markets doing well! The Dow hasn't had a negative year since 1990 (the year of the Persian Gulf War), and every year since then has been a double digit year except 1994. This is not normal, folks. I'm not saying it has to end -- I don't think anyone knows when it will end, but it's certainly not a typical historical pattern. A more typical pattern is a couple of good years then a bad one. We seem to be in a market where "all" the years are above average.

Yes, I do find it a bit scary. No, I don't think we should sell everything and stock up on gold coins. If I knew of a way to predict the market next year, you can bet I wouldn't be working for a living! One thing is clear from looking at the Foolish Four history over the past three decades: Just doing it, year in, year out, paid off handsomely in the end. Quitting when you had a bad year or two was always a bad idea.

I have a couple of late Christmas presents for you. (Nothing personal -- you aren't the only ones. My friends and family have learned to be patient with me.) Two of our more talented readers have developed really nifty and helpful programs for selecting Foolish Four stocks and rebalancing one's portfolio.

Reader Yotommy has set up a website that calculates the current Foolish Four stocks based on current prices. Click here to check it out: Dow Dividend Strategy Calculator. You simply select "Beat the Dow" via the "RP" method and hit "Go." Out pops the top 10 stocks ranked by the RP process. (Remember, the Foolish Four drops the top stock.)

Yotommy's site also lets you list stocks using several other methods. Each method can be applied to the Beating the S&P, the Money (Magazine) 30, and several socially responsible investing indices. Tres cool.

Michael Pizolato attacked the problems of buying equal dollar amounts of stock from several companies at the same time when the shares are all different prices that don't divide evenly into your planned amounts and that keep changing by the minute. (Arrrgggh!) His Foolish Buy Calculator makes it all easy and even takes your commission charges into account. I sure could have used it last week. It's a spreadsheet that runs under the Excel program (part of Microsoft Office), and it's really very nicely done. Even if you don't have Excel, check out the website. His self portrait makes the click worthwhile.

Time for our get-acquainted coffee-klatch with International Paper (NYSE: IP). Real money portfolio numbers for today are at the bottom of the page.
International Paper certainly fits the profile of a Dog of the Dow. Besides paper and wood products, it manufactures photosensitive films, chemicals, and "non-woven" products, whatever those are. See our data resources at for details on IP's financial situation (not terrible) and future earnings estimates (not great). Essentially, IP is a typical commodities maker that is modernizing its operations and buying up many of its competitors as part of its effort to improve productivity. Despite these moves, excess capacity in Asia and a decline in demand internationally have hurt sales. IP receives 28% of its revenue from international sales.

IP has been a Dog of the Dow for the last three years, and each year it has disappointed its holders. Even though earnings are up this year, the company is essentially paying out all of its profits to maintain its dividend. That's a bit scary, but it is possible that all their efforts at increasing productivity will produce earnings growth in 1999. Let's hope so.

New Portfolio Numbers

Symbol Shares Close   Change Pur.Price %Gain/Loss  Value
CAT      24   46.00    +5/16     43.08   +6.77  1,104.00
IP       22   44.81  +1 1/16     43.55   +2.89    985.87
JPM       9  105.06  -2 3/16    105.54   -0.4524  945.56
MMM      14   71.13  -2 1/16     73.57   -3.3233  995.75
Cash                                               28.26
TOTAL                                          $4,059.44
Initial Position
Total invested: $3,971.74 (includes commissions paid)
Cash in account: $28.26
Account total: $4,000.00

Fool on and prosper!

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December 31, 1998 Stock Lists | 1998 Dow Returns

12/31/98 Close
Stock  Change   Last
UK   -   5/16  42.50
IP   +1  1/16  44.81
MO   -1        53.50
EK   ---       72.00
                   Day   Month    Year
        FOOL-4   -0.11%  -1.36%  12.59%
        DJIA     -1.00%   0.71%  16.10%
       *S&P 500  -0.12%   5.47%  28.58%
        NASDAQ   +1.19%  12.47%  39.63%
       *S&P 500 numbers have been
        adjusted to reflect dividends.

    Rec'd   #  Security     In At       Now    Change

 12/31/97  206 Eastman Ko    60.56     72.00    18.89%
 12/31/97  276 Philip Mor    45.25     53.50    18.23%
 12/31/97  289 Int'l Pape    43.13     44.81     3.91%
 12/31/97  291 Union Carb    42.94     42.50    -1.02%

    Rec'd   #  Security     In At     Value    Change

 12/31/97  206 Eastman Ko 12475.88  14832.00  $2356.13
 12/31/97  276 Philip Mor 12489.00  14766.00  $2277.00
 12/31/97  289 Int'l Pape 12463.13  12950.81   $487.69
 12/31/97  291 Union Carb 12494.81  12367.50  -$127.31

               Dividends Paid YTD  $1377.14
                            TOTAL  $56293.45