FOOLISH FOUR PORTFOLIO

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Looking Good, Foolish Four!
Everybody looks good today

by Ann Coleman (TMF AnnC@aol.com)

Reston, VA (March 10, 1999) -- Let's talk about stocks and the markets! Usually, I ignore our Foolish Four portfolio stocks, since daily changes are not very significant, but what the heck, the portfolio is doing well and the market just set a new record, so let's indulge in a little short-term glee.

Caterpillar (NYSE: CAT) and JP Morgan (NYSE: JPM) are up over 12%, and 3M (NYSE: MMM) is pushing 10%. At the rate they are going, that group could come close to doubling this year, not that it ever works like that, but at least they are marching briskly in the right direction. Of course, then there is International Paper (NYSE: IP), which is lagging behind like a toddler that just discovered a dead beetle on the sidewalk.

Even so, we are comfortably beating the Dow and the Standard & Poor's 500 Index so far this year. Hey, even the Dow is beating the S&P 500! Will this be the year of the Dow? With the S&P leaving the Dow in its dust for the last two years, it would sure be nice to see a comeback, and historically, that is what one should expect. But then, history repeats itself only until it doesn't any more. Historically, at least one of the last two years should have been a loser!

An odd question keeps cropping up whenever Chris or I mention the discrepancy between the Dow's performance and the S&P's. It's this: How can the Dow be underperforming the S&P 500 Index when it is a part of the index?

I wouldn't mention it in this space, figuring the answer was obvious, except that it keeps coming up. Maybe it's not so obvious. The stocks that make up the Dow Jones Industrial Average are, indeed, also members of the S&P 500 Index. But they are not a random sample of the S&P 500. For one thing, the Dow is drawn only from the New York Stock Exchange. I don't believe that Dow stocks are required to trade on the NYSE, but, nevertheless, that's where they usually come from. The S&P selects stocks from all exchanges and includes such high-tech Nasdaq gorillas as Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC), and Cisco (Nasdaq: CSCO), all of which have higher market capitalizations than many Dow companies.

The Dow stocks are chosen for many good qualities -- qualities like being a leader in their industry and having a long history of solid growth. They aren't necessarily chosen because they are "cutting edge."

No one has ever accused the Dow of being overweighted in high tech stocks. In fact, the index is more likely to be described as stodgy. What has happened over the last couple of years is that the best performers on the S&P index have been from the tech sector, which is not that well represented on the Dow. That may be just a normal, if extreme, variation, or it may be indicative of a significant shift in the way the US makes its money. If the Keepers of the Dow decide that such a shift has occurred, we would be likely to see the makeup of the Dow shift as well.

Meanwhile, it's doing pretty well so far this year as is. It is within spitting distance of that magic number: 10,000. I admit, I would like to see it, and might even pop that bottle of champagne I've been saving, but what will we toss out the window to celebrate? The modern equivalent of ticker tape is a computer monitor -- nah, tempting as it as been at times, that's probably not a good idea. I know, I can shred those investing books about the coming Bear Market -- and the ones about the coming Golden Age of Investing, too.

Fool on and prosper!

Call Your Boss a Fool.

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Today's Stock Lists | 1998 Dow Returns

03/10/99 Close
Stock  Change   Last
--------------------
CAT  +   3/16  49.00
JPM  +2  1/2   118.88
MMM  +2 11/16  80.50
IP   +   7/8   41.69



                   Day   Month    Year   History
        FOOL-4   +1.97%   5.67%   6.75%   8.33%
        DJIA     +0.82%   5.01%   6.59%   6.17%
        S&P 500  +0.55%   3.92%   5.01%   5.26%
        NASDAQ   +0.55%   5.16%   9.73%  11.24%

    Rec'd   #  Security     In At       Now    Change

 12/24/98   24 Caterpillar   43.08     49.00    13.74%
 12/24/98    9 JP Morgan    105.51    118.88    12.67%
 12/24/98   14 3M            73.57     80.50     9.42%
 12/24/98   22 Int'l Paper   43.55     41.69    -4.28%


    Rec'd   #  Security     In At     Value    Change

 12/24/98   24 Caterpillar 1034.00   1176.00   $142.00
 12/24/98    9 JP Morgan    949.62   1069.88   $120.26
 12/24/98   14 3M          1030.00   1127.00    $97.00
 12/24/98   22 Int'l Paper  958.12    917.13   -$41.00

              Dividends Received      $15.04
                             Cash     $28.26
                            TOTAL   $4333.30



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