Random Thoughts
on the market, DuPont, and Conoco

by Ann Coleman (TMF AnnC)

RESTON, VA (July 26, 1999) -- As most readers will have noticed, I rarely mention how the Foolish Four portfolio, or the market as a whole, is doing. That, of course, is right in keeping with our Foolish Four philosophy of not getting involved with the day-to-day ups and downs of the market or of individual stocks.

That's not simply laziness, by the way. It's a big part of why the strategy works. Following the stocks too closely actually works against Foolish Four investors by fostering a sense that one has to "do something."

When in darkness, when in doubt
Run in circles, scream and shout

Doing something is where you get into trouble.

Yes, of course, you might see disaster coming and sell out before it hits with full force. Or you might decide that a stock has reached its peak and sell, only to watch gleefully as it drifts back toward the price you bought it at. Such tales form the basis of an awful lot of very boring party conversation.

Keep it up, though, and, over the years, you are almost guaranteed to come out behind the guy who bought his Foolish Four stocks and went fishing for the rest of the year. (And I'll bet his party conversation will be a lot more interesting, too.)

So I make no apologies for ignoring our portfolio and the market most of the time. One thing I do worry about though is that I might have a tendency to write more about both when they are up. So today I want to point out that the Dow is down about 400 points from its high earlier this month, and our portfolio is off a bit from its high, too. Interest rates, Alan Greenspan, tech stocks, bond yields, profit taking blah, blah, blah....

Next month what will all that mean? More importantly, what will it mean by next December? Not much. What will mean something by next December is how well our Foolish Four companies have managed to increase corporate earnings over the past 12 months and what the market thinks of their prospects for continuing profitability. So far, all of them are nicely on track.

The market as a whole will also affect the value that investors put on our stocks, but this little blip, even if it turns into a huge correction like the one we had last August and September, is just part of the normal meanderings of the market.

I guess some folks weren't entirely satisfied with my column last Friday on the spin-off of Conoco (NYSE: COC) by DuPont (NYSE: DD). The essence of the article was that the Foolish Four strategy simply calls for ignoring the spin-off since no action needs to be taken, and that my opinion was that the possibility of actually coming out ahead in the deal in the short run was small.

Because this deal was open, i.e., anyone interested in buying Conoco could buy DuPont at any point prior to August 6 and opt to exchange their holdings for Conoco, the market will act to reduce much of the price advantage that was inherent in the original offer.

Of course, they aren't guaranteed to get as many shares as they request. The actual number of DuPont shares tendered have to first be counted and, if more Conoco shares are requested than DuPont can provide, each shareholder will be granted only a percentage of the Conoco shares requested. This uncertainty acts to keep some of the price advantage in the deal. Without it, the DuPont and Conoco shares would have moved almost immediately into lockstep, with DuPont trading very close 2.95 times the price of Conoco.

Aside from all of the pricing machinations, the real question for a Foolish Four investor is, do you want to follow the strategy strictly, or do you want to consider buying some Conoco stock? If you are interested in Conoco and think that this would be a good way to acquire some, I would suggest checking out our Conoco message board. But that kind of decision is well beyond my ability to advise on or the strategy's ability to deal with.

Don't forget that the flip side of this coin is that DuPont is using the opportunity to, in effect, repurchase some of its outstanding shares. You aren't necessarily losing anything by ignoring this deal. Your DuPont shares are gaining in value because the ownership is being concentrated in the hands of fewer shareholders. That means that future earnings will be spread among fewer shares of stock. That's a good thing.

Fool on and prosper!

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07/26/99 Close
Stock  Change   Last
CAT  -1        60.00
JPM  +  13/16  134.38
MMM  -   9/16  88.94
IP   -   5/8   54.00

                  Day    Month   Year   History
        FOOL-4   -0.74%   1.08%  27.13%  29.02%
        DJIA     -0.46%  -1.00%  19.07%  18.60%
        S&P 500  -0.68%  -1.82%  10.22%  10.49%
        NASDAQ   -2.72%  -2.47%  19.45%  21.09%

    Rec'd   #  Security     In At       Now    Change

 12/24/98   24 Caterpillar   43.08     60.00    39.28%
 12/24/98    9 JP Morgan    105.51    134.38    27.36%
 12/24/98   22 Int'l Paper   43.55     54.00    24.00%
 12/24/98   14 3M            73.57     88.94    20.89%

    Rec'd   #  Security     In At     Value    Change

 12/24/98   24 Caterpillar 1034.00   1440.00   $406.00
 12/24/98    9 JP Morgan    949.62   1209.38   $259.76
 12/24/98   22 Int'l Paper  958.12   1188.00   $229.88
 12/24/98   14 3M          1030.00   1245.13   $215.13

              Dividends Received      $49.99
                             Cash     $28.26
                            TOTAL   $5160.75