FOOLISH FOUR PORTFOLIO

<FOOLISH FOUR PORTFOLIO>

Look on the Darker Side of Life

By Bob "Sandy" Price

HOUSTON, TX (August 19, 1999) -- It's not that hard to lose money investing, even if you have an uncanny knack for picking winning investments. All you have to do is buy high and then wimp out and sell at the first major price drop.

One of the beauties of a disciplined strategy like the Foolish Four is that it helps you avoid selling at the wrong time. It's not infallibly, of course, but the discipline of selling once per year, at a predetermined time, is almost always better than selling in a panic when your stocks drop.

Let's look at the worst possible outcome (as well as the average outcome) when investing in the Foolish Four and following the discipline of selling only when you plan to.

We'll use the latest Dow Dividend Spreadsheet. This shows returns from the first trading day of each year from 1961 to 1998. We'll discuss the returns of the S&P 500, the Foolish Four, the High Yield 10, and the Dow 30.

All of the returns include dividends.

THE WORST SINGLE YEARS, 1961-1998

The Dow 30: Loss of 15.6%, in 1974.
The S&P 500: Loss of 26.4%, in 1974.
The High Yield 10: Loss of 17.9%, in 1966.
The Foolish Four: Loss of 23%, in 1966.

If you were an emotional investor, those years may have scared you out of the market. Yet the Dow and S&P 500 had a compound average growth rate (CAGR) of more than 12% per year over the entire period. The High Yield 10 returned nearly 15% per year, and the Foolish Four returned over 19%.

So, you buy and hold. But how long is long term?

THE WORST FIVE YEAR PERIODS, 1961-1998

The Dow 30: Loss of 0.6%, 1970 - 1974 (CAGR 0.11%)
The S&P 500: Loss of 11.2%, 1970 - 1974 (CAGR -2.35%)
The High Yield 10: Gain of 5.7%, 1966 - 1970 (CAGR 1.11%)
The Foolish Four: Loss of 3.9%, 1966 - 1970 (CAGR -0.78%)

You can see why many people love the High Yield 10: no losing five-year periods. The stats above show why many people had given up on investing around 1974. Yet, for a long-term investor, that was one of the best times to invest.

Tomorrow, we'll discuss how you should deal with bad periods like those above.

Today's Stock Lists | 1999 Dow Returns

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Foolish Four Portfolio

8/19/99 Closing Numbers
 Ticker   Company   Dly Pr Chg   Price 
CAT  CATERPILLAR INC              -11/16   $60.31
IP  INTL PAPER                   1/4   $54.00
JPM  MORGAN (JP)                  -3/4   $132.19
MMM  MINNESOTA MIN'G/MFG          3/4   $96.31

  Day Week Month Year
To Date
Since
12/23/98
Annualized
Foolish Four .28% -1.50% 5.26% 29.43% 31.35% 51.70%
S&P 500(DA) -.69% -.31% -.38% 8.26% 8.32% 12.98%
NASDAQ -1.37% -.52% -.65% 19.55% 20.66% 33.25%
DJIA -.25% -.09% 2.90% 19.41% 19.15% 30.70%

 Trade Date   # Shares   Ticker   Cost/Share   Price   LT % Val Chg 
  12/24/98  24CAT    43.083  $60.31  39.99%
  12/24/98  14MMM    73.571  $96.31  30.91%
  12/24/98  9JPM    105.514  $132.19  25.28%
  12/24/98  22IP    43.551  $54.00  23.99%

 Trade Date   # Shares   Ticker   Cost   Value   LT $ Val Ch 
  12/24/98  24CAT    $1,034.00  $1,447.50  $413.50
  12/24/98  14MMM    $1,030.00  $1,348.38  $318.38
  12/24/98  9JPM    $949.63  $1,189.69  $240.06
  12/24/98  22IP    $958.12  $1,188.00  $229.88
  Cash: $80.43  
  Total: $5,254.00  

Key
• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.
• DJIA (DA) = dividend adjusted. Dividends have been added to the total return of the DJIA.

Note
The Foolish Four Portfolio was launched on December 24, 1998, with $4,000. Additional cash is never added, all transactions are discussed and explained publicly before being made, and returns are compared daily to the S&P 500 and the Dow. (Dividends are included in the yearly, historic and annualized returns.) Stocks are chosen once per year using a formula based on dividend yield and price. See The Foolish Four Explained for details.