FOOLISH FOUR PORTFOLIO

Foolish Four Portfolio
3M Reports Blowout Earnings
And what really scares investors?

By Ann Coleman (TMF AnnC)

RESTON, VA (Oct. 25, 1999) -- 3M (NYSE: MMM) reported terrific earnings this morning before the market opened, and the stock hardly budged. Sometimes you just can't win.

Estimates were for $1.06 per share, but the company actually earned $1.14 per share for an 18% increase over the same quarter last year. For a big, stodgy ol' Dow company, that's hot growth. They even announced a share buyback, a small one of 3 million to 3.2 million shares over the next three months. That's less than one percent of shares outstanding. Was the board of directors just looking to get those magic words "stock buyback" into the earnings report? If so, it doesn't seem to have excited anyone.

The company even stated that the outlook for the fourth quarter was also bright. Nothing. Oh, well.

Since we can't gush about 3M's stock soaring after a great earnings report, let's look at how the company is doing (the only thing really worth looking at, by the way). The company is doing great. After dipping in 1998, revenues are back above the 1997 level and earnings look on track to beat last year by at least 40%, although they won't be back to 1997's record level. All in all, this is a fairly typical Foolish Four turnaround.

But I was hoping for a bit more fun today. Perhaps if the market as a whole had been a bit more lively we would have seen more enthusiasm for 3M's good numbers. Last time I checked, 21 of the Dow 30 stocks were down today. Sometimes just treading water is an accomplishment.

With the markets dragging, investors' fears are spiking and I have been getting more than the usual number of "Should I invest now or wait until after The Big One hits?" e-mails. There is always a doomsayer who can make a great case for why the market is about to plunge into a two- to ten-year abyss. I don't think it is going to happen, but you know what? That's the thing that scares me the most because I am wrong so often!

When people ask me what I think, my reaction is, "You don't want to know what I think!" But here are some numbers that might be comforting. Maybe.

You've probably heard about how various psychological experiments have determined that investors are much more afraid of losing money than of losing the opportunity to make money. One of the things we try to do here at The Motley Fool is counteract that fear because, in reality, the loss of opportunity can be just as bad. Here is one way that can work.

Let's look at the worst investing period since the Depression. Between January 1, 1973, and December 31, 1974, the S&P 500 dropped 37%. Now suppose you and a friend each had $10,000 to invest on January 1, 1973, but you had a bad feeling about the market and decided to sit it out. By the end of 1974, you might have been feeling pretty good about your passbook savings account and decided that the market was not for you.

Your reckless friend, let's call him Motley, throws his $10,000 into an index fund in January of 1973. By the end of 1974 he is down to $6275 and feeling rather foolish, perhaps, but he's too stubborn to listen to you and sticks with his plan.

Where do things stand 10 years later? (You know what I'm going to say, don't you?)

Motley's account has grown to $19,000 and your 5% savings account is just a tad over $16,000. Is that enough to send you into the market? Of course not! You've got another bad feeling -- interest rates are heating up and things look dicey.

OK, just five more years go by and by now Motley is politely avoiding all questions about his index fund because if you ask, he will have to tell you it has topped $40,000. Your passbook savings is at about $21,000.

And today?

Your account has grown to $35,000 and Motley's is topping $275,000. Which prospect is scarier now?

Fool on and prosper.

Today's Stock Lists | 1999 Dow Returns

Read More Foolish Four Reports


Top Dow Stocks
( RP Order )

10/25/99

1. Philip Morris
   (NYSE:MO)
2. * Sears
   (NYSE:S)
3. * Goodyear Tire & Rubber
   (NYSE:GT)
4. * General Motors
   (NYSE:GM)
5. * Caterpillar
   (NYSE:CAT)
6. Eastman Kodak
   (NYSE:EK)
7. JP Morgan
   (NYSE:JPM)
8. AT&T
   (NYSE:T)
9. International Paper
   (NYSE:IP)
10. Chevron
   (NYSE:CHV)

NOTE: Today's Foolish Four stock selections are marked with an asterisk.

Foolish Four Portfolio

10/25/99 Closing Numbers
Ticker Company Dly Pr Chg Price
CATCATERPILLAR INC-1 1/4$53.94
IPINTL PAPER1/4$49.00
JPMMORGAN (JP)-5 7/16$120.19
MMMMINNESOTA MIN'G/MFG1/4$92.81

  Day Week Month Year
To Date
Since
12/24/98
Annualized
Foolish Four -1.26% -1.26% .50% 20.04% 21.83% 26.57%
S&P 500(DA) -.62% -.62% .85% 5.82% 5.88% 7.05%
NASDAQ -.02% -.02% 2.54% 28.42% 29.62% 36.29%
DJIA (DA) -1.15% -1.15% .13% 13.64% 13.81% 16.70%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
12/24/9814MMM73.571$92.8126.15%
12/24/9824CAT43.083$53.9425.19%
12/24/989JPM105.514$120.1913.91%
12/24/9822IP43.551$49.0012.51%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
12/24/9814MMM$1,030.00$1,299.38$269.38
12/24/9824CAT$1,034.00$1,294.50$260.50
12/24/989JPM$949.63$1,081.69$132.06
12/24/9822IP$958.12$1,078.00$119.88
  Cash: $119.51  
  Total: $4,873.08  

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.