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FOOLISH FOUR PORTFOLIO
Fool Four Moves On

Today is the last Foolish Four article. The area is being moved into the Foolish Workshop where the Foolish Four will be just one mechanical strategy among many. The real-money, Foolish Four portfolio will be expanded into the Workshop portfolio and the Foolish Four content will appear as a link in the Workshop.

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By Ann Coleman (TMF AnnC)
December 29, 2000

Next Monday we enter the new millennium. Sound familiar? Weren't we here a year ago?

Technically, the third millennium starts in 2001, as everyone knows by now, but I get the feeling we aren't going to be partying like it's 1999 this New Year's Eve. I was hoping the world would celebrate in high style both years (any excuse for a party!) but with the market looking like Times Square at 5:00 a.m. on January 1 and tech stocks dropping like timeballs, suddenly there doesn't seem to be as much to celebrate.

Ever wonder why they drop a ball to celebrate midnight on New Year's Eve? I thought that glittery disco ball thing was just plain tacky until I found out that it was a very old, traditional way to signal the exact time from observatories to ships in nearby harbors so that they could set their chronometers for accurate navigation. Canons were also used, but one can see disadvantages to that in heavily populated areas.

Notice how I'm avoiding starting this article? It's my last Foolish Four column and even though it was my idea to move the Foolish Four into the Workshop, actually closing the area down is tough.

But closing it down is the right thing to do. The Foolish Four appeared to be a wonderful idea when it first came along, but like so many things that seem too good to be true, it turned out to be not nearly as wonderful a strategy as we thought. Even though it now appears unlikely to beat the Dow by much, it may still have some limited advantages over index funds in retirement accounts where taxes are not an issue. If taxes are an issue, the more tax-efficient index funds and index shares now appear to be a better long-term bet.

My personal feeling about the Foolish Four is that it will be useful as a value strategy in a diversified, tax-advantaged portfolio. That's why the real money Foolish Four portfolio is being morphed into the Workshop portfolio next week. The Workshop portfolio will be one-third value strategies (Foolish Four and Low Price/Book) and two-thirds growth. That should make for an aggressive portfolio, but one that stops short of being rude.

Since new ideas are always being tested in the Workshop, the Workshop portfolio will reevaluate its strategies each year. I believe that we will always want to keep a mix of growth and value strategies, but next year the Foolish Four will have to compete with other value strategies for inclusion in the mix. Right now the Workshop doesn't have many good choices for value strategies, but I suspect that some will be developed, especially after the incentive that the year 2000 has provided.

As we explained yesterday, the Workshop portfolio will buy its first stocks on January 8, and that is the date on which the Foolish Four stocks will be renewed. Normally, today would have been the day to trade, but holding for an extra week is a minor modification. Starting them all at the same time will make comparing relative performance among the various strategies easier.

We should note that the Foolish Four finished its second full year ahead of the S&P 500 but lost to the Dow by just under 8% over the two-year period. That's not a cheerful record, although it is far better than many growth strategies have turned in. We will continue to track the Foolish Four over the next year and see how it does in this very, very different investing climate.

Housekeeping note: Although the Foolish Four portfolio will be moved to the Workshop, the list of current Foolish Four stocks that appears below each Foolish Four article will be discontinued when we move to the Workshop; however, LiveCalc, our instant stock list generator will continue running for the convenience of anyone who wants to see what the Foolish Four and BSP stock selections are.

Well, folks, it's been fun. I've learned a lot, some lessons have been a pleasure, some have been painful, but they have all been worthwhile. I'm looking forward to learning a lot more in the Workshop, and I hope that those of you who are interested in mechanical stock picking will move over to the Workshop along with me. Those of you who found the Foolish Four attractive because of its simplicity will probably find index investing more to your taste with maybe a few carefully chosen stocks to add a bit of spark to your portfolio.

In closing I would like to thank the Foolish Four community for most of those lessons, and for the support that they have given me and the rest of the staff. I will continue to report on any further insights we glean from the Foolish Four study in a regular Friday Workshop report and on the Foolish Four discussion board.

Fool on and prosper in the new year!

Read More Foolish Four Reports


Top Dow Stocks
( RP Order )

12/29/00

1. Philip Morris
   (NYSE:MO)
2. * Eastman Kodak
   (NYSE:EK)
3. * General Motors
   (NYSE:GM)
4. * Caterpillar
   (NYSE:CAT)
5. * DuPont
   (NYSE:DD)
6. Int'l Paper
   (NYSE:IP)
7. SBC Comm.
   (NYSE:SBC)
8. Alcoa
   (NYSE:AA)
9. Honeywell
   (NYSE:HON)
10. Exxon Mobil
   (NYSE:XOM)

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

Foolish Four Portfolio


12/29/00 as of ~8:30:00 PM EST

Ticker Company Price
Change
Daily Price
% Change
Price
CATCATERPILLAR INC(0.31)(0.66%)47.31
EKEASTMAN KODAK(0.81)(2.02%)39.38
GMGENERAL MOTORS0.190.37%50.94
JPMMORGAN (JP)(7.50)(4.34%)165.50

Overall Return -- total % Gained (Lost)
  Day Week Month Year
To Date
Since
Inception
(12/24/1998)
Annualized
Foolish Four(1.55%)0.86%12.63%(9.96%)10.52%5.08%
S&P 500 (DA)(1.04%)1.09%0.40%(10.09%)8.05%3.91%
NASDAQ(3.41%)(1.85%)(4.90%)(39.29%)13.72%6.58%
DJIA (DA)(0.74%)1.40%3.52%(6.09%)19.04%9.02%

Trade Date # Shares Ticker Cost/Share Price Total % Ret
12/24/989JPM105.51165.5056.85%
12/24/9824CAT43.0847.319.82%
12/27/9918GM73.2650.94(30.47%)
12/27/9920EK65.0939.38(39.50%)

Trade Date # Shares Ticker Total Cost Current Value Total Gain
12/24/989JPM$949.62$1,489.50$539.88
12/24/9824CAT$1,034.00$1,135.50$101.50
12/27/9918GM$1,318.62$916.88($401.75)
12/27/9920EK$1,301.75$787.50($514.25)
 
Cash: 
Total: 
$149.74
$4,479.12
 

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.





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