Post of the Day
August 25, 1998
Dow Dividend Approach / Foolish 4 Folder
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Subject: The ARGGGGHHHH!!!! FAQ
(last updated, probably in some tiny way: 19 August 1998)
People better than I are currently working on an Official FAQ ("Frequently Asked Questions") for this message board. In the meantime, however, certain questions appear here at least a few times each week (and sometimes a few times each day). This phenomenon has caused some regular denizens of this board to throw their monitors out the window in despair. But since my office is on the first floor I have found this response unsatisfying.
Therefore I hereby post the totally unofficial ARGGGGHHHH!!!! FAQ, which I will repost here periodically and frequently until an official FAQ makes this unnecessary.
The ARGGGGHHHH!!!! FAQ itself includes very little actual information. Instead, I will point to a few highly-relevant posts and other TMF resources that the reader can peruse for his or her edification.
Suggestions are welcome. Send them directly to me at firstname.lastname@example.org.
[The following only applies in the folder; we have supplied hyperlinks for the posts mentioned]
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Basic information on Dow Dividend Approaches
Definitions of FF, UV4, RP4, DsPc, SIG4, etc, etc
Note: The Motley Fool Investment Guide described a 2-2-3-4-5 approach. This is now sometimes called the Old Foolish Four method. In 1998 it was officially replaced by the UV4 method described in The Unemotional Investor, which either does 1-2-3-4 or 2-3-4-5. So right now the method called "Foolish Four", "Fool4" or "FF" is the same as "UV4".
Meanwhile, contributors to this board have devised the RP4 approach, which does better than UV4 and is now the favored method for many of us. This is equivalent to the DsPc4 method, except that RP4 always drops stock #1 while DsPc4 never does. In backtesting RP4 has beaten DsPc4 for portfolios started in January, while DsPc4 has beaten RP4 for portfolios started later in the year.
The most-recently invented approach is SIG4. In backtesting it has beaten DsPc4 for mid-year starts, but has not done as well as RP4 for portfolios started in January.
Today's list of Dow Jones stocks, including FF and RP rankings
Historical daily data on the Dow, since 1896
Do these returns take commissions into account? How about taxes?
Do I reinvest the dividends, or what?
Note: All of the DDA calculations here on the Web site and in the Motley Fool books assume that your dividends just sit idle in your brokerage account until you next rebalance your porfolio. We're talking a relatively tiny amount of money here, so don't worry about it.
Should I hold my portfolio for 12, 18, or 24 months?
Note 1: These considerations are independent of capital gains tax policies, although some of the investigations were first prompted by the former 18-month capital gains discount.
Note 2: Be sure to note how small is the benefit of longer holding periods over shorter ones. I now think this issue has been rather a tempest in a teapot.
How can I add money each month to my DDA porfolio?
Okay, I'm ready to buy stocks! Can you give me a hand in figuring how to divide my
money among the four stocks I've picked?
What are these "SPYders" that people mention from time to time? http://www.fool.com/FoolFAQ/FoolFAQ0032.htm
I started a DDA portfolio a few months ago, and I haven't made a penny. Should I bail out
One of the stocks in my portfolio has just gone way up. What should I do now?
One of the stocks in my portfolio has just gone way down. What should I do now?
One of the FF stocks is in a company that is having problems lately. Can I skip over that
- You can do whatever you like -- it's your money.
- Why do you think that company has made the current FF ranking? These are supposed to be the "Dogs of the Dow." You're going to be holding it for 12/18/24 months -- will the company's problems last that long?
- If you skip one of the top-ranked picks, you're no longer following the mechanical DDA procedure. Therefore the return of your portfolio cannot be predicted based on the backtesting that's been done on the mechanical procedure. If you're lucky you'll do better than the DDA, if you're not lucky you'll do worse.
- As long as all of your picks are still within the top 10 high yielders, you probably won't do
particularly badly. See the following two reports:
One of the FF stocks is in a company whose products or policies I personally dislike. Can I skip over that one?
- Same answers as above.
- Posting this question to this message board will usually result in a brief flurry of messages in which a few people with strong convictions one way or the other will restate those convictions, a few other people will offer new comments, and then the whole thing will degenerate into name-calling. You might want to instead explore the Motley Fool board on Socially Responsible Investing.
How about with some other index, say a "socially responsible" one?
How can I track the return of my portfolio, so that I can compare it to, say, the S & P 500?
Are there some particular books about investing that you'd suggest I read?
How can I thank you and fredochs for posting your helpful FAQs?
Speaking just for myself, I'd prefer that you not clutter up the message boards with thank-you messages. I'm just paying back all the help others have given me -- you can repay me by helping other people in the future.
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