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Author: bpogo3 Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1359  
Subject: Re: Investing in Foolish 50 Date: 9/19/2002 10:39 PM
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Brad,

How exactly do I go about setting up a Foolish Four-type portfolio using this index?

I would just like to add a couple of more points to jbkings excellent post.

First, the Foolish Four type investing style has generally fallen out of favor within TMF. Extensive backtesting by the Foolish Four team has shown that the percentage points gained by investing in the Foolish Four (or Dogs of the Dow) has statistically not been seen in the market over the last several years due to quite a few reasons. Mainly, that many companies are not paying dividends or are significantly reducing their dividends. Also, the make up of the Dow 30 is changing. Companies such as Microsoft and Intel have been added the don't pay any or very small dividends (Intel). The Foolish Four strategy weighs entirely on the companies dividend yield divided by current stock price (different strategies have varied the calculation) in determining who gets on the list. This worked well with the Dow stocks and most S&P 500 stocks during the 70's and 80's but isn't holding up anymore. The Foolish Four backtested returns are no longer showing the advantages seen when this method was first published and appear to be no better than just investing in the Dow 30. This would be easier to invest in by buying DIA exchange traded funds or a simple index fund.

Second, many of the stocks listed in the Fool 50 do not pay out any dividends severly limiting your choice of stocks to invest in. You would always be picking from the same short list of stocks. Stocks that do not pay a dividend would never make the list, even if they are the stocks that have fallen out of favor.

Last, the key to any type of mechanical strategy is backtesting over many years. The Fool 50 has only been around since Jan. 2000. It just hasn't been around long enough to get a good set of statistical data to backtest.

Many people have asked this same question throughout the history of the Fool 50 (formerly NOW 50) and have probably explained this better than I have. Scan back through the posts looking for Foolish Four and you will find many answers to your post.

You can read more about this within the Fool in the Discontinued Port section of Investment Strategies with the link below.

http://www.fool.com/portfolios/discontinued/fool4.htm

Regards,
Bill

Former Foolish Four invester
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