A cross-post from the Retire Early Home Page board: In case anyone missed it today, Ann Coleman's post http://www.fool.com/ddow/2000/ddow001214.htm was a bombshell for value-style mechanical investors in the Dow. It also pretty much seemed to announce the end of the the Motley Fool's support for the mechanical investing strategy of the Foolish Four (based on Dow stocks with low price and a high yield). Too bad. It was nice to have a strategy that yielded significantly more than the market overall, but didn't take a lot of mental gymnastics to invest in. The recent conclusion seems to be the result of some heavy-duty database analysis of late. Still, mechanical investing probably should be at least a part of everyone's portfolio--at least in some form. What we are left with now seems to be index funds or some of the many forms of Spiders. To tell the truth, I never really invested in the F4 blindly, but also "peeked" at the underlying fundamentals whenever investing in them--a policy that paid off pretty well for me until this last year or so--Goodyear and Sears were big hits. To give Ann credit, in her articles she is now concentrating on meaningful portfolio diversification and the blending of a number of other mechanical investment strategies, complete with the prerequisite statistical analysis. Still pretty interesting reading, I think. Nevertheless, the the world of mechanical investing has certainly become noticeably less less certain than it was a day ago. Any thoughts from the retired mechanical investors out there? -- John
Greetings, John, and welcome. You asked:Any thoughts from the retired mechanical investors out there?My thoughts were expressed in my column of 12/4/00. They pretty much echo those expressed in your sentence "Nevertheless, the the world of mechanical investing has certainly become noticeably lessless certain than it was a day ago."I will disagree, though, that the developments of the past week are a "... bombshell for value-style mechanical investors in the Dow." The study still shows the FF are a good tool for that purpose, and they did outperform over the long-term. They just didn't do so to a huge degree. Therefore, they should not be used as the only or even the major holding in a portfolio. As I said in my column, I will still use the FF as a value component in my personal portfolio. The mechanical selection makes it an easy tool to use for value picks. And Ann has not abandoned it for that purpose, either. The FF will still appear in the new portfolio she is developing in the Workshop area.Regards..Pixy
I also mourn the loss of a simple strategy. I have been doing some analyses of my own, and was beginning to have some doubts. If I ever finish, I will write up a Soapbox report. Meanwhile, your comment"What we are left with now seems to be index funds or some of the many forms ofSpiders."brings up a question I hope someone can answer. I have been investing (and considering investing) in various sector spiders. E.g., XLK is the tech sector, XLE is the energy sector. These have been available only since December 1998, as I recall. Does anyone know of a database for the history of S&P sector indices? It would be useful in my analyses.
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