Foolish Four
Encyclopedia
The "Foolish Four" is a discredited mechanical investing technique that, like the Dogs of the Dow
, attempts to select the member stocks of the Dow Jones Industrial Average
that will outperform the average in the near future.
To identify the "Foolish Four," first determine the current dividend yield
and current price
for each of the 30 stocks comprising the Dow Jones Industrial Average. Then, divide the yield for each stock by the square root
of the stock's price. Rank the stocks from highest to lowest using the number resulting from the division. Buy the stocks ranking the second highest, third highest, fourth highest, and fifth highest in equal dollar amounts. Do not buy the highest ranking stock.
Subsequent review of this technique suggested that it was unlikely to outperform a simple indexing strategy
, and, after an extended period of resistance, the Motley Fool
discontinued its promotion in December 2000.
The Dogs of the Dow
The Dogs of the Dow is an investment strategy popularized by Michael B. O'Higgins, in 1991 which proposes that an investor annually select for investment the ten Dow Jones Industrial Average stocks whose dividend is the highest fraction of their price....
, attempts to select the member stocks of the Dow Jones Industrial Average
Dow Jones Industrial Average
The Dow Jones Industrial Average , also called the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow...
that will outperform the average in the near future.
To identify the "Foolish Four," first determine the current dividend yield
Dividend yield
The dividend yield or the dividend-price ratio on a company stock is the company's total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share. It is often expressed as a percentage...
and current price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
for each of the 30 stocks comprising the Dow Jones Industrial Average. Then, divide the yield for each stock by the square root
Square root
In mathematics, a square root of a number x is a number r such that r2 = x, or, in other words, a number r whose square is x...
of the stock's price. Rank the stocks from highest to lowest using the number resulting from the division. Buy the stocks ranking the second highest, third highest, fourth highest, and fifth highest in equal dollar amounts. Do not buy the highest ranking stock.
Subsequent review of this technique suggested that it was unlikely to outperform a simple indexing strategy
Index fund
An index fund or index tracker is a collective investment scheme that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions.-Tracking:Tracking can be achieved by trying to hold all of the...
, and, after an extended period of resistance, the Motley Fool
Motley Fool
The Motley Fool is a multimedia financial-services company that provides financial solutions for investors through various stock, investing, and personal finance products. The Alexandria, Virginia-based private company was founded in July 1993 by co-chairmen and brothers David and Tom Gardner, and...
discontinued its promotion in December 2000.