The Foolish Four - Stock picking concept

In Mid 1990s, the Motley Fool website and several books hyped the technique called "The Foolish Four". According their website, sharemarket investors can crack the market returns over the 25 years by simply following the foolish four concept. They also portrayed shareholders can crack their Mutual Fund returns by spending only 15 minutes a year

By just spending very minimal time a year and having very minimal risk, this foolish four concept went very viral among investors. All you need to do was the below 6 steps

1. Take the 5 stocks in the Dow Jones Industrial Average with the lowest stock prices and highest dividend yields
2. Discard the one with the lowest price
3. Put 40% of your money in the stock with the second-lowest price
4. Put 20% in each of the three remaining stocks
5. One year later, sort the Dow the same way and reset the portfolio according to steps 1 through 4
6. Repeat until wealthy

Over 25 years period, the Motley Fool claimed, this technique would have beaten the market by a remarkable 10.1 percentage annually. Over the next 2 decades they suggested $20,000 invested in the Foolish Four should flower into $17,91,000

Let's consider whether this strategy will meet safe investment criteria:

• What kind of "Thorough analysis" could justify in discarding the stocks with the single most attractive price and dividend ?

• How could putting 40% of your money into only one stock can be a minimal risk ?

• How could a portfolio of only 4 stocks be diversified enough to provide "Safety of Principal" ?

This Foolish Four, in short was one of the most ridiculous stock picking formula. This formula made many investors a real fool of their lifetime. This can work in only high amount of luck is in favor of anyone but still it wont last long

In 2000 alone, the foolish four stock - Caterpillar, Eastman Kodak, SBC and General Motors lost 14% while the Dow dropped by just 4.7%

Don't fall into any of these foolish and lazy ideas. Great Investments needs lot of learning and lot of patience in holding to it. 

Have a Great Day

B G Nareshkumar