'Dow 5' strategy produces fortune

THE TICKER

October 18, 1994|By JULIUS WESTHEIMER

Adding to last week's 113-point rally, the Dow Jones industrial average climbed another 13.46 points yesterday and closed at 3,923.93. Cyclical stocks were especially strong, with Bethlehem Steel -- a stock closely followed in this area -- gaining 1 1/8 points to close at 19 3/4 . "Bessie" now stands only 4 1/2 points below its 12-month high.

AUTUMN ARITHMETIC: "If you had invested $1,000 in 1925 in the Standard & Poor's 500 stocks, that $1,000 would be worth about $700,000 today, but the same $1,000 investment placed into long-term corporate bonds would be worth only $35,000." (Middle Fixed-Income Letter, October)

DOW 5 UPDATED: Responding to many requests, here is an update of the "Dow 5" strategy: 20 years ago, had you invested $10,000 in the "Dow 5"-- the five lowest-priced of the 10 highest-yielding Dow Jones industrial stocks -- and rearranged the list annually (if indicated) but never added another dollar, your investment grew by mid-1994 to $648,000, an annual 22.5 percent compound return. At the weekend the "Dow 5" stocks were Chevron, Merck, Minnesota Mining, Sears and Woolworth. (No guarantees for the next 20 years, but say it grows to only half as much -- it's still a fortune!)

FREE STATE FILE: McCormick & Co. is listed under "Stocks With Low P/E Ratios, Above Average Earnings Growth and High Returns" in S&P Outlook, Oct. 12 . . . Martin Marietta, headquartered in Bethesda, is written up in Dick Davis Digest, Oct. 12. ("Martin Marietta became the world's largest aerospace/electronics company when it acquired GE Aerospace and this year Martin continued to expand when it announced the Lockheed merger. The stock is attractive for capital gains and rising dividends.") . . . "We have no plans to budge much from our present high cash position. I remain very bearish on the market." (Charles Allmon, publisher, "Growth Stock Outlook" in Chevy Chase.

GOOD ADVICE: "The worst mistake investors make is by taking their profits too soon." (Bernard Baruch) . . . "When I have to depend on hope in a trade, I get out of it." (Jesse Livermore). Both men were highly successful investors.

BALTIMORE BITS: Procter & Gamble, which has two facilities in this area, is featured in Kiplinger's Personal Finance magazine, November. ("Having restructured, P&G should benefit from improved profit margins. Also, price-cutting has made the firm more competitive with private-label makers.") . . .

The stock of Bell Atlantic, the telephone utility that serves this area, is listed under "Suitable Income Portfolio" in Personal Finance newsletter, November. . . . "As to choice among sectors of the stock market, it is sensible to stay where earnings momentum is, namely, in cyclical issues." (Investment Counselors of Maryland.)

HOT OFF PRESS: In the cover story of Barron's, dated Oct. 17 and on newsstands this week, John Neff, manager of the top-rated Windsor Fund, is quoted as reversing his recent 20 percent cash position to "almost fully invested."

The article adds that Mr. Neff now feels the Dow Jones industrial average could soon reach 5,000 . . .By contrast, the Cabot Market Letter, just received, warns, "Remember, money goes where it's treated best -- and interest rates have risen all year long and are still rising. Investors are switching from stocks to bonds, and this will continue to be a major problem for stocks."

MARYLAND MAILBAG: Rex Rehfeld, Gruntal & Co.'s Baltimore office, will mail his letter, "Oh My Gosh! It's October!" ("October has not been great for investors but Will Rogers warned, 'October is a dangerous month for buying stocks, along with NTC November, December, January, February, March, April, May, June, July, August and September.' But there have been notable October declines, the worst in 1929 and 1987. One cause for concern this October is the high valuation of the market.") . . . Call Legg Mason's Gerald Scheinker (486-8010) for "Mid-Atlantic Bank and Thrift Quarterly." ("Bank stocks will continue to provide gains and will outperform the market.") and "Real Estate Investment Trusts," a 55-page study with buy recommendations, including Washington REIT, widely-held in this area.

HOPEFULLY HELPFUL: "If you are fully vested in a pension plan and about to turn 55, it pays to start drawing your pension early. Even though you'll get smaller payments than if you had waited until age 65, in most cases you'll wind up ahead and be better off investing your pension money yourself." (Smart Money, October) . . .

T. Rowe Price New Era Fund (1-800 225-5132) is a great inflation hedge. Its objective is to invest in companies that own or develop natural resources and basic commodities." (Dick Davis Digest) . . .

Looking Ahead: Eastern Standard Time returns in just over a week and a half; next week we'll tell you how to get new train and plane schedules, timetables, etc. . . .

"Wall Street is a place where the day begins with 'good buys.'" (Bits & Pieces.) . . . "Nothing in fine print is ever good news." (Andy Rooney on "60 Minutes.")

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