When the Fool invests, he follows a particularly un-Wise procedure


Robert Sheard of Lexington, Ky., a writer for the Motley Fool, recently shared a Top Five list on what Foolish (good) investors do and a Top Five list on what Wise (bad) ones do.

Fools make their own decisions on which stocks to buy. If you choose to hire a broker to do that for you, you must do your homework first and determine if the broker can do a better job of investing money than you can, Sheard said.

Know how your investments do against the market, not just against indexes such as the Dow Jones industrial average or the Standard & Poor's 500, Sheard said.

"Most people, if they see their statements going up, assume their fund is doing great. They'll say, 'I made 12 percent last year.' Yeah, well maybe the market was up 30 percent last year. You actually had a very poor year relative to the market," Sheard said.

Similarly, Foolish investors also must understand that a good year relative to the market might be one in which their investments were down 5 percent, while the market was down 30 percent.

Keep trading to a minimum.

"We [Fools] are very much against frequent trading. Day trading is pretty much our idea of a nightmare," Sheard said. "By the time you take into account all the different costs, you've eaten up a lot of the possible returns."

Sheard likes the Dow Dividend Approach partly because you trade just once a year. The Dow approach goes like this: Find the 10 highest dividend-yielding stocks among the 30 Dow stocks. Rank those 10 stocks by price and then buy the five cheapest.

"The theory behind it is pretty simple -- that all of these stocks value dividends. The ones with the highest [dividend] yields are generally the ones that have been beaten down the most. So you are buying them and just being patient while they right their ship and come back again," Sheard said.

Sheard also advises keeping brokerage fees low. Trades at Ameritrade are just $8 a pop.

Don't let investments take up your whole life.

"Don't obsess about your stock," Sheard said. "Just stick to the strategies you know work for you and then go on about your life."

Sheard can't even name off the top of his head the stocks he owns. He also likes the Dow approach because it takes only about 30 minutes a year to pick your stocks.

Don't get emotional about your stocks. Realize you are in the market for the long haul, and don't get upset at every downturn in the market. Sheard's book, "The Unemotional Investor," is slated to be published in April by Simon & Schuster.

What Fools don't do:

Don't pay full-service brokers.

Don't invest on hot tips.

Don't buy penny stocks.

Don't invest in options.

Don't focus on the short term.

Pub Date: 1/26/98

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