Foolish Four

The "Foolish Four" is a discredited^[1] 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. The main people responsible for discrediting the Foolish Four were two contributors, Datasnooper and Qwerty_RP4. They showed that there was no statistical validity to the stocks picked by the Foolish Four. There was no statistical difference between stocks picked by the formula on any day other than January 1 during the period of backtesting. There was no statistical difference between stocks picked on January 1 after the method was published. The entire outperformance was due to curve fitting of backtested data.

To identify the "Foolish Four," an investor determines the current dividend yield and current price for each of the 30 stocks comprising the Dow Jones Industrial Average. Then, the yield for each stock is divided by the square root of the stock's price. The stocks are ranked from highest to lowest using the number resulting from the division. The stocks ranking the second highest, third highest, fourth highest, and fifth highest in equal dollar amounts are bought. The highest ranking stock is not bought.

Subsequent review of this technique^[1] 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.^{[2] [3]}

References

1. Ann, Coleman (December 14, 2000). "Foolish Four Research Results". The Motley Fool. Retrieved 2 January 2013.
2. Gardner, David, and Tom Gardner (December 11, 2000). "Farewell, Foolish Four". The Mottley Fool. Retrieved 2 January 2013.
3. Ann, Coleman (December 29, 2000). "Fool Four Moves On". The Motley Fool. Retrieved 2 January 2013.

External links

• "The Foolish Four...Explained"
• "Foolish Four Research Results"
• "Fool Four Moves On"