David, I don't know of any funds that follow this approach, but for anyone interested in the Dow 5 method....
You can buy your 5 stocks through a discount broker for $20 a trade, or $100 to buy your five stocks and another $100 to sell them one year later. If you have $10,000 or more to invest using this approach, your cost would be lower than buying a no load mutual fund with a 2.1% M.E.R.
BTW, if you had mechanicaly applied the dow 5 approach from 1973-89 (I own the 89 edition of "Beating The Dow" but the numbers have held up in the 90's as well) your average rate of return would have been >22% vs <11% for the Dow. This is fact not conjecture. Think about it, your total compounded return would have been 2400% vs 500% for the Dow over the same period. The key is to buy and sell mechanically and ignore EVERYTHING ELSE.
BTW, your worst down year would have been -3.75% in 1974 vs -23.14% for the dow.
An excellent book on the subject, with stats and all kinds of variations, is: Beating The Dow, by Michael O'Higgens.One interesting variation,is Motely Fool's foolish four, wherein you toss the cheapest stock and double up on the second cheapest. The returns are supposedly marginally better, and the transaction costs are lower. Why buy a fund when you can do 5 minutes of homework each year and outperform 90% of all professional money managers?
Regards
Miklosh |
