Beating the Dow funds? Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Beating the Dow funds?

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: BRK who wrote (19)	3/5/1997 1:25:00 AM
From: Stingray	of 47

I'm somewhat sceptical of the Dogs of the Dow approach and other variations for the following reason. You may be able to find a pattern in historical data which will reveal a strategy which will give a high return. You may even put it to the test after discovering it and find that you get again beat the averages over a 10 year period. This doesn't prove to me that the approach will work in the future because the sample size is way too small. Consider the following analogy. Suppose you were to take 100 horse races and look at all the data regarding the age and weight of the horses and riders and the odds of winning. Chances are that you could derive some formula for betting such as "Always bet on the favorite", or "Always back the youngest horse in the field" or whatever which when applied to that sample of 100 races would yield a handsome profit. You could then go and apply that rule, there would be an almost 50% chance that you would be ahead after a few races but it would not prove anything until you had a larger sample.We only have around 100 years of Dow data so if you treat each year as a separate event you are talking about a sample of size 100. The other problem is that just because something has worked in the past is no guarantee that it will continue to work. Investors pay less attention to dividends these days, many companies such as Philip Morris choose to spend a lot of money which could go to dividends to buy back stock. Mutual funds account for a much higher percentage of the market. The market is very different now than it was even 10 years ago so its hard to see how you can say that a market inefficiency which undervalues dow stocks with high dividends still exists. Has anyone tried to analyze this approack on other groups of 30 large stocks, such as the 30 largest capitalization stocks of the S+P 500 (excluding any stocks common to the S+P 500 and the Dow), if the formula worked for that group also I would be more convinced. In the meantime I'm not ready to put my savings into 4 stocks which are chosen by a rather arbitary rule.

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next