 |
 | |
 |  |
| 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. |
This thread is for discussion of the Dogs of the Dow, the Foolish Four and other market-beating strategies. As we all know, the approach was pioneered by Michael O'Higgins, author of Beating the Dow, and has since been tweaked and refined by others, mainly on the Motley Fool website. The basic premise underlying all the approaches is that out-of-favor blue-chip companies tend to outperform the Dow as a whole, with greater safety, and all the various permutations seem to uphold this theory. I won't rehash all the theories – the goal of this thread is to further refine them and find strategies that work even better – but I'll include two links for those needing a primer: fool.com for the current “RP” approaches used on the Fool's website, and fool.com for the “UV” approaches developed by Robert Sheard and outlined in his book “The Unemotional Investor.” My own favorite of the undervalued Dow approaches is the one detailed by Kenneth Lee in his book “Trouncing the Dow.” This approach seems to be the best and the safest, providing 28% annualized returns since 1973, and also seems good for non-IRAs, as Lee holds his stocks for a long time. It's a complicated theory, but Lee sends out a free newsletter; you have to read the book to understand it. He can be reached at 800-457-3177. A few thoughts: For those of you following the Dogs of the Dow portfolios (in all their various permutations), there seems to be a buying frenzy in these stocks that occurs between Christmas and early January, somewhat akin to money managers buying a stock when it is added to the S&P 500. This artificially inflates the prices of these stocks and subsequently causes the returns of the Dow portfolios to be lower. To avoid this phenomenon, you could switch your portfolio on Dec. 20, or take note of the stocks you would have bought on Jan. 1 and wait for them to come down a bit. Charting is a very good way to pick support points; this year, for example, CAT had a gap to fill at 42, and its was pretty clear that GT was going to retest 46; both stocks eventually touched those levels despite starting the year higher. (Those were the two stocks in the UV2 approach this year, which I follow.) I've also wondered if sell points could also be chosen, as many of these stocks hit new highs and then pull back. In general, I have not tried this, as it could exclude some of the theories' best-performing years. I'm very interested in LEAPs and would like to hear from anyone else who has tried this approach. This year, for example, GT traded at about $50 on Jan. 20; the Jan. 2000 40 LEAPs sold for about $14 at that time. On May 14, GT traded at $63, while the Jan. 2000 40 LEAPs were trading at $23 – a 26% return for the stock, but a 64% return in the LEAPs. CAT showed even better results. A word of caution, however: because of the 5-10% time premium built into the LEAPs, you need a 5-10% return in the underlying stock just to break even; anything less would result in a loss, so it is probably wise to use very much in-the-money LEAPs. Also, the time premium disappears at the greatest rate during the last six months of a LEAP, so it might be preferable for those following this approach to follow a July 1-June 30 investing calendar and buy LEAPs 18 months from their expiration date. Also, I've wondered if one could safely make up his or her entire portfolio just of the four-stock methods by splitting your money in half and buying stocks twice a year, in January and June – that would give you 8 stocks (and something blossoming all the time); studies have shown that you only need to hold 8-10 stocks in your portfolio to dampen volatility, and those who have studied the Dow Dog approaches claim the results are the same regardless of what time of year you buy. I am also interested in knowing if anyone has any data on these approaches from 1929-1932; I've been told they would have outperformed the market during that time, but I have never seen the numbers. I am also fond of other market-beating approaches and would like to hear from people on those. Two in particular I follow are Gene Peroni of Nuveen (formerly of Janney Montgomery Scott) and the work of James O'Shaughnessy. | ||||||||||||
|
| Home | Hot | SubjectMarks | PeopleMarks | Keepers | Settings |
| Terms Of Use | Contact Us | Copyright/IP Policy | Privacy Policy | About Us | FAQ | Advertise on SI |
| © 2025 Knight Sac Media. Data provided by Twelve Data, Alpha Vantage, and CityFALCON News |