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Have anyone tried this mechanical method on the stocks in the STI mainboard
Most investors like the hands-on approach to researching and buying individual stocks. They may or may not trade frequently, but they are actively engaged in their investments.
However, some investors want to own individual stocks, but need an investment technique that requires a minimum of effort and has proven successful in the past.
The ?Dogs of the Dow? is one of the most popular ?mechanical? investing techniques. The Dogs technique takes all of the research, strategy, and guesswork out of investing. In fact, your total time required amounts to about an hour each year.
As goofy as that sounds, this technique has been around since the early 1990s when Michael O?Higgins introduced it in a book. Here?s how it works:
- Once each year, you look at the 30 stocks in the Dow and pick the 10 with the highest dividend yield. A high dividend yield may indicate the stock is under-priced and due to rally according to the Dog theory. You invest an equal amount in each of these 10 stocks, and then wait.
- After one year, you look at the Dow again. You sell the stocks that are no longer in the top 10 by dividend yield (they will not be there because their price has risen).
- You replace them with the stocks that now make the top 10 list by dividend yield (they will be there because their price has fallen.)
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The original strategy called for rebalancing your portfolio at the beginning of the year, however there is no reason for this and, due to the popularity of this strategy, it may work better to begin and rebalance at another date.
Of course, the big question is: Does it work?
Over the years, the Dogs of the Dow has beaten the S&P 500 Index more times than not. However, it is not foolproof and has faltered during period such as the tech boom of the late 1990s. In the following bear market, it held up well outperforming the S&P500 in 2001 ? 2002. The 2003 class, which for comparison purposes started as of Dec. 31, 2003 is lagging behind the S&P 500 by a few percentage points through mid-August.
If you are looking for a mechanical, non-emotional way of investing in the stock market, the Dogs of the Dow may be your answer. Be aware, however, that past performance does not guarantee future results and more than a few analysts liken the Dog theory to reading tea leaves.
For more information and the current Dogs, visit http://www.dogsofthedow.com/doggish.htm