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Old 01-01-2013, 02:41 PM   #21
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First... full disclosure of a personal nature: Barry and I shared a house for a month or so during college; and he and I served on the student government at the same time. He was a great guy and from all indications I am sure I'd still feel the same way today.

Second, I did some of this silly stock picking stuff myself twelve and a half years ago. I picked four stocks, though, not ten. DD, IP, SBC and CAT, in equal measures. Folks may recall these were the Dogs of the Dow at that point. As of October of this past year (the last month I held all four positions), DD was down 3.31%, IP was down 2.71%, T (SBC) was down 14.2%, and CAT was up 374.95%, so on average these holdings gained about 80% over twelve and a half years.

In 2002, I put some money into Vanguard 500 Index. Coincidentally, that holding has gained more than 80% over just ten years, underscoring the lesson that I'm better off with broad market indices than with trying to pick some magical combination of stocks that will beat the market.
Those four are actually 4/5 of the small dogs of the Dow strategy of 2002 and perhaps an off-take of the strategy which was once called the Foolish Four where you also allocated 40% of the money to the cheapest stock. However had you actually used the small dogs of the Dow theory and refreshed annually, which would mean you would own the 5 lowest priced of the 10 highest yielding Dow stocks for one year and actually stuck to this strategy you actually would have been up over 100% in the last 12 years.

If anyone invested $100,000 in this strategy starting in 1992 the first full year after the strategy was published by Michael B O'Higgins in his book, you would have a little over $1,186,000 today versus $673,000 had you invested the same in the Vanguard S&P500.

The strategy works because it takes into consideration changes each year and that valuation matters.
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Old 01-01-2013, 02:49 PM   #22
Thinks s/he gets paid by the post
 
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Quote:
Originally Posted by bicker View Post
First... full disclosure of a personal nature: Barry and I shared a house for a month or so during college; and he and I served on the student government at the same time. He was a great guy and from all indications I am sure I'd still feel the same way today.

Second, I did some of this silly stock picking stuff myself twelve and a half years ago. I picked four stocks, though, not ten. DD, IP, SBC and CAT, in equal measures. Folks may recall these were the Dogs of the Dow at that point. As of October of this past year (the last month I held all four positions), DD was down 3.31%, IP was down 2.71%, T (SBC) was down 14.2%, and CAT was up 374.95%, so on average these holdings gained about 80% over twelve and a half years.

In 2002, I put some money into Vanguard 500 Index. Coincidentally, that holding has gained more than 80% over just ten years, underscoring the lesson that I'm better off with broad market indices than with trying to pick some magical combination of stocks that will beat the market.
Those four are actually 4/5 of the small dogs of the Dow strategy of 2002 and perhaps an off-take of the strategy which was once called the Foolish Four where you also allocated 40% of the money to the cheapest stock. However had you actually used the small dogs of the Dow theory and refreshed annually, which would mean you would own the 5 lowest priced of the 10 highest yielding Dow stocks for one year.

Had you actually stuck to this strategy you actually would have been up over 100% in the last 12 years. Had you invested $100,000 in this strategy for starting in 1992 the first full year after the strategy was published by Michael B O'Higgins in his book, you would have a little over $1,186,000 today versus $673,000 had you invested the same in the Vanguard S&P500.

The strategy works because it takes into consideration changes in stocks performance each year and that relative valuation matters.
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Old 01-01-2013, 03:13 PM   #23
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Running Man, your post shows how important regular review (and valuation) is. I always wondered how the Dogs of the Dow would turn out over the long run. A while back, it did not look consistent enough to hold my attention, though.
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