My Investing Strategy

[Stunt]

My Investing Strategy:

This guy here explains the premise of the strategy. Key points are:

Consider the Dow30 ("Blue Chips"), invest in the 10 companies with the highest dividend yield (dividing the dividend by the current stock price), meaning they are under performing the rest of these staple american companies, yet still pay a decent dividend. These companies are less prone to recession downside, cover most sectors, and are unlikely to have large fluctuations in revenues. Every year rotate the investment to the next 10 highest dividend yield (basically keep buying low, year after year). 10 Dogs of the Dow

This model is good as it takes the emotion out of investing, all the companies are respectable, less risky, produces good dividends and upside potential.

Now, being canadian, I was hoping to keep most of my money domestic; therefore not everything will go into these american bluechips. I did my own analysis with the same considerations, but with canadian companies.

I took the TSX60 (elite stocks similar to the Dow30) and reseached the dividend yields of all the companies. What resulted was the companies I was considering investing in were considered good values and others that I didn't think of were brought to my attention. These stocks were: The 5 major canadian banks, bce, dofasco, enbridge, domtar, sun life, thompson, transalta, and transcanada. (yield of 2%+) Alcan, bombardier, CN, CP, loblaws, manulife, shaw, teck cominco, telus. (yield of 1%+).

So that's it, companies with good revenues (and profits), able to weather recessions, have good value, and well diversified. What do you guys think?

 

[Blastomyces]

Save youself the trouble and buy yourself a blue chip mutual find or a value fund. Fidelity Value is up like 15% this year.

 

[DaveSimmons]

It probably won't outperform an S&P 500 mutual fund like VFINX (or the ETF spider).

But taking the emotion out of buying is usually better than typical investors who buy too late (at or near a peak) then sell too soon out of panic.

 

[Descartes]

Given that the values of these companies don't seem to move you are investing almost entirely for the purpose of dividend yield. Why bother?

 

[Ns1]

Why don't you just buy some index funds?

 

[Stunt]

Originally posted by: Descartes
Given that the values of these companies don't seem to move you are investing almost entirely for the purpose of dividend yield. Why bother?

The dividend yield is based on the stock price and the dividend. So you get a minimum cashflow of 2 to 5% in addition to the upside potential of a lower priced stock.

The Dogs of the Dow consistently beat the Dow over time and the small dogs (lower priced of the 10 from a staright up dollar value) have had an annual 20%+ rate of return since 1973.

Investing is all about buying low, limiting your downside potential and making money. I think you may have missed that yield is comprised of dividend divided by stock price.

 

[Stunt]

Originally posted by: NeuroSynapsis
Why don't you just buy some index funds?

This strategy consistently beats the index and will not fall as much during the recessions. Blue Chips are good at limiting risk for core holdings.

 

[Descartes]

Originally posted by: Stunt

Originally posted by: Descartes
Given that the values of these companies don't seem to move you are investing almost entirely for the purpose of dividend yield. Why bother?

The dividend yield is based on the stock price and the dividend. So you get a minimum cashflow of 2 to 5% in addition to the upside potential of a lower priced stock.

The Dogs of the Dow consistently beat the Dow over time and the small dogs (lower priced of the 10 from a staright up dollar value) have had an annual 20%+ rate of return since 1973.

Investing is all about buying low, limiting your downside potential and making money. I think you may have missed that yield is comprised of dividend divided by stock price.

I know what a yield is, thanks. It makes little sense to me to to invest strictly based on yield; out of the large-caps mentioned in that list there seems to be little upside potential in the span of a year (at which point you said you'd buy the next 10)!

I believe that the "small dogs" had an annual return of 20+ or more (although not since 1973; there's no way they hit 20% in 2000-2002); some of my small-caps have doubled in a year! My small-caps this year are already up over 20%!

So, again, the strategy makes no sense when considering large-caps with little upside potential; it's entirely a function of its yield, and with that you can easily beat it. This is why I said, "What's the point?"

[edit]A little more research shows that they also focus on companies with a low P/E, so coupling that with a reasonable PEG and the high yield I can better see the potential. I still don't like it, but perhaps my aggression in the market will wane with years.[/edit]

 

[DaveSimmons]

Originally posted by: Stunt

Originally posted by: NeuroSynapsis
Why don't you just buy some index funds?

This strategy consistently beats the index and will not fall as much during the recessions. Blue Chips are good at limiting risk for core holdings.

from the article:

How does the Dogs of the Dow work in real life? For most of the past 20 years, it has consistently outperformed the Dow and S&P 500.

That's a little vague and the "most of" is troubling without having any numbers. Does any other article on this explain the overall, total performance over time vs. the S&P if you followed either strategy?

If this stategy beats the S&P by 0.1% 9 years out of 10 then underperforms by 5% on the 10th it's not really a better strategy.

 

[ponyo]

This strategy actually has decent following and I personally have always liked it. Then again I like dividend and like contrarian investing and stocks.

 

[Stunt]

Descartes, large caps have plenty of upside potential and even if this is not seen in the period of one year, the same stock will be on the list of investments for the next year. If the stock is still undervalued, it is worth hanging onto; just waiting for the upside swing while collecting a big dividend. You can make a lot of money elsewhere, but you need a lot of research, risk, and luck.

This takes a lot of the risk, time and emotion out of investing; this is the whole point.

You say that there's no upside in large caps, but I suggest you go look up these thirty stocks and see what their peaks and lows have been over the last couple years, i think you will be surprised the amount these stocks can change. Not as much as a junior...but I'm sure you are beginning to understand why the blue chips are better on the long term compared to juniors.

 

[Descartes]

Originally posted by: Stunt
Descartes, large caps have plenty of upside potential and even if this is not seen in the period of one year, the same stock will be on the list of investments for the next year. If the stock is still undervalued, it is worth hanging onto; just waiting for the upside swing while collecting a big dividend. You can make a lot of money elsewhere, but you need a lot of research, risk, and luck.

It's no luckier to make a lot of money elsewhere than it is to invest using this strategy. The diligent investor does his analysis just as those who publish the dogs of the dow; it's still just fundamental analysis.

This takes a lot of the risk, time and emotion out of investing; this is the whole point.

I hear that a lot, but if you're so damn emotional that you can't handle your money then you probably haven't made much money to begin with. It takes risk to make money, and that applies to a lot more than just risking your own money (e.g. switching careers hoping for a larger return on your knowledge investment).

You say that there's no upside in large caps, but I suggest you go look up these thirty stocks and see what their peaks and lows have been over the last couple years, i think you will be surprised the amount these stocks can change. Not as much as a junior...but I'm sure you are beginning to understand why the blue chips are better on the long term compared to juniors.

As I said in an earlier response, perhaps my aggression will slow with age; however, at the moment I can make a lot more through more aggressive strategies that look more for potential large-caps than large-caps with stability.

At this point I think we have a simple difference of opinion.

 

[Stunt]

I looked up the peak and low value for the Blue Chips using the span of 2-years.

SBC Communications 21%
GM 55%
Altria 43%
Merck 40%
Verizon 24%
JP Morgan 23%
Citigroup 17%
DuPont 27%
Pfizer 38%
GE 26%
Coca-Cola 28%
Honeywell 32%
Exxon 42%
Boeing 52%
Alcoa 30%
Procter and Gamble 22%
Johnson & Johnson 29%
3M 22%
McD's 37%
CAT 36%
HP 58%
Intel 41%
United Tech 33%
Microsoft 20%
Wal-Mart 23%
Disney 33%
American Express 20%
Home Depot 25%
IBM 25%
AIG 34%

Tell me those aren't good upside potentials?...:roll:

 

[Stunt]

Originally posted by: Descartes

Originally posted by: Stunt
Descartes, large caps have plenty of upside potential and even if this is not seen in the period of one year, the same stock will be on the list of investments for the next year. If the stock is still undervalued, it is worth hanging onto; just waiting for the upside swing while collecting a big dividend. You can make a lot of money elsewhere, but you need a lot of research, risk, and luck.

It's no luckier to make a lot of money elsewhere than it is to invest using this strategy. The diligent investor does his analysis just as those who publish the dogs of the dow; it's still just fundamental analysis.

This takes a lot of the risk, time and emotion out of investing; this is the whole point.

I hear that a lot, but if you're so damn emotional that you can't handle your money then you probably haven't made much money to begin with. It takes risk to make money, and that applies to a lot more than just risking your own money (e.g. switching careers hoping for a larger return on your knowledge investment).

You say that there's no upside in large caps, but I suggest you go look up these thirty stocks and see what their peaks and lows have been over the last couple years, i think you will be surprised the amount these stocks can change. Not as much as a junior...but I'm sure you are beginning to understand why the blue chips are better on the long term compared to juniors.

As I said in an earlier response, perhaps my aggression will slow with age; however, at the moment I can make a lot more through more aggressive strategies that look more for potential large-caps than large-caps with stability.

At this point I think we have a simple difference of opinion.

There is no analysis that really goes into picking these stocks, just looking at the profitability and the price, if they are making good money and they have a low stock price, that's a perfect time to buy.

I've been a very risky investor, and I am realistic to understand that everyone goes through bad times, and I hope to limit this downside potential.

My investments made well above 40% last year, so you can pretty much throw your assumptions about me out the window.

Your aggression will slow when you loose it all due to risky investments...it happens, don't try to ignore it. I'm sure you didn't do so well during the tech bust, what is your excuse for that?

 

[Stunt]

Descartes, if you don't mind me asking, what is your investment *strategy*.

Guess, Throw money at it, Hope for good returns?

 

[DaveSimmons]

There can be only one?

Investment strategies aren't The Gathering, your enthusiasm for your chosen strategy shouldn't make you think it is the only viable one.

My index-based strategy works well for me since I'm happy to have much lower risk than you and Descartes accept, in exchange for possibly lower gains.

It's also a perfect fit for my desire to spend essentially zero time investing -- a few times a year I send a check off to my brokerage and buy more index shares.

 

[zendari]

Originally posted by: DaveSimmons

Originally posted by: Stunt

Originally posted by: NeuroSynapsis
Why don't you just buy some index funds?

This strategy consistently beats the index and will not fall as much during the recessions. Blue Chips are good at limiting risk for core holdings.

from the article:

How does the Dogs of the Dow work in real life? For most of the past 20 years, it has consistently outperformed the Dow and S&P 500.

That's a little vague and the "most of" is troubling without having any numbers. Does any other article on this explain the overall, total performance over time vs. the S&P if you followed either strategy?

If this stategy beats the S&P by 0.1% 9 years out of 10 then underperforms by 5% on the 10th it's not really a better strategy.

Well, according to the DotD site

Perhaps one of you know better, but according to the article that Stunt linked to in his OP (and infact according to the 2004 RoR page on the very same website) the 2004 return was negative. Yet they mention a 4.4% return here. I'm not exactly sure how they get their numbers.

I do question how much better than the DJIA or 500 index this strategy is, %wise, in the long term. Take out the torrid growth years of the '90s and does the DotD strategy outperform these indexes at all? Ultimately blue chip stocks are blue chip stocks, and you aren't going to find very high return on them.

Ultimately right now in the short term its all about energy, oil, and related companies. I've only started investing in the last couple months, and I've gained 10% already. When I reach my 25% number I plan to cash out all the gains. It all depends on your attitude, and I would rather congratulate myself for whatever gains I have than kicking myself for whatever gains I should have had.

Stunt, your 1-2% yield rates are also signifantly lower than the 3-5% yield on the American stocks, so the historical effect over here is probably exxagerated if indeed this strategy is better than the index.

 

[Descartes]

Originally posted by: Stunt
Descartes, if you don't mind me asking, what is your investment *strategy*.

Guess, Throw money at it, Hope for good returns?

I guess that's what you think everyone that doesn't follow some published strategy does, right? It's all magic or luck?

I don't have some overall strategy that I apply like a recipe to stocks; I evaluate a number of stocks on both a fundamental and technical level, and if it meets my criteria I buy issues. What my criteria is depends on the sector, how much money I'm putting into it, etc. etc. Asking for a strategy is asking for trouble, imo. It's no different than just buying into a fund and letting the managers do everything for you; the difference is that you're pseudo-actively managing your portfolio but minimizing your return potential.

For what it's worth, my picks for this year have averaged over 20% return already this year; a few speculative plays went as high as 68% percent, but I rarely chase those.

Here are a few picks that I made a lot on so far this year:

HOMS
FORD
MIDD
CHK (I'm still holding CHK)
SWN (Still holding)
DXPE

There are some basic things I always evaluate, but some I will relax on if I'm simply considering an entry point for an upward trend. For example, if I'm relying on technical analysis on a fairly new security that's broken free of its EMA over the past 7 days I'll relax my views of its EPS growth over a few years.

Again, there are dozens of things that one might evaluate. To really discuss strategy would require a lengthy discussion. If you're near me (Cleveland, Tulsa, or Atlanta) we can do that over a beer :beer:

 

[Descartes]

Originally posted by: zendari

Originally posted by: DaveSimmons

Originally posted by: Stunt

Originally posted by: NeuroSynapsis
Why don't you just buy some index funds?

This strategy consistently beats the index and will not fall as much during the recessions. Blue Chips are good at limiting risk for core holdings.

from the article:

How does the Dogs of the Dow work in real life? For most of the past 20 years, it has consistently outperformed the Dow and S&P 500.

That's a little vague and the "most of" is troubling without having any numbers. Does any other article on this explain the overall, total performance over time vs. the S&P if you followed either strategy?

If this stategy beats the S&P by 0.1% 9 years out of 10 then underperforms by 5% on the 10th it's not really a better strategy.

Well, according to the DotD site

Perhaps one of you know better, but according to the article that Stunt linked to in his OP (and infact according to the 2004 RoR page on the very same website) the 2004 return was negative. Yet they mention a 4.4% return here. I'm not exactly sure how they get their numbers.

I do question how much better than the DJIA or 500 index this strategy is, %wise, in the long term. Take out the torrid growth years of the '90s and does the DotD strategy outperform these indexes at all? Ultimately blue chip stocks are blue chip stocks, and you aren't going to find very high return on them.

Ultimately right now in the short term its all about energy, oil, and related companies. I've only started investing in the last couple months, and I've gained 10% already. When I reach my 25% number I plan to cash out all the gains. It all depends on your attitude, and I would rather congratulate myself for whatever gains I have than kicking myself for whatever gains I should have had.

What are you holding in energy? CHK has been great to me, so has SWN. I'm considering CVX for long until I find another place for my money, and I'm looking into an entry for GLNG. I'm also considering FPPC on a more speculative play.

 

[Hector13]

Originally posted by: Stunt
My Investing Strategy:

This guy here explains the premise of the strategy. Key points are:

Consider the Dow30 ("Blue Chips"), invest in the 10 companies with the highest dividend yield (dividing the dividend by the current stock price), meaning they are under performing the rest of these staple american companies, yet still pay a decent dividend. These companies are less prone to recession downside, cover most sectors, and are unlikely to have large fluctuations in revenues. Every year rotate the investment to the next 10 highest dividend yield (basically keep buying low, year after year). 10 Dogs of the Dow

This model is good as it takes the emotion out of investing, all the companies are respectable, less risky, produces good dividends and upside potential.

Now, being canadian, I was hoping to keep most of my money domestic; therefore not everything will go into these american bluechips. I did my own analysis with the same considerations, but with canadian companies.

I took the TSX60 (elite stocks similar to the Dow30) and reseached the dividend yields of all the companies. What resulted was the companies I was considering investing in were considered good values and others that I didn't think of were brought to my attention. These stocks were: The 5 major canadian banks, bce, dofasco, enbridge, domtar, sun life, thompson, transalta, and transcanada. (yield of 2%+) Alcan, bombardier, CN, CP, loblaws, manulife, shaw, teck cominco, telus. (yield of 1%+).

So that's it, companies with good revenues (and profits), able to weather recessions, have good value, and well diversified. What do you guys think?

The "dogs of the dow" is a very questionable strategy... in the best case, it is simply a value tilted portfolio (and you can do much better with a more diversified value portfolio)... in the worse case, it is the epitome of data mining.

There was an article (I believe in the FAJ [financial analysts journal]) from a couple of BYU guys (one of the authors was named McQueen... don't remember the other) which pretty much shamed the motley fool version of the "dogs of the dow" for being nothing more than data mined. Now the motley fool strategy was an extreme case (they took something like the 5 lowest priced "dogs" and dropped the lowest priced stock and invested in the other 4 -- but put twice as much money in the second lowest priced stock vs. the other 3), but the dogs of the dow (DoD) strategy doesn't have much more merit either.

If you really want to make money from this strategy, try front running the other saps who are investing in the dogs. If you look at prices for stocks that you think will fit into the DoD strategy towards the end of december, I'm sure you will see them outperform the rest of the market until early January when people start rebalancing their DoD portfolios. Given the popularity of the DoD strategy, though, you are probably way too late to the game to even front-run the front-runners. Maybe you will have better luch with the Canadian version.

 

[Stunt]

Originally posted by: DaveSimmons
There can be only one?

Investment strategies aren't The Gathering, your enthusiasm for your chosen strategy shouldn't make you think it is the only viable one.

My index-based strategy works well for me since I'm happy to have much lower risk than you and Descartes accept, in exchange for possibly lower gains.

It's also a perfect fit for my desire to spend essentially zero time investing -- a few times a year I send a check off to my brokerage and buy more index shares.

No, of course not. I think i mentioned above that I would use this as a core holding as the upside potential is good, the dividend will give an automatic 2-5% on a yearly basis.

Again, I was hoping to apply this mindset on domestic companies rather than the Blue Chips in the US. It's similar to considering the P/E ratio, but at the same time including the dividends given by the company.

I would invest in companies I liked on the side for sure, but for a guy like me who is single with a good job (easily able to bank $20k+ a year), I need a tried and true strategy with low risk.

 

[Descartes]

Originally posted by: Stunt

Originally posted by: DaveSimmons
There can be only one?

Investment strategies aren't The Gathering, your enthusiasm for your chosen strategy shouldn't make you think it is the only viable one.

My index-based strategy works well for me since I'm happy to have much lower risk than you and Descartes accept, in exchange for possibly lower gains.

It's also a perfect fit for my desire to spend essentially zero time investing -- a few times a year I send a check off to my brokerage and buy more index shares.

No, of course not. I think i mentioned above that I would use this as a core holding as the upside potential is good, the dividend will give an automatic 2-5% on a yearly basis.

Then buy tax-exempt bonds that offer the same yield. A consistent yield is a good fundamental indicator, but to include it as one of the motivating factors in your investment strategy? Taxes alone on such a strategy would absolutely kill me.

Again, I was hoping to apply this mindset on domestic companies rather than the Blue Chips in the US. It's similar to considering the P/E ratio, but at the same time including the dividends given by the company.

Who cares, they're not growing! P/E doesn't mean a lot if the growth is stagnant. Looking at some of the companies in the DoD their growth is almost zero or negative. My holdings have a low P/E, fantastic earnings, and fantastic EPS growth.

I would invest in companies I liked on the side for sure, but for a guy like me who is single with a good job (easily able to bank $20k+ a year), I need a tried and true strategy with low risk.

Again, I don't see the point. It again seems you're assuming some investor responsibility without realizing any of the benefits.

 

[zendari]

Originally posted by: Descartes
What are you holding in energy? CHK has been great to me, so has SWN. I'm considering CVX for long until I find another place for my money, and I'm looking into an entry for GLNG. I'm also considering FPPC on a more speculative play.

I don't have the money, time, knowledge, or desire to transact individual stocks, so i chose VGENX

I've been tossing $1000 in may, june, and july on days the fund dropped. I'm only 19 so I still have a ways to go, but I plan on tossing a couple grand into a 500 index Roth IRA; I honestly don't see a superior long term investment out there.

 

[silverpig]

Here's mine:

Buy low, sell high.

Guaranteed to work.

 

[Descartes]

Originally posted by: zendari

Originally posted by: Descartes
What are you holding in energy? CHK has been great to me, so has SWN. I'm considering CVX for long until I find another place for my money, and I'm looking into an entry for GLNG. I'm also considering FPPC on a more speculative play.

I don't have the money, time, knowledge, or desire to transact individual stocks, so i chose VGENX

I've been tossing $1000 in may, june, and july on days the fund dropped. I'm only 19 so I still have a ways to go, but I plan on tossing a couple grand into a 500 index Roth IRA; I honestly don't see a superior long term investment out there.

I was lucky enough to get some of that action as well; it's been one of my better funds to date.