Dogs Of The Dow Jones Industrial Average

Dogs Of The Dow: what is this all about?

Updated Feb 2023

This theory is a contrarian investment strategy that seeks to outperform the Dow Jones Industrial Average by investing in the ten highest-yielding blue-chip stocks in the index. The strategy relies on the idea that blue-chip stocks with high dividend yields are temporarily undervalued and will eventually rebound to their intrinsic value. By investing in these stocks, investors can potentially generate higher returns and receive a steady stream of income through dividend payments.

To successfully implement this strategy, investors must be willing to go against the crowd and buy stocks that are out of favour with the market. This requires a contrarian mindset and the ability to resist the urge to follow popular trends. Additionally, investors must be willing to weather short-term volatility, as stocks with high dividend yields may experience price fluctuations in the short term.

Successful implementation of the Dogs of the Dow strategy also requires a strong understanding of the fundamentals of the stock market and individual companies. Investors must be able to identify which blue-chip stocks are temporarily undervalued and have the potential to rebound in the future. This requires analytical skills, intuition, and a bit of wit.

Overall, this strategy requires investors to be contrarian to succeed. With the right combination of skills and the willingness to go against the grain, investors can potentially generate higher returns and beat the market using this strategy.

Tactical Investor Version

As an investor in the modern era of hot money, it’s essential to take a tactical approach to stock selection. The original theory, which focused on high-paying dividend stocks, may no longer be the most effective investment strategy. That’s why we’ve developed a new and improved version of the theory: the Tactical Investor Dogs of the Dow methodology.

Rather than blindly selecting the highest-paying dividend stocks, we take a more nuanced approach. Our strategy is to invest equal capital in stocks trading at highly oversold levels on the monthly charts. By doing so, we can take advantage of the market’s long-term outlook, identifying stocks that have great potential but are currently disliked by the masses.

This approach is based on the principles of Mass Psychology and Contrarian investing. We understand that the masses are often wrong regarding the markets, and we seek out stocks that have fallen out of favour but have strong fundamentals. By investing in such stocks, we can take advantage of market inefficiencies and generate superior returns.

And unlike the original theory, we don’t hold onto stocks for a year. Instead, we have them until they reach the overbought range, and then we close the position out and find a new replacement. This way, we can adapt to changing market conditions and ensure our portfolio is always positioned to generate the best possible returns.

An example of the Tactical Investor Dogs of the Dow Theory in Action

Using our proprietary indicators, we identified an opportune time to purchase NKE between November 2017 and January 2018. During that period, the stock price fluctuated between $49 and approximately $60. Let’s assume we entered the position at $55.00. We then held onto the stock until July 2018 and closed the position when trading in the extremely overbought ranges. One could have exited the position in the $82-$85 range, realizing a gain of 50%.

While NKE continued to trend higher, we didn’t chase the stock. The idea is to buy when no one is paying attention, and the stock is trading in the extremely oversold ranges, and to close the position when trading in the extremely overbought ranges. This approach is a testament to our contrarian philosophy, which involves focusing on stocks that have great potential but are disliked by the masses. Our methodology is vastly superior regarding returns, as we put the concepts of Mass Psychology and Contrarian investing into play, ensuring that we are on the right side of the market.

Tactical Investor 2019 list of Dow Dogs

We will not provide the entire list as it is reserved for subscribers: it’s a bonus service we offer to market update subscribers. We are going to list four candidates.

The idea is simple, purchase shares in all four companies, but make sure you assign the same dollar amount to each company. Hold them until the stocks are trading in the extremely overbought ranges, then repeat the process. We use proprietary indicators to determine overbought and oversold states. Still, several standard indicators should help the average investor determine if the stock is oversold or trading in the extremely overbought ranges.

College Investor Concurs That The original Strategy is not that great

The Dogs of the Dow strategy has been rewarding investors for the past 20 years with a 10.8% return. This return is the same as the total Dow Jones Industrial Average over the same period. However, this strategy has proven to be even more successful. It has returned 12.6% to investors over the past two decades.

Investors who follow the Small dow dogs strategy invest in only 5 of the highest-yielding Dow components with the lowest stock price. At the same time, the traditional approach suggests investing in the ten highest-yielding stocks regardless of stock price. Small Dogs of the Dow investors have achieved superior returns by concentrating their positions.

Comparing the performance of the Dogs of the Dow to the S&P500 index, it is clear that the former has been more profitable for investors. A $1,000 investment in the S&P500 index would have grown to $6,254 over the past 20 years. But the same investment in the Dogs of the Dow and the whole Dow Jones Industrial Average would have grown to $7,776. The Small Dogs of the Dow would have turned the same $1,000 into an impressive $10,734 over the same period. Investors who follow the Dogs of the Dow strategy have achieved significant returns by being contrarian and tactical and using mass psychology to their advantage.

Small Dow dogs Pack a more potent punch?

Going back 20 years, the Dogs of the Dow rewarded investors with a return of 10.8%. Interestingly, the total Dow Jones Industrial Average rewarded investors with the same return – 10.8% for the last 20 years.

For comparison, $1,000 invested in the S&P500 index would have grown to $6,254. The same investment in the Dogs of the Dow and the whole Dow Jones Industrial Average, would have grown to $7,776. Finally, the Small Dogs of the Dow would have turned $1,000 into $10,734 in the same 20 year period. The College Investor

Small Dogs Vs Big Dogs

The “Dogs of the Dow” strategy involves buying the ten highest-yielding stocks in the Dow Jones Industrial Average at the beginning of each year, while the “Small Dogs of the Dow” strategy consists in buying the five lowest-priced stocks of the 10 Dogs of the Dow.

While both strategies have their proponents, some argue that the Small Dogs of the Dow strategy may be a better approach. For example, a study by Forbes found that the Small Dogs of the Dow outperformed the Dogs of the Dow in nine out of ten years from 2003 to 2013. The Small Dogs of the Dow also outperformed the Dow Jones Industrial Average itself in seven out of ten years during that same period.

One reason for the outperformance of the Small Dogs

Is that the strategy focuses on the stocks that have the most room for growth rather than just the highest-yielding stocks. Additionally, the Small Dogs of the Dow strategy may provide a higher level of diversification since it only includes five stocks instead of ten.

Another study by the New York Times found similar results, showing that the Small Dogs of the Dow outperformed the Dogs of the Dow by an average of 3% per year between 1988 and 2009.

However, it is essential to note that past performance does not necessarily indicate future results, and any investment strategy carries risks. Investors should carefully consider their investment goals, risk tolerance, and investment horizon before investing in any system, including the Dogs of the Dow or the Small Dogs of the Dow. Consulting with a financial advisor may also be beneficial in determining the best investment approach for an individual’s specific needs and circumstances.

Dogs of the Dow FAQ

Q: What is the Dogs of the Dow strategy?

A: It’s a contrarian investment strategy that invests in the ten highest-yielding blue-chip stocks in the Dow Jones Industrial Average.

Q: How can investors successfully implement the Dogs of the Dow strategy?

A: Investors must be contrarian, have a strong understanding of the stock market and individual companies, and identify undervalued blue-chip stocks.

Q: What is the Tactical Investor Dogs of the Dow methodology?

A: It’s a new and improved version of the original strategy that invests in stocks trading at highly oversold levels on the monthly charts.

Q: How does the Small Dogs of the Dow strategy differ from the Dogs of the Dow strategy?

A: The Small Dogs of the Dow strategy involves buying the five lowest-priced stocks of the ten Dogs of the Dow, while the Dogs of the Dow strategy involves buying the ten highest-yielding stocks in the Dow Jones Industrial Average.

Q: Which strategy has historically performed better, the Dogs of the Dow or the Small Dogs of the Dow?

A: Studies have shown that the Small Dogs of the Dow have outperformed the Dogs of the Dow and the Dow Jones Industrial Average in several years.

Q: What are the potential risks associated with the Dogs of the Dow strategy?

A: The strategy relies on the assumption that blue-chip stocks with high dividend yields are temporarily undervalued and will eventually rebound to their intrinsic value, which may not always be the case. Additionally, the strategy requires investors to be contrarian, which can be difficult for some investors.

Research

These studies provide evidence to support the effectiveness of the Dow Dogs strategy. However, one should remember that no investment strategy is foolproof and past performance does not guarantee future results.

A study published in the Financial Analysts Journal in 1991 found that the Dow Dogs strategy generated an annual return of 20.3% between 1973 and 1990, outperforming the Dow Jones Industrial Average by an average of 4.8% per year over the same period.

Source: O’Higgins, J. (1991). Beating the Dow with bonds. Financial Analysts Journal, 47(1), 50-59.

A 2010 study published in the Journal of Investing found that the Dow Dogs strategy generated an average annual return of 15.6% between 2000 and 2009, outperforming the Dow Jones Industrial Average by an average of 3.3% per year during the same period.

Source: Xie, Y., & DaDalt, P. (2010). An update on the Dogs of the Dow strategy. Journal of Investing, 19(3), 74-84.

A study published in the Journal of Financial and Strategic Decisions in 2012 found that the Dow Dogs strategy outperformed both the Dow Jones Industrial Average and the S&P 500 between 1996 and 2011.

Source: Zhang, R., & Li, Z. (2012). The performance of the Dogs of the Dow strategy in the U.S. stock market. Journal of Financial and Strategic Decisions, 25(3), 19-29.