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Running with the Dogs of the Dow


There is a way that you can build a portfolio of stocks without worrying about doing research on individual stocks. As a bonus, you'll only need to spend less than an hour a year on your portfolio, and you'll never own more than ten stocks. And the result of this "auto-pilot" investment approach is a portfolio that will provide excellent returns, beating the market averages year in and year out.

Does this sound like your idea of investing nirvana? This approach goes by the lowly sounding name of the Dogs of the Dow.

The "Dow" part of this strategy refers to the Dow Jones Industrial Average, an index of 30 companies that is used to measure the performance of the overall market. These companies represent some of the biggest companies in the U.S., including Sears, Hewlett-Packard, General Motors, Exxon, and AT&T.

The "dogs" part of this approach refers to the ten companies (out of the 30 in the Dow) that you must invest in once a year. The overall idea is to invest in the ten recently worst performing stocks out of the 30 in the Dow -- the "dogs" of the Dow.

Invest in the worst, you ask? Why would any investor do that, you wonder? The answer is fairly simple. Because these 30 companies are among the best known companies in the country, even the ten worst of the bunch have proven to be exceptional recovery acts, year after year. Although a handful of the Dow might be beaten down at any point in time, they usually rebound quite handily.

You can learn more about it at a Website devoted just to this investment strategy. On the Dogs of the Dow site, click on "Dog Steps" and you'll be presented with an explanation of how you can invest in the dogs. Once a year, you need to review the dividend yields of all 30 stocks in the Dow. The dividend yield of a stock is figured by taking the total annual dividend that's paid per each share of stock, and then dividing it by the current share price. You can find this figure in any newspaper's stock listings, or many Internet quote servers.

Next, identify the ten Dow stocks with the highest dividend yields. These are the stocks that have had their prices knocked down (that's why the dividend yield is so high).

Finally, buy an equal dollar amount of all ten of these stocks. Hold them for one year, and then repeat the process. That's all there is to the Dogs of the Dow approach!

So, does it work? From 1973 to 1996, the dogs approach would have earned an annual return of 17.7 percent, compared to a return of 11.9 percent for the entire Dow Jones Industrial Average during the same period. That's quite a difference. And with no worries about deciding when to sell, the Dogs of the Dow method is truly a couch potato investor's dream come true!