The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: MichaelB on November 14, 2016, 10:56:14 AM
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I was doing a bit of reading over at ERE and came across the Dogs of the Dow method. Basically, you purchase evenly into the 10 stocks in the DJIA with the highest yields, rebalance and reallocate once a year. If a position drops out of the top 10, drop it and replace it with whichever security took its place.
Seems like an easy way to get into a bit of value investing with individual stocks. Anyone have any experience with it? I'm curious to know how it's gone for you.
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No experience with it but it is an interesting strategy. The biggest downsides to it is the transaction costs and the extremely limited investment options and potential for a lack of diversification. As far as an active investment strategy I am sure you could do a lot worse.
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I shouldn't reference the same book on consecutive days, but David Swensen, the astonishingly successful active investment manager of the Yale Endowment fund talks about strategies like the "Dogs of the Dow" gambit in his "Pioneering Portfolio Management" .
His take (at least as I read his wonderful book) is that these sorts of simplistic gambits regularly look great and over long stretches of time--right up until the point when they burn the naive investors who thought something so simple would work long term.
P.S. Swensen's book for individual investors, "Unconventional Success," says we individual investors ought to use a tiny handful of cheap index funds... specifically funds with 30% US stocks, 15% each in intermediate treasuries, TIPS, REITs and developed international stocks, and then 10% in emerging market stocks. FWIW, I use Swensen's individual asset allocation formula, employing cheap Vanguard index funds as my building blocks.