The “Dogs of the Dow” is an investment strategy that is based on buying the ten worst performing or highest yielding stocks in the Dow Jones Industrial Average (DJIA) at the beginning of the year. The strategy then holds these ten stocks over the calendar year and sells these stocks at the end of December. The process then restarts, buying the ten worst performers or highest dividend yielders from the year that has just finished.
Following outsourcing services provider Spotless’ 49% fall in December (which wiped A$1.2 billion off its market capitalisation), in this week’s piece we are going to look at the “dogs” of the ASX, focusing on large capitalisation Australian companies with falling share prices. Additionally I am going to sift through the trash to try to discern any fallen angels.
Unloved Mutts
The Dogs of the Dow made famous by O’Higgins in his 1991 book “Beating the Dow” and seeks to invest in the same manner as deep value and contrarian investors do. Namely, invest in companies that are currently being ignored or even hated by the market; but because they are included in a large capitalisation index like the DJIA or ASX 100, these companies are unlikely to be permanently broken and may have the financial strength or understanding capital providers; (shareholders and banks), that can allow the company to recover over time.
Read more here.