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Beating the Dow Completely Revised and Updated: A High-Return, Low-Risk Method for Investing in the Dow Jones Industrial Stocks with as Little as $5,000
In 1991, Michael B. O'Higgins, one of the nation's top money managers, turned the investment world upside down with an ingenious strategy, showing how all investors--from those with only $5,000 to invest to millionaires--could beat the pros 95% of the time by putting 100% of their equity investment into the high-yield, low-risk "dog" stocks of the Dow Jones Industrial Average. His formula spawned a veritable industry, including websites, mutual funds, and $20 billion worth of investments, elevating the theory to legendary status.Reflecting on the greatest bull market of our time, this must-have investment guide has been revised and updated for a new economy. With current company and stock profiles, as well as new charts, statistics, graphs, and figures, Beating the Dow is the smart investment that you--and your portfolio--can't afford to miss.
320 pages, Kindle Edition
First published November 1, 1990
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Displaying 1 - 6 of 6 reviews
February 9, 2022
This is a book first published in 1990 by Michael B. O'Higgins. I read that version in the mid-90s. Then there was a 2nd edition published in 2000, which is what I'm reviewing now. O'Higgins manages to write a whole book to promote an investment strategy that can be explained in a few sentences. 1) Look at the current 30 constituents of the Dow Jones Industrial Average. 2) Sort them by dividend yield. 3) Filter down to the 10 stocks paying the highest dividend yield. 4) Invest equal amounts of money into these 10 stocks. 5) Hold everything for exactly one year, then repeat the process, making any switches as needed to conform to the strategy. This and similar strategies are often called the "Dogs of the Dow" or the Dow Dividend Strategy.
Much of the book is devoted to evidence that this strategy worked in the past by reliably outperforming the Dow Jones Industrial Index, and then justifying and explaining why this works. The idea is that a high-yielder in the Dow is a major, successful corporation that is currently out of favor -- its stock price is relatively low, therefore the dividend payout results in a relatively high current yield. And investors furthermore are probably overreacting to whatever bad news causes such a company to be out of favor, making the stock price a real bargain. There will be pressure on such a company to do whatever is needed to improve circumstances and stock price. Such a company will probably succeed in regaining favor to some degree, and in doing so its stock will recover from its lows and outperform the Dow average as a whole over the course of a year.
If you're wondering how an entire book can be written about this simple strategy, well O'Higgins devotes a lot of copy to stuff that's not strictly necessary. He explains how stock indexes work, discusses the leading indexes, and gives a brief history and profile of each and every one of the 30 stocks in the Dow as of the time this was written. Which was kind of interesting for some. Kodak (long gone from the Dow) was interesting, and I found some forgotten lore on ExxonMobil -- now headquartered within walking distance of my home in my Texas suburb, but which was once John D Rockefeller's original oil company, Standard Oil of New Jersey, the subject of a massive government-mandated breakup in 1911. But, I eventually started skipping these 20-year-old company capsules. After all, the whole point of this book's strategy is to invest 15 minutes a year on a deliberately brain-dead strategy that entirely avoids attempting to know anything about a company besides its dividend yield.
In fact it's literally at the 60% mark in the book (thanks Kindle) when O'Higgins commences the chapter that finally lays out the strategy. Even then we have a comically obsolete process based on how things used to work before the Internet. O'Higgins spends pages and pages describing in painstaking detail how you'd look at a printed list of Dow stocks from the newspaper and work through the arithmetic of old-style fractional prices, dividends, and resulting current yields just to figure out the list of the 10 high-yielders. (Nowadays, just Google "Dow stocks by yield", done.)
More copy is generated by variations. No sooner does O'Higgins explain a simple strategy that seems to beat the Dow, than he offers tweaks to that strategy to make variations that do even better (as does everyone else who refers to this book, it's like a hobby among people who write books about stocks). Hence a 5-stock variation and even a 1-stock variation for the gamblers.
Of course there is a major criticism to all this. All these results and recommendations are based on back-testing past data. And just because something worked in the past does not mean the same thing will work in the future. If you had a bunch of schoolkids spend an hour in the lunchroom flipping quarters, ONE kid end up flipping the most heads. That does not mean you can reliably count on that kid to win the next coin-flipping contest. It was random luck, and the same MIGHT be the case with all this.
In the end, who knows if this'll work going forward. Yeah I read this book in the 1990s but I was too busy gambling my money on tech stocks during the Internet bubble to follow the strategy. But I would say this is a book for the sort of audience interested in reading for pleasure about stocks.
Much of the book is devoted to evidence that this strategy worked in the past by reliably outperforming the Dow Jones Industrial Index, and then justifying and explaining why this works. The idea is that a high-yielder in the Dow is a major, successful corporation that is currently out of favor -- its stock price is relatively low, therefore the dividend payout results in a relatively high current yield. And investors furthermore are probably overreacting to whatever bad news causes such a company to be out of favor, making the stock price a real bargain. There will be pressure on such a company to do whatever is needed to improve circumstances and stock price. Such a company will probably succeed in regaining favor to some degree, and in doing so its stock will recover from its lows and outperform the Dow average as a whole over the course of a year.
If you're wondering how an entire book can be written about this simple strategy, well O'Higgins devotes a lot of copy to stuff that's not strictly necessary. He explains how stock indexes work, discusses the leading indexes, and gives a brief history and profile of each and every one of the 30 stocks in the Dow as of the time this was written. Which was kind of interesting for some. Kodak (long gone from the Dow) was interesting, and I found some forgotten lore on ExxonMobil -- now headquartered within walking distance of my home in my Texas suburb, but which was once John D Rockefeller's original oil company, Standard Oil of New Jersey, the subject of a massive government-mandated breakup in 1911. But, I eventually started skipping these 20-year-old company capsules. After all, the whole point of this book's strategy is to invest 15 minutes a year on a deliberately brain-dead strategy that entirely avoids attempting to know anything about a company besides its dividend yield.
In fact it's literally at the 60% mark in the book (thanks Kindle) when O'Higgins commences the chapter that finally lays out the strategy. Even then we have a comically obsolete process based on how things used to work before the Internet. O'Higgins spends pages and pages describing in painstaking detail how you'd look at a printed list of Dow stocks from the newspaper and work through the arithmetic of old-style fractional prices, dividends, and resulting current yields just to figure out the list of the 10 high-yielders. (Nowadays, just Google "Dow stocks by yield", done.)
More copy is generated by variations. No sooner does O'Higgins explain a simple strategy that seems to beat the Dow, than he offers tweaks to that strategy to make variations that do even better (as does everyone else who refers to this book, it's like a hobby among people who write books about stocks). Hence a 5-stock variation and even a 1-stock variation for the gamblers.
Of course there is a major criticism to all this. All these results and recommendations are based on back-testing past data. And just because something worked in the past does not mean the same thing will work in the future. If you had a bunch of schoolkids spend an hour in the lunchroom flipping quarters, ONE kid end up flipping the most heads. That does not mean you can reliably count on that kid to win the next coin-flipping contest. It was random luck, and the same MIGHT be the case with all this.
In the end, who knows if this'll work going forward. Yeah I read this book in the 1990s but I was too busy gambling my money on tech stocks during the Internet bubble to follow the strategy. But I would say this is a book for the sort of audience interested in reading for pleasure about stocks.
March 17, 2019
Think like Buffet easy peasy
January 19, 2016
Everything in this book makes a lot of sense to me, both technically and theoretically. I've started paper trading based on the ideas presented, and I'm excited to see where the results go.
February 11, 2024
Leider ist der Firmenteil hoffnungslos veraltet, der allgemeine Teil ist okay, aber jetzt auch nicht sehr erhellend.
October 23, 2024
Five stars for the content and easy reading style . You could do no better than following this advice, Good explanation of the Dow and the various market cycles . Recommended
September 25, 2009
The "Dogs of the Dow" theory, the focus of this book, has been debunked.
Displaying 1 - 6 of 6 reviews