Advantages of Dogs of the Dow Strategy : NobleTrading Blog

Tuesday, January 12, 2010

Advantages of Dogs of the Dow Strategy

Past performance statistics and simplicity has made Dogs of the Dow a favorite investing strategy for many investors. It can be regarded as an investing strategy with many merits and some demerits. To know more, read Dogs of the Dow investing strategy.

Advantages of Dogs of the Dow

It is a very simple investing strategy that doesn't need much market knowledge, data mining and technical analysis.
It is a passive investing strategy that requires very little time.
The strategy has less downside risk and good reward potential as one is investing in low priced stocks that constitute one third of DJIA in terms of number.
It removes fear, greed and anxiety from investing.
The strategy is also tax savvy and helps investors to get good quarterly dividends.
The strategy offers very good diversification, especially when it constitutes below 25% of a portfolio.
It minimizes the trading costs involved in investing.
The past history of the strategy is very good as most of the time the strategy has managed to beat the average early Dow return.

Disadvantages of Dogs of the Dow

The past performance of the strategy does not guarantee future performance.
The strategy is based on dividend yield, which is not a standard indicator like P/E ratio or price-to-book ratio.
Although not yet noticed, companies can adjust their dividends to get into or get out of the Dogs list. This can harm the strategy goals.
The strategy does not suit active traders/investors and it demands great patience.
Market cycles and economic changes can affect the returns.
As the strategy involves buying and selling at year start, the investors are not likely to benefit fully from interim price benefits.