Dogs of the Dow: The simple stock picking strategy that works

Handlare utvecklar och reviderar ständigt strategier för att tjäna mest pengar på aktiemarknaden. Genom tiden har många strategier kommit och gått, få har haft någon betydande livslängd. Men under de senaste decennierna har Michael O'Higgins strategi myntad "Dogs of the Dow" byggt upp ett rykte som en relativt enkel och pålitlig långsiktig investeringsstrategi. För att förstå Dogs of the Dow måste du först bekanta dig med Dow Jones Industrial Average. "Dow" skapades 1896 av Charles Dow och är ett index som spårar resultatet för de 30 största NYSE- och NASDAQ-bolagen. Sedan starten har Dow Jones blivit utan tvekan det mest populära indexet och är det vanligaste måttet för att mäta den allmänna hälsan på den amerikanska aktiemarknaden.

Traders are constantly developing and revising strategies to make the most money in the stock market. Throughout time, many strategies have come and gone, few have had any significant longevity. But over the past few decades, Michael O’Higgins’ strategy coined “Dogs of the Dow” has built a reputation as a relatively simple and reliable long-term investment strategy. To understand Dogs of the Dow, you must first familiarize yourself with the Dow Jones Industrial Average. Created in 1896 by Charles Dow, the “Dow” is an index that tracks the performance of the 30 largest NYSE and NASDAQ companies. Since its inception, the Dow Jones has become arguably the most popular index and is the most commonly used metric to measure the overall health of the US stock market. O’Higgins realized how synonymous the Dow was with performance in the broader market, and searched for a strategy that would “beat the Dow.” In his mind, if you beat the Dow then you also beat the market, every investor’s ultimate goal. After some experimentation, O’Higgins settled on a simple set of steps. At the end of each year, calculate the dividend yield for each of the 30 Dow Jones stocks. Choose the 10 stocks with the highest dividend yield and invest an equal amount in each of them. Hold the stocks and collect their dividends until the end of the year, then repeat the process. Simple enough, right? For clarification, a company’s dividend yield is the ratio between its dividends and share price. O’Higgins chose to pick by dividend yield because he believed that Dow stocks set their dividend amounts based on the average value of their company. This idea, along with the idea that stock price moves according to where a company stands in the business cycle, means that a high dividend to low stock price ratio creates a perfect opportunity for investment. In other words, a high dividend yield communicates that a company has high value and a high potential for growth. Of course, this model is based on several key assumptions, but over time, his approach has consistently outperformed the Dow. It has proven to be an accessible and reliable model, perfect for new investors and long-term traders. If you want to get started in the stock market but don’t know where to begin, consider the Dogs of the Dow strategy. After all, numbers don’t lie.

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