Displaying items by tag: dow
It should not be this easy to beat the Dow, but it is. In the last ten years, investors could have used a very simple strategy to outperform the index by a significant level. The strategy is called “Dogs of the Dow”, which is the method of buying the ten highest yielding stocks in the Dow. Over the last decade, the strategy outperformed the index in 7 years and overall outpaced the Dow by 1.7% per year, returning an average of 15% per year for a decade. It also outperformed the S&P 500 considerably.
FINSUM: Who sad value investing is dead? This is a classic strategy that has worked to great effect.
The Dow gets a lot of intention in the media, but in the investing world it is relatively rare to see Dow-tracking products compared to those linked to the S&P 500. This has led to a general perception of the Dow being old-fashioned and not particularly suitable for investment because of its odd weighting system. But not so fast (!), over the last five years the Dow has actually outperformed the S&P, and in the last ten it barely trails.
FINSUM: This is quite an interesting finding considering how the Dow is generally treated. If you want to play the Dow, check out the SPDR Dow Jones Industrial Average ETF Trust.
The Dow is oversold. That is what at least one Wall Street analyst (and Barron’s) is saying. The manufacturing report this week made recession worries flare up in a big way, leading to a sharp sell-off. However, it may only be a matter of time until the Fed’s more accommodative policy starts rippling through the economy with positive benefits. This is arguably already being seen in the housing market, where new and existing home sales were up sharply in August.
FINSUM: The market may be poised for a nice rebound if economic figures start to improve, as prices are currently being held back by recession fears.
One of the oldest form of analysis of the Dow is sending a pretty grave signal at the moment. The Dow Theory, which has been around for more than a century, contend that if the Dow Jones Industrial Average or the Dow Jones Transportation Average reaches a new high, the other must follow quickly in order to confirm a bullish outlook. Well, despite the core index’s gain, the Transportation Average has been lagging badly, sliding 3.59% in a single day last week.
FINSUM: Okay a couple thoughts here. The first is that the structure of the economy is different now, such that the relationship between growth and Transportation is not the same as it has been over the last century. Outside that though, logistics tends to expand at multiples of underlying growth, so this still feels worrisome.
Investors need to take note, as one of the biggest equity research divisions on Wall Street has just turned overwhelmingly negative on equities. And this is not the “stocks will struggle in coming years” kind of call, it is an argument for right now and published yesterday. The bank has lowered its allocation to stocks, saying that the outlook for markets over the next three months is very poor. Morgan Stanley says equities prices are way too high and expectations for major rate cuts are already priced in, leaving little room for appreciation. They also think valuations are too high given deteriorating manufacturing and economic data.
FINSUM: Morgan Stanley is basically saying that the market is primed for disappointment because all the positive outcomes have already been priced in. Not unrealistic.