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Dogs of the Dow and Dingoes down under

Discussion in 'Shares' started by MichaelWhyte, 30th Nov, 2005.

  1. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Guys,

    There's a great article on page 30 of the AFR today titled "A leap of faith can pay off" which basically outlines the contrarian buying approach. I liked it because it has similar aspects to Steve's buying method of DCT where he is contrarian.

    There was a table on the following page titled "Dogs of the Dow and Dingoes down under" which was really interesting. It outlines a specific strategy for investing in the ASX which back-tested shows that this strategy beat the ASX50 by 8 percent!

    Here's the table which has all the meatiest bits:

    What do the DIY traders think of this one? Also, interested in Steve's take on it and how comparable it is to his "selection methodology" for stocks he trades.

    I like the concept as its a bit of a "value" approach with a "contrarian" approach wrapped in, plus the benefits of "high yield" from a dividend perspective. The best of all worlds really. And, if it consistently beats the ASX50 by 8 percent, then its an approach that would seem to outperform DCT even!

    Cheers,
    Michael.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Given my understanding of Steve's upcoming Dow fund - which will be trading all stocks on the Dow - I think it will be doing pretty much the same kinds of trades that the Dogs strategy would - although not following yields, but rather just price movements. As a share drops in value (which would normally cause yield to increase), NavTraDE would buy more - and as the price rises (yield falling), it would be sold off.

    Unlike the Dogs strategy which would be a relatively low turnover rate I imagine, I think Steve's strategy will be much higher trade rates.

    Similar but certainly not identical in strategy.
     
  3. Glebe

    Glebe Well-Known Member

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    seems great!

    almost too simple and too good to be true. I'd like some of the traders here to put there 2c in...
     
  4. Ol School Skata

    Ol School Skata Well-Known Member

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    My perspective on this is to not take things based solely on yield.

    Picture this

    XYZ company posted a record profit last year which equated to a 5% yield based on share price at the time.

    Four months later they advise that the company will not meet growth predictions and are now forecasting a loss for this next year and expected to get worse and will not pay a dividend for the foreseable future. Share price drops by 50%. All of a sudden the yield on these shares are now 10% looks great.

    But this is based on the historical profit figures - using this method does not tell you anymore about this company's future, in fact you will get no dividend next year so the 10% yield is historical and not current. This is one major floor in this stock selection process.

    If it was me - i would not invest in a company like this until i liked their future.

    Dogs of the Dow or Dingoes down under, i believe is fine to help narrow down your stocks. From here i would look into each of them and news annoucements over the past year to see if there were any announcements that may impact on profitability and future dividends. If all is fine I would then consider them for inclusion. With a bit more research than looking in the weekend paper for the dividend yields, this could work for people.

    Personally i prefer to use the forecast earnings per share to calc dividend yields but thats just me.

    OSS
     
  5. MichaelWhyte

    MichaelWhyte Well-Known Member

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    OSS,

    I get where you're coming from. I think the premise of this approach, though, is that you're already limited to stock in the ASX50 so fundamentally they are sound companies. Pick the best yielding 10 of these which by necessity should then represent good value in blue chips. Hold them for 12 months then rejig your holdings to make sure you've got the current best 10 yielders.

    Back-tested it shows excellent performance as you're buying solid blue chips using a value-based contrarian approach. This is what made me start to see parallels with Steve's DCT method. He trades blue chips and by definition is buying contrarian since he's buying as they fall (everyone else selling) and selling when they rise (everyone else buying).

    Cheers,
    Michael.
     
  6. Nigel Ward

    Nigel Ward Team InvestEd

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    sound companies or just large market cap and liquid?

    I don't think that "sound" and inclusion in any particular index are necessarily the same thing.

    But I'm probably nit-picking as I don't disagree with your comments. :D

    Cheers
    N.
     
  7. Simon

    Simon Well-Known Member

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    if a fellow wanted to look at this further where can I get the data that would allow me to work out what our Dogs are?

    I realise that the paper would tell me but is there a database that I can easily search based on top 50 and yield?

    Thanks
     
  8. Ol School Skata

    Ol School Skata Well-Known Member

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    Blue Chip = Financially sound???

    HIH, One-Tel, Bond Corp = Financially sound???

    Not sure about that one
     
  9. Ol School Skata

    Ol School Skata Well-Known Member

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    Try this for size should be all top 50 stocks and yields. Sourced from the most recent Shares Magazine.

    Name DivYield
    Orica Limited fpo 3.7
    Australian Gas Light fpo 3.87
    Coca-Cola Amatil fpo 3.89
    Lend Lease Corp. fpo 4
    Boral Limited. 4.18
    Suncorp-Metway. fpo 4.35
    Westpac Banking Corp fpo 4.52
    Promina Group Ltd fpo 4.61
    ST George Bank fpo 4.61
    ANZ Banking Grp Ltd fpo 4.62
    Commonwealth Bank. fpo 4.7
    Amcor Limited fpo 4.74
    Tabcorp Holdings Ltd fpo 4.86
    Wesfarmers Limited fpo 4.89
    Macquarie Infra. stapled 4.9
    Insurance Australia fpo 4.96
    Transurban Group stapled 5.07
    National Aust. Bank fpo 5.08
    Centro Properties stapled 5.1
    Qantas Airways fpo 5.32
    Bluescope Steel Ltd 5.75
    GPT Group stapled 5.92
    Westfield Group stapled 6
    Macquarie Airports stapled 6.05
    Stockland stapled 6.28
    Telecom Corporation fpo nz 6.58
    Telstra Corporation. fpo 7.12

    Simon - if you want access to this data - a subscription to Shares magazine ($60/year) would give you access to their tables on a weekly basis.

    OSS
     
  10. Simon

    Simon Well-Known Member

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    I have just subscribed to Smart Investor but don't have my details yet.

    That is not 50 stocks on your list? Did you just list the highest yielding ones?

    Thanks mate
     
  11. Ol School Skata

    Ol School Skata Well-Known Member

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    just sorted the ASX50 stocks into order according to yield and took top ones. I believe the theory states buy top 10 yielding stocks from this list.

    There are other stocks yield much higher but are not ASX50 listed.
     
  12. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    OSS,

    Great minds mate.... I was thinking exactly the same thing.

    Mark
     
  13. dkmc

    dkmc Well-Known Member

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    I wonder how the dogs of the dow for australia has done over the last 6-12months?

    AFR Smart Investor


    A interesting fund backed by Clime
    basically dogs of the dow done for you
    no management fee - based on performance!!!!

    A high yield fund, low turnover, not trading like navra

    Clime: Unlisted Unit Trust - Clime High Yield Underdogs Fund

    It may be an alternative to navra for income
    Dividends should be reliable
    May be more tax effective than navra too - with franking
    It is unlisted though
    Im not sure how to find performance data
    distributions are half yearly
    to be actively managed with protection of capital a major consideration
    I havent got enough data on it yet - maybe other forum members can help
    But in principal looks great
     
  14. AsxBroker

    AsxBroker Well-Known Member

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    Hi,

    There is also survivorship bias, ie, what happens if you invest in a company and then it falls out of the index? Does this 10 year Index plus 8% include the companies which have either been delisted or moved out of the index?

    Eg, The Dow Jones index which was started in 1896, out of the original 12 stocks only one is still in the index, General Electric...

    I'm not quite sure what happens to the "dogs" of the Dow...

    It's not very much back-dating, according to Dimensional won't be credible unless it is backdated for a MINIMUM of 30 years, especially in the United States.

    I think I'll stick to core-satellite.

    Cheers,

    Dan

    PS Speak to your FPA registered Financial Planner before making an investment decision.
     
  15. AsxBroker

    AsxBroker Well-Known Member

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    PSS...

    AFR Smart Investor

    Says Centro is $7.00 as the "latest" price...
    I don't think the yield is going to be 5.69% any more...

    Maybe they were embarassed to update it???

    Cheers,

    Dan
     
  16. The Brain

    The Brain Member

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    This 'trend' is criticised in 2003 Revision of Benjamin Graham's The Intelligent Investor.

    'By random luck, the companies that produce above average returns will have plenty of things in common. But unless those factors CAUSE the stocks to outperform, they can't be used to predict future returns..Money magazine found that a portfolio made up of stocks whose names contained no repeating letters would have performed nearly as well..for the same reason - luck alone'.