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The “Dogs of the Dow” is an investment strategy in which investors buy the 10 highest-yielding stocks in the Dow Jones as the start of each year. It was first popularised by Michael B. O’ Higgins in 1991 and is now considered to be a top investment idea for 2014 by many advisors. But Jack Hough at Barron’s thinks this strategy no longer works.
“The strategy contains the kernel of a good idea. Value investing works, because investors tend to be too negative on beaten-down stocks and too positive on market darlings. Any systematic approach to selecting companies that look cheap relative to measures of fundamental value is a good start. Just as some investors look for low price-to-earnings ratios, the Dogs strategy selects low price-to-dividend ratios (that is, high dividend yields). It’s a bit arbitrary. There’s no particular reason it should start in January and reset precisely once a year. And the Dow Jones Industrial Average isn’t especially representative of the broad market (nor is it an average, or particularly industrial, or owned any longer by Dow Jones).
“The biggest reason the strategy looks outdated, however, is that it ignores most of the cash companies return to shareholders. Back in 1980, share repurchases were rare. Over the past year, big U.S. companies have spent about $US1.50 on share repurchases for each $US1 they’ve spent on dividends.”
Eight Lessons Investors Can Learn From “The Wolf Of Wall Street” (WealthManagement.com)
Investors can learn important lessons from The Wolf Of Wall Street, which tells the story of Jordan Belfort’s debaucherous lifestyle and the pump and dump scheme he ran that that paid for it, writes Andrew Stoltmann in WealthManagement.com.
1. Investors should hang up on any broker or financial advisor that cold calls them. 2. Investors should also avoid IPOs. Belfort’s scams involved IPOs in which the company and their friends owned large stakes. 3. Only deal with well known firms because then investors have a better chance of successfully suing the firm in the case of a fraud. 4. Always perform a background check. 5. Don’t feel like you have to be courteous and polite. Stratton Oakmont brokers “loved cold calling Midwest investors because they were reluctant to report fraud or hang up the phone,” writes Stoltmann. 6. Don’t let a salesperson rush you. 7. Be wary of those that promise risk free high returns. 8. Constantly monitor returns and ask tough questions.
Investors pulled $US12 billion from stock mutual funds around the world in the week ending Wednesday, according to Bank of America. Investors worried that the Fed’s decision to taper its monthly asset purchase program to $US75 billion would hurt the stock market. Emerging market stock funds were especially hard hit, with investors pulling $US3.1 billion, in the eighth consecutive week of outflows.
How The Best Hedge Funds Beat Out Rivals (Bloomberg)
A study by Russel Jame of the University of Kentucky, cited by Bloomberg, finds that the top 30% of hedge funds outperform by making short term, contrarian bets. “Star hedge funds secure profits over short periods, with more than 25 per cent of an annual outperformance occurring within a month after a trade,” reports Simon Kennedy at Bloomberg. “The profits are also often made when managers have bet against the prevailing market view.”
“The winning funds are net buyers of so-called growth stocks, which are those of companies whose earnings are forecast to grow faster than the market average. They also don’t trade more frequently or more profitably prior to corporate earnings’ announcements, undermining any idea that insider trading explains how they make profits.”
JIM ROGERS: 50% Corrections In Markets Are Normal, So Why Not Gold? (Business Insider)
Gold prices are at three-year lows but Jim Rogers thinks that after a 12 year rise that was an anomaly, the correction may be an anomaly too. He also attributed the sell-off to India’s efforts to curb gold purchases. “IF they can force the largest buyer to become a seller [much less a larger seller], who knows how low gold could go?” But he doesn’t think the faithful have thrown in the towel yet. But since even 50% corrections are normal in markets, he asks why such a correction wouldn’t be normal in gold.
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