Investment Strategies - by R Ambrose

Dogs of the Dow

This was a strategy thought up in the US, hence the reference to the Dow. This method removes any randomness from your stock picking and removes any need to monitor your portfolio more than once a year, so it can save a lot of time if you are a part time investor.

At the beginning of the year you put an equal amount of money into the ten shares in the Dow (or other stock exchange, e.g. FTSE100) that have the highest yield, i.e. pay the highest dividend relative to their current share price.

You then ignore them for a year, when you then sell them all and do it all again.

The theory behind this is that shares go in and out of favour. The ones with the highest yield are currently out of favour, so you buy them. After a year they will hopefully have come back into favour and their prices will have increased.

Also, because you are selecting from the biggest companies around (i.e. shares in the Dow or FTSE100) your investment should be fairly safe.

There are several variations on this strategy to try and improve the return. One variation is to ignore the share with the highest yield and share your money out between the other nine companies. This is because it is likely that this company has a high yield for a reason, i.e. problems with the company, rather than it just being out of favour.

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