Beating the Dow 
Michael O'Higgins
 Beating
the Dow highlights some stock picking strategies on the Dow Jones Industrial
Average including the famous
Dogs of the Dow.
Unless you're a novice investor, the 1st 180 pages (Part I to III) are not
really
useful.
Part IV is really the main content. O’Higgins first details 3
strategies:
- The Dogs of the Dow: the 10 highest dividend yield stocks
from the Dow,
- The Small dogs of the Dow: the 5 lowest priced stocks from the
above 10 dogs,
- The Penultimate Profit Prospect:
the 2nd ranked stock (2nd lowest price) from the Small dogs. O’Higgins warns that he would not put any money on a system investing in only 1 stock but mentions
that you could use the strategy with your "gambling money".
The book provides the annualized returns (wrongly called "average annual") over the backtesting
period of 1973-1998 and the performances for every year so you may compute various statistics.
O’Higgins then explains why the strategies work. Fine but I'm still not
convinced about the Penultimate Profit Prospect. Specifically, O'Higgins seems
to suggest that the 1st ranked stock among the small dogs provides very decent
returns albeit lower than the 2nd ranked one. This means that the better
performances
from the 2nd "Highest Yield / Lowest Priced" Dow stock might just be luck !
Next, O’Higgins provides what he called “Advanced Strategies” including:
- Combining the Dogs of the Dow with Market Timing
- Stock Picking with the Dow Stocks (mainly Value Investing)
A strategy that may attract your attention is the
addition of High Relative Strength to the Dogs Of
the Dow. The way O’Higgins does it seems
unsatisfactory and the explanations not very clear but it shows us again that combining Value and Momentum
is a good way to improve returns.
Part IV is highly recommended and the book gets 4 stars thanks to this part.
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