Dogs of the FTSE

[barbie2002]

Hi everyone (and a very belated Happy New Year)

Quick question, and this may be a very stoopid one - I've read in various publications about choosing Dogs of the Ftse (or DOW), but I've seen different definitions. One was that they were the worst-performing companies during the previous year, another was the companies giving the highest divvies over the last year. Which is it? Is it something completely different??

Any words of wisdom would be very welcome to a very confused miss.

Ta chucks.

Barbs

 

[the blades]

Hi everyone (and a very belated Happy New Year)

Quick question, and this may be a very stoopid one - I've read in various publications about choosing Dogs of the Ftse (or DOW), but I've seen different definitions. One was that they were the worst-performing companies during the previous year, another was the companies giving the highest divvies over the last year. Which is it? Is it something completely different??

Any words of wisdom would be very welcome to a very confused miss.

Ta chucks.

Barbs

Hello Barbs,

I think there is some merit all these systems - they're based on the fact that humans over react. I'd suggest looking at the biggest fallers over 3 years as there's a lot of reasearch into "mean reversion" of stocks - and 3 years seems to be an average figure for many sectors. After a year, many stocks will still have downward momentum.

Personally, I've made a bit of money buying the biggest fallers of the S&P500 (over 3 years to the end of September). The theory here is that fund managers dump these stocks before reporting season, hence overly depressing the price. Get out by the end of January, unless the stocks have positive momentum at this time.

Hope this helps.

UTB

 

[LION63]

There is a difference between 'Dogs of the FTSE' and 'The highest Yielders'. For simplicity sake, one would invest in the 5 worst performers based on share price performance over a year and generally speaking they tend to outperform the FTSE over the following year (provided one does not get too clever). When it comes to the highest yielders, it is slightly more complicated; but the first step is to look for the shares with the highest yields and then check to make sure that the dividends are not in danger of being passed or cut.

Both options can be very rewarding for those that are seeking reasonable returns over the medium to long term. Most followers of the theories tend to sell the shares concerned when they no longer fit the chosen criteria or once they have found a replacement stock.

 

[JonnyT]

I did a lot of reseach on this when I worked for the Motley Fool. Different criteria worked best in the UK compared to the US but the system seemed not to be working so well in the 90's as it did in the 80's.

The US fool dropped it as 'flawed'.

The articles I write will be available somewhere on www.fool.co.uk

It was called Beating the Footsie or BTF and there was a BTF Lite aswell.

JonnyT

 

[cd173]

The Investors Chronicle ran an article in the 8/10/04 edition which outlined the FTSE dogs to buy. It picks the worst performing 90 stocks over the past 5 year period and ranks them in 9 groups each with 10.
At present groups 1-4 and 8-9 are doing well with 5-7 doing nothing. I think this is a long term strategy over a couple of years and some will certainly go bankrupt, hence the need to buy all stocks within one group.

C

 

[LION63]

CD173,

Hence the reason I said that it only works if one does not get too clever. The tendency is the individual to start picking stocks within groups and once the choosing factor comes in, it becomes a game of chance. What I have found is that the longer the time frame of the data, the longer one needs to hold the shares. One important factor that also needs to be considered is the return one is seeking on the investment; if the shares yield 6.5% and one is only looking for a total return of 15%, the shares only need to rise another 8.5%. On the other hand, if one is looking for 50% they need to rise another 43.5%; possible but difficult to achieve on a regular basis.

 

[FetteredChinos]

most, if not all, counter-trend strategies that i have looked at on the FTSE over the last 7-8 years would have made money. this is either on a futures level, or on an individual stock basis (with a reasonable sized portfolio). Other indexes dont perform as well, sadly. must be something to do with the FTSE characteristics..

so the key is to find one that has a decent r/r ratio.

buy weakness, and sell strength has been consistently profitable over this time.

whether it remains the same going fwd is another matter.

 

[barbie2002]

Phew! Thank you everyone for the advice. I'm less confused now - how long this state of mind remains is anyone's guess. I'm looking for short-medium term spread bets, as I have to spend far too much time at work to carry out any intra-day trading.

PS - Anyone going to a Marc Rivalland seminar this year? I will put another post up on the boards, just in case.