The financial world loves to make things complicated, but sometimes the simple way is the best. Dogs of the Dow is a classic and proven investment strategy that requires zero knowledge of accounting, and only takes 15 minutes to execute once a year.
"Do things the easy way, for that is the right way."
— Florence Scovel Shinn
The idea behind the strategy is that the giant companies in the American Dow Jones index never go bankrupt. If their stock price falls (which makes their dividend percentage go up), they are just temporarily unpopular - they have become dogs. By buying these dogs, you bet that they will rise again and become popular next year.
The recipe step by step
Mechanical execution: The strategy requires you to put away all your own opinions about the companies, and only follow the numbers blindly.
Here is how you do it:
- On the last trading day of the year, find the list of the 30 companies in the Dow Jones index.
- Sort them by who has the highest dividend yield.
- Buy the top 10 companies for exactly the same amount of money in each company.
- Hold them for one year. Repeat the process next New Years Eve by replacing the dogs that are no longer in the top 10.