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In 1991, Michael B. O'Higgins, one of the nation's top money managers, turned the investment world upside down with an ingenious strategy, showing how all investors?from those with only $5,000 to invest to millionaires?could beat the pros 95% of the time by putting 100% of their equity investment into the high-yield, low-risk "dog" stocks of the Dow Jones Industrial Average. His formula spawned a veritable industry, including websites, mutual funds, and $20 billion worth of ...
In 1991, Michael B. O'Higgins, one of the nation's top money managers, turned the investment world upside down with an ingenious strategy, showing how all investors—from those with only $5,000 to invest to millionaires—could beat the pros 95% of the time by putting 100% of their equity investment into the high-yield, low-risk "dog" stocks of the Dow Jones Industrial Average. His formula spawned a veritable industry, including websites, mutual funds, and $20 billion worth of investments, elevating the theory to legendary status.
Reflecting on the greatest bull market of our time, this must-have investment guide has been revised and updated for a new economy. With current company and stock profiles, as well as new charts, statistics, graphs, and figures, Beating the Dow is the smart investment that you—and your portfolio—can't afford to miss
Keep It Simple!
In 1985 Texaco, America's third largest oil company, was ordered to pay Pennzoil Company a huge $10.3 billion judgment. In 1987 Texaco filed for bankruptcy. Its stock plunged 28 percent to $27 a share. In 1989, with the legal claim settled, a postbankruptcy share of a restructured Texaco sold at nearly $60, a new all-time high. Although it would be deleted from the Dow in 1997, Texaco was selling ten years later at more than twice that value, and that was after a two-for-one stock split!
When deadly gas leaked from a pesticide plant in Bhopal, India, in 1984, killing over 3,300 people and injuring thousands more, Union Carbide Corporation, America's third largest chemical company and owner of 51 percent of the plant, was sued for over $3 billion. Its stock sank 21 percent to $11, but it bounced back in 1985. In 1989, the Bhopal litigation settled. Union Carbide shares hit an adjusted all-time high of $33. A decade later, having spun off its industrial gases division in a transaction that gave shareholders a 70 percent return in 1992, a significantly downsized Union Carbide, since acquired by Dow Chemical (no relation to Dow Jones.) and dropped from the Dow Jones Industrial Average, was trading at over $60.
Early in 1989 the tanker Exxon Valdez, owned by America's third largest industrial corporation, ran aground in the pristine waters of Alaska's Prince William Sound. In a tragedy that inspired T-shirts reading "Tanker from Hell," it spilled enough crude oil to cover the state of Rhode Island. Exxon stock dropped 7 percent on the news but quickly rebounded to over $40. In mid1999, on the eve of its merger with Mobil andafter splitting two-for-one in 1997, Exxon was selling at over $80.
I've made three long stories short, but these anecdotes-and I could cite many more-have a common lesson:
By virtue of sheer size and strength-call it raw staying power-blue chip companies tend to be survivors. The old adage "the bigger they are, the harder they fall" doesn't hold when you're talking about corporate giants. Blue chip stocks are usually safer investments than other kinds of stocks.
The investing public invariably overreacts to unfavorable developments. This creates special opportunities when you're dealing with blue chips: bad news is good news because it makes strong stocks cheap.
Here's another fact about today's financial markets:
Contrary to popular belief, large institutional investors, who dominate market volume and cause sharp volatility through program trading, have created more opportunities than disadvantages for personal investors.
Many individual investors turn to mutual funds as a solution to volatility, but the funds are actually part of the problem. Seventy-five percent of them fail to match, much less beat, the Dow and other market indexes. Their flexibility is seriously constrained by size, competitive pressures, liquidity responsibilities and diversification requirements. Together, these factors lower investment returns, increase transaction costs and necessitate trading practices that cause wide price swings, many of which are merely technical.
You can use the flexibility you have and that the mutual funds and institutional investors lack to actually capitalize on the volatility they create. Beating the Dow will show how you can outperform the pros, simply and conservatively, with your own portfolio of common stocks.
When it comes to accumulating wealth, common stocks historically have been unrivaled by any other investment alternative, including real estate and gold.
The uniquely simple system revealed in Beating the Dow has with remarkable consistency outperformed the Dow Jones Industrial Average (DJIA). I make the 30 Dow industrial stocks-all leading blue chips-your total investment universe, and I identify the laggards and potential winners within it.
My approach to common stock investing is so simple anybody can use it and have fun doing it. It is a direct outgrowth of my personal philosophy, which I learned as a young broker before I became a professional money manager-keep it simple.
Within the small Dow stock universe there are dramatic profit opportunities for individual investors. The key is that in relation to each other, there are always Dow stocks that are doubling, moving sideways, or going down. Beating the Dow shows how to identify the winners when they are out-of-favor and can be bought at bargain prices.
The companies that make up the Dow are household names that are among the most publicized, analyzed, and widely held stocks. Their immense asset values, financial resources, and economic importance give them strength, adaptability and resilience. As a group, they include the most viable business enterprises on earth.
Part II of Beating the Dow includes profiles of the individual Dow stocks, showing how each has adapted to the modem economy and how each is positioned with reference to the megatrends evident currently. Although all of the Dow stocks are solid long-term investments, Beating the Dow does not involve a "buy and hold" strategy. As John Maynard Keynes once said, "In the long-term we're all dead." I don't know about you, but I prefer a shorter investment horizon.
Part IV of Beating the Dow provides a step-by-step guide to structuring a portfolio of either one, five, or ten Dow stocks (depending on your preference). Your individual portfolio can be self-managed with a minimum of time and expense and has an amazing history of beating the Dow Jones Industrial Average on an annual return basis.
My Beating the Dow-Basic Method incorporates my strategy in its simplest form. Requiring minimal investment, these income-producing portfolios have outperformed the Dow year in and year out. Even in 1987, when October's Black Monday saw a 508-point drop in the Dow Jones Industrial Average, an all-time record in percentage terms, the Beating the Dow-Basic Method made money for the year with an annual return nearly double that of the average as a whole.
My Beating the Dow-Advanced Method is designed for personal investors with a yen for more than vanilla. It covers more sophisticated strategies and shows the results of combining different selection tools with seasonal market timing techniques to produce outperforming returns, often with reduced risk.
Keep it simple-and make a bundle with Beating the Dow!