Dogs of the Dow Strategy: A Simple Approach to Value Investing

Picture yourself as an experienced investor living in Tokyo. You've built a decent portfolio over the years, but you feel it's time to diversify into foreign equities, specifically focusing on long-term value investing. A seasoned investor friend of yours suggests Dogs of the Dow strategy. You're intrigued, and set out to learn more about it.

What is Dogs of the Dow Strategy?

"Dogs of the Dow" is an investment strategy employed for buying value stocks from the Dow Jones Industrial Average (DJIA). The strategy proposes selecting the ten companies out of the thirty on the DJIA that have the highest dividend yield at the end of each year. It's a long-term strategy, aiming to reap the benefits of high dividend yield stocks over time.

Key Elements of Dogs of the Dow Strategy

1. Annual selection of stocks: Stocks are picked at the start of each calendar year based on the highest dividend yield.
2. Investing in the Dow 30: The strategy only focuses on companies listed in the DJIA.
3. Equal Investment: The same amount is invested in each of the ten selected stocks.
4. **Holding period: **The selected stocks are held for one year.

Benefits of the Dogs of the Dow Strategy

• Simple implementation: Easy to understand and manage as it only requires an annual portfolio rebalance.
• Focus on blue-chips: Investing in established companies reduces risk compared to investing in smaller companies.
• High dividend yield: Potential for high income through dividends.
• Potential for Above-average returns: Selecing undervalued stocks with high dividend yields can offer higher long-term returns.

Implementing Dogs of the Dow Strategy

1. Identify the Dow 30: Understand and list out the thirty companies on the DJIA.
2. Select the Top Ten: Look at the dividend yield of each company at the end of the year, and choose the top ten.
3. Equal Investment: Invest an equal amount in each of these ten selected stocks.
4. Hold and Monitor: Hold these stocks for one year, monitor performance periodically.
5. Yearly Rebalancing: At the end of the year, reassess the position, and reapply the strategy.

Conclusion

As you build your strategy to diversify into foreign equities, Dogs of the Dow offers a clear and straightforward plan. This investment strategy, focusing on high dividend yield, blue-chip stocks from the DJIA, could potentially enhance your portfolio's profitability and provide you with yearly income through dividends. Simultaneously, by investing in solid companies with a track record, it helps mitigate risk, proving fruitful for a long-term value investor like yourself.