In our posting of October 22, 2016, we highlighted the Analyst Estimates for the Dow Jones Industrial Average. We took the analyst low estimated earnings and with a price to earnings ratio of 15 projected one year out. Below are the estimated returns and the actual returns as of September 29, 2017.
In our assessment of October 22, 2016, we had proposed the following outcomes to watch for:
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“We believe that the average category provides the best return overall with the high risk group offering exceptional gains for aggressive investors who have a longer time horizon (3-7 years).”
In the category indicated as “high risk” the estimate by analysts suggested that the group would decline by more than –24.02%. However, instead of falling, the high risk group has gained as much as +21.32%. The “average return” group nearly doubled the expected return as determined by analysts. Finally, the group indicated as “high expectations” gained half as much as the analysts had indicated based on the projected earnings with a price multiple of 15 times.
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Our “NLO dogs” of the Dow would “…produce surprising numbers as compared to the way the conventional ‘dogs’ would perform .”
As outlined in the graph above, the projected return of the “NLO dogs” increased by +17.29% instead of declining –13.30%. However, that exceptional reversal of fortune was not enough to meet our goal of the “NLO dogs” beating the traditional “Dogs of the Dow” investment strategy.
Thoughts
While there are three weeks remaining for the final 1-year numbers to come in, we’ve had some mixed results with our forecasts on expected returns. Overall, the selection of companies in the most widely followed index should have similar outcome as outlined in 2016.
Those stocks that are expected to perform the worst will exceed the prescribed returns while those expected to outperform will generally underperform analyst expectations. We hope to follow up on the overall performance of the “high risk” group to see if the 3-7 year performance manages to hold up to our expectations.
Regarding the “Dogs” investment strategy, while it is nice for the stocks that we selected to exceed the performance of the analysts, the original theory seems to remain consistent, at least in the period from 2016 to 2017.