We've started the new year off to a strong as the bull market hasn't skipped a beat. This has made finding investments challenging. However, it hasn't slowed us down and we have taken our equity exposure to the highest level yet. The number of companies below is a good place for anyone to start their research for a long idea. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
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On January 12, 2016, we took a position in Helmerich & Payne (HP) at $47.41. At the time, HP was coming off of a high of $118.29.
According to Dow Theory, an investor should only expect one half of the previous move. With this in mind, we charted an upside target of approximately $79.16 as the likely point for selling the stock as outlined in our July 2, 2016 posting.
On January 13, 2017, we sold our holdings in HP at $78.31 for a gain of +74%. For reasons unknown, HP declined from $78.31 to $43.02 by September 1, 2017, a decline of –45%. An outline of the change from February 3, 2014 to January 12, 2018 is charted below.
The Rationale
Naturally, this is the most ideal transaction that we could engage in. Below we will lay out our observations on how we accomplished this task.
First and foremost, Helmerich & Payne is a high quality oil and gas driller that survived the crash that was experienced after the 1970’s. In our view, if a company can increase their dividend over many years and survive a period that put a lot of competitors out of business, then you’re dealing with a good management team. What follows are the details that we are looking at.
Posted in 50% principle, Dow Theory, Helmerich & Payne, HP, seeking fair profit
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On January 11, 2018, in an article titled “Behind the Duck: Former Aflac Employees Allege Fraud and Abuse in Nearly Every Aspect of Company” published by The Intercept, it is alleged that Aflac (AFL) “…has exploited workers, manipulated its accounting, and deceived shareholders and customers, according to nine former employees.”
These allegations have had a material impact on the stock price of Aflac on January 12, 2018. Currently, the stock is down –7% on the day. Below are the downside price and timing targets of AFL based on the Speed Resistance Lines since the 2009 low.
Charles H. Dow says companies with wide moats are difficult to duplicate
“It will always be easier to duplicate an industrial plant than a railway plant, and on this account industrial profits cannot be quite as stable as railroad profits (Dow, Charles H. Wall Street Journal. Review and Outlook. October 12, 1900)."
Who was Charles H. Dow?
“Charles Henry Dow was an American journalist who co-founded Dow Jones & Company with Edward Jones and Charles Bergstresser. Dow also founded The Wall Street Journal, which has become one of the most respected financial publications in the world. He also invented the Dow Jones Industrial Average as part of his research into market movements. He developed a series of principles for understanding and analyzing market behavior which later became known as Dow theory, the groundwork for technical analysis (source: Wikipedia.org).”
Posted in Dow's Value Theory
Below is the 5-year total return performance of our Dividend Watch List from January 11, 2013 to January 11, 2018, as compared to the Dow Jones Industrial Average.
Below is the 2-year total return performance of our Dividend Watch List from January 10, 2014 to January 9, 2018, as compared to the Dow Jones Industrial Average.
Below is the 2-year total return performance of our Dividend Watch List from January 8, 2016 to January 8, 2018, as compared to the Dow Jones Industrial Average.
Below is the 8-year total return performance of our Dividend Watch List from January 8, 2010 to January 8, 2018, as compared to the Dow Jones Industrial Average.
Saw this headline and almost did a spit-take.
Fortune Magazine claimed to “fact check” whether history shows that this was the fastest 1,000 points.
Sadly, Fortune never actually compares the current +4.17% gains to any other in the 122-year history of the DJIA. You have to wonder if Fortune included the 15 years after 1972, when the Dow finally crossed over 2,000.
To their credit, Fortune does say, “…the Dow has grown larger over time, meaning a 1,000 point move today is less significant percentage-wise compared to such a movement 20 years earlier.”
Again, for the Dow Jones Industrial Average (DJIA), going from 24,000 to 25,000 is equal a +4.17% change. As noted in Fortune, on a percentage basis, +4.17% isn’t much. However, we have listed the gains above +4.18% that took less than 34 calendar days since 1896. Although there are too many to show, we’ve only relegated this to the last 45 incidents from the lowest percentage gain excluding multiple events in the same year.
| Date | DJIA % change | days |
| July 21, 1897 | 4.21% | 10 |
| June 29, 1938 | 4.21% | 1 |
| November 27, 1905 | 4.22% | 1 |
| April 5, 2001 | 4.23% | 1 |
| November 30, 2011 | 4.24% | 1 |
| March 4, 1926 | 4.38% | 1 |
| December 24, 1902 | 4.43% | 8 |
| November 1, 1978 | 4.46% | 1 |
| November 2, 1904 | 4.50% | 7 |
| November 26, 1963 | 4.50% | 1 |
| January 15, 1934 | 4.52% | 1 |
| January 17, 1991 | 4.57% | 1 |
| February 9, 1931 | 4.62% | 1 |
| June 19, 1930 | 4.63% | 1 |
| May 29, 1962 | 4.69% | 1 |
| October 28, 1997 | 4.71% | 1 |
| October 9, 1974 | 4.71% | 1 |
| June 12, 1940 | 4.73% | 1 |
| February 11, 2010 | 4.75% | 3 |
| August 17, 1982 | 4.90% | 1 |
| March 16, 2000 | 4.93% | 1 |
| November 16, 1933 | 4.93% | 1 |
| November 12, 1896 | 4.93% | 8 |
| September 8, 1998 | 4.98% | 1 |
| May 17, 1915 | 5.02% | 1 |
| May 27, 1970 | 5.08% | 1 |
| October 16, 1903 | 5.11% | 1 |
| January 27, 1899 | 5.36% | 20 |
| August 17, 1898 | 5.41% | 12 |
| August 11, 1909 | 5.43% | 22 |
| December 22, 1916 | 5.47% | 1 |
| November 22, 1920 | 5.51% | 1 |
| February 5, 1917 | 5.77% | 1 |
| October 20, 1987 | 5.88% | 1 |
| October 20, 1937 | 6.08% | 1 |
| January 19, 1906 | 6.08% | 14 |
| October 7, 1929 | 6.32% | 1 |
| July 24, 2002 | 6.35% | 1 |
| May 10, 1901 | 6.37% | 1 |
| March 15, 1907 | 6.69% | 1 |
| March 23, 2009 | 6.84% | 1 |
| January 6, 1932 | 7.12% | 1 |
| November 10, 1911 | 8.27% | 14 |
| January 14, 1908 | 8.61% | 11 |
| September 5, 1939 | 9.52% | 1 |
Posted in DJIA, Dow Industrials, Rank
The Dogs of the Dow strategy was first published in 1991 and made popular in the mid 1990s. The strategy is simple, buy 10 companies from the Dow Jones Industrial Index starting with the highest dividend yield. As we have alluded in our past writing on this topic, these companies have the tendency to reappear on the list year-after-year due to the nature of their business and dividend policy.
Alternatively, we've attempted to alter the strategy to fit our thesis of buying at or near the low. Strategies to purchase the 10 companies from the Dow Jones Industrial Index trading closest to the 52-week low. For this strategy, we call it the Dogs of NLO.
Over the past 5 years, we have been back testing this strategy by making comparisons against Dogs of the Dow, S&P 500, and Dow Jones Industrial Average. Of the 5 years, Dogs of NLO outperformed Dogs of the Dow 60% of the time (3 years). The tables below show the result since 2013 - 2017.
We can't claim any victory based on these findings but we believe that buying at or near the low should be a factor when purchasing a long-term asset as displayed by the gains achieved from 2013.
Posted in Dogs of the NLO
What a year it was for the bull market in 2017, which naturally should have lifted all stocks and most asset classes. We've seen the rise in equities, real-estate, and new asset classes like crypto currencies. That being said, we'd take any opportunity to review strategies used in the market in an attempt to grow our assets. The start and end to the new year is a perfect stop to revisit a strategy known as the Dogs of the Dow.
In this piece, we're going to review the 2017 performance of the Dogs of the Dow and look back to the period of 1996 to 2017.
2017 Dogs of the Dow Performance Review
The purpose of any investment strategy is to exceed the performance of the stock market averages. In the year 2017, the Dow Jones Industrial Average gained +25.10%. The Dogs of the Dow, the 10 highest yielding stocks, gained +19.45%.
Knowing us, we can't leave well enough alone. We asked ourselves, how good is the highest dividend yield performance? To answer that question, we applied Charlie Munger's rule of "always invert" when confronted with a difficult question. So we ran the performance numbers of the 10 lowest dividend yielding stocks. One thing led to the another and we ended up with the following results.
Below is the performance table of the various fundamental attributes that we followed for the top 10 and top 3 ranked Dow stocks. As you can see, the top 10 low yielding stocks gained +27.33%, exceeding the top 10 high yielding stocks by 7.88%. More astoundingly, if you bought the top 3 low yielding stocks, you would have beat the top three high yielding stocks by +19.52%.
Looking at the performance of 2017, it could naturally be said that maybe the last year was a fluke. However, when looking at the average performance of the same categories since 1996, we find that the high yielding stocks managed to get beat out by the low yielding stocks, easily.
Of all the categories since 1996, the Dogs of the Dow (top ten highest yielding) was the worst performing metric by which to attempt to beat the Dow Jones Industrial Average. The two metrics that have beat the Dow over the period from 1996 to 2017 are the improbable high p/e and high p/b. We can't give an explanation for why these two approaches managed to do so well.
As a footnote to the last chart, to beat the Dow Jones Industrial Average by buying only the top three stocks, the best performers were (in descending order) high p/e, low yield and then the Dogs of the Dow. For some reason, the high p/e stocks beat the Dow in either the top ten or top three category.
Posted in Dogs of the Dow
A reader of our Dow 130k article has raised an important question about the risks that the stock market faces when confronted with the prospect of rising interest rates. The reader says, in part:
“…they say that interest rates are mean reverting and based on where we are today (historically low) I would think that the betting man would bet that it can only go up from here. If that is the case, I can't see a bull market in the coming years.
“What if the scenario is that we have permanent low inflation (Secular stagnation). Productivity improvements through outsourcing and technology innovation may explain this paradigm shift.”
We don’t have much to go by other than the historical record. In this case, the historical record says the following:
In this article, we will examine, from a historical perspective, whether this is a new era where all of our claims are false or history will repeat.
Summary
Another year is in the book and it ended on the high note. The S&P 500 rose 20% and Dow Jones Industrial Average gained an astonishing 25% for the year. This bull market is relentless and shows no sign of slowing down going into 2018. The good news for us and most investors are that being long the market is an easy bet. The toughest part, at least for us, is to fine new investment as small amount of companies trade near the yearly low. However, utilizing the list below, we believe, will give us the best chance of succeeding in the long term.
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
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