Tuesday, January 23, 2007

Dogs of the ASX 200 2005 review

There is a well known method known as the dogs of the dow. The theory is that the stocks which performed the worst this year will have the chance of improving the best the next year.

Some research was done in the last year to see how this performed on the ASX for 2005. It took the ten stocks which had the highest dividend yields and compared them to the market return.

Of the 10 stocks :

  • 9 out of the 10 showed a positive gain ( the lowest gain was 11.4% )

  • 5 out of 10 stocks outperformed the market after dividends were included

  • 4 out of 10 stocks had a higher capital gain than the market

I believe last year wasn't the best year for testing this theory as it is a theory that holds its position in negative years. Interestingly the gain of the market was 25.5% (after including dividends ) and the return of the ten stocks was 24.78%. Slightly under performing the market. If we take out the losing stock the average gain was 28.7% which is a nice gain on the market average.

I will be interested to follow this for the next year and see how it performs ...

Good Luck Investing.

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