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The Daily Dow LEXINGTON, Ky. (June 24): One of the most frequently asked questions by investors new to the Dow Dividend Approach is "should I stick to the system or can I make exceptions?" And of course the answer is that it's your money; you call the shots.
But as for whether one *should* stick to the system or not, I tend to be a purist and believe one should. My reasoning is partially based on faith. With decades and decades of data to demonstrate the effectiveness of investing is beaten down large-capitalization stocks which pay out high dividends, I look at the Dow Dividend Approach as putting the long-term odds in my corner.
Does that mean I'll never have a bad investment? Of course not. Anyone unlucky enough to invest in Woolworth a few months before the company eliminated its dividend took a hefty bath in that stock. But for the overall portfolio, even with Woolworth's nose-dive, the period was a good one.
The beauty of this strategy is that it doesn't have to pick *the* best stock among the Dow each year. In fact, it very often doesn't. But it picks enough out-performers that as a portfolio, it beats the market consistently.
So what about those stocks that just don't "feel" right? I suspect that most of the Dow Approach stocks don't "feel" right to many investors. That's the point of the system. These are stocks which have fallen and the Street has kicked them while they were down. The news isn't going to be cheerful on these companies. That's precisely why it's a good time to buy them for patient investors. When everyone else has sold, pushing the dividend yield up, we can get in at a bargain price, get an attractive yield while we wait for the recovery, and then when the recovery comes, we also get a powerful capital appreciation.
So, should you stick to the system? You decide. But knowing how lousy my own intuition is, I prefer to go "by the numbers" on this proven strategy.
In Foolish Four news today, Chevron may be facing a slow-down in its natural gas project in Nigeria because of potential cutbacks in Nigeria's investment budget. In addition, Chevron is in talks with Russian company LUKoil about the possibility of selling a stake in the Tengiz oil project in Kazakhstan. No details were announced but local press reports are suggesting that the stake could equal approximately 10%.
Transmitted: 6/24/96
Today's Dow Numbers THE FOOLISH FOUR MODEL (6/24/96) |
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