The Daily Dow
Monday, July 7, 1997
by Robert Sheard
LEXINGTON, KY. (July 7, 1997) -- Several readers noticed a somewhat negative article about the Dogs of the Dow this weekend in Barron's. The author of the article, Andrew Bary, rightfully points out 1997 has been a disappointment for high-yield Dow investing, as two of the stocks in the High Yield Ten (and Foolish Four) have had lousy first halves: AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> and GENERAL MOTORS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %>.
But Mr. Bary's analysis beyond that makes a Fool wonder. For one thing, any short-term performance numbers become virtually meaningless in the face of long-term records, but the need to ascribe a reason to the lagging performance this year takes Bary onto some thin ice.
Instead of simply saying, Hey, two of the stocks are lagging this year, that's the way averages happen, Bary suggests that perhaps the method is falling apart under the weight of its own popularity. Too many people using the approach, his theory would suggest, might be hurting the performance. I'm hard-pressed to figure out the connection between too many people buying a stock and its price going down, but there you have it. Also, if too many people are using the strategy, why is it affecting some stocks and not others? Could the answer be that it has nothing to do with the Dogs of the Dow at all and perhaps AT&T and GM are lagging for completely unrelated reasons?
Let's look at a statistic he points out, though, and see where it takes us. Bary points out that there are five major brokers offering Unit Investment Trusts for the Dow Dogs, totaling some $11 billion in assets in the first quarter. Spread over ten stocks, that's $1.1 billion in each. Let's look at the two laggards this year and see how that $1.1 billion stacks up. With a market cap of roughly $42 billion, for General Motors that represents only 2.6% of the outstanding shares. That equates to roughly 10 days of average trading volume for GM. For AT&T, it's even a smaller proportion. The $1.1 billion share of the unit trusts represents only 1.9% of the outstanding shares of AT&T, or 6 days of average trading volume.
While no one is going to dispute that these are large numbers, indeed, I think it's short-sighted to suggest that because so much money is going into the stocks via these approaches that it's making them under-perform.
Investing in any long-term strategy is like watching professional baseball
over the course of a season. Even the best teams lose games. And if the owners
and managers tried to rebuild the team after every loss, imagine the mess
you'd have. Winning strategies, like championship baseball teams, have many
losses along the way to their titles. But what counts isn't the individual
games in isolation, but the overall win-loss record at the end of the season.
Which is more important to you, tonight's tilt against your division rival
or the overall pennant race? I'll let you have bragging rights for tonight
if you like; I want the pennant!
(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. ________________________________
Stock Change Last -------------------- T + 3/4 36.63 GM - 3/8 56.56 CHV - 3/8 75.50 MMM - 1/2 101.31
Day Month Year
FOOL-4 +0.34% 2.08% 4.29%
DJIA -0.47% 2.31% 21.87%
S&P 500 -0.51% 3.06% 23.15%
NASDAQ +0.21% 1.99% 13.92%
Rec'd # Security In At Now Change
1/2/97 120 3M 83.00 101.31 22.06%
1/2/97 153 Chevron 65.00 75.50 16.15%
1/2/97 179 Gen. Motor 55.75 56.56 1.46%
1/2/97 479 AT&T 41.75 36.63 -12.28%
Rec'd # Security In At Value Change
1/2/97 120 3M 9960.00 12157.50 $2197.50
1/2/97 153 Chevron 9945.00 11551.50 $1606.50
1/2/97 179 Gen. Motor 9979.25 10124.69 $145.44
1/2/97 479 AT&T 19998.25 17543.38 -$2454.88
CASH $767.60
TOTAL $52144.66