The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (February 6)

There has been much talk recently on our AOL message boards about the optimal holding period for the high-yield Dow stocks, but we don't actually have a study to point to for these specific stocks for any periods other than the one-year holding period we use, and a test run by Mark Pankin on his website for two- or three-year holding periods. (Incidentally, Mark found a two-year holding period worked well.)

There has been mention of an article outlining a 17-month holding period as perhaps optimal for high-yielding stocks, but to date, I haven't had a chance to read it. I don't know what period it covers and whether it's specific to the Dow stocks or high-yield investing in general.

If the article is online somewhere, I'd appreciate it if someone could drop me a note with the URL for it. If it's not online but you're willing to fax me a copy of it or at least provide me with the citation where I can get it from the library, I'd appreciate that as well.

My thoughts on the subject are just speculative since I've never done any testing other than for the one-year holding period, but given the turn-around nature of this approach to investing, it wouldn't be a surprise to find that a slightly longer holding period works the best. But at the same time, it doesn't concern me greatly to use our annual holding period.

Keep in mind that about half of your Dow portfolio will stay in your pocket for a second year anyway. That means on average, your holding period is about eighteen months anyway if half are held for a year and the other half for two years. So, by all means, let's work to test the variations on holding periods, but let's not abandon a fully-tested, proven approach in the meantime.

One problem with such a work-in-progress as this Workshop is that any promising idea has a tendency to make some readers jump off the high dive without checking the water level in the pool. Fools should be open to all new ideas, agreed, but think of the research here like medical research, an analogy I fall back on many times. A promising new drug is exciting, but until it's been tested as thoroughly as possible, doctors aren't allowed to start prescribing it at will.

The same thing should be true in our investment modeling. Let's pursue all good ideas together, but let's not get carried away in the early stages of a successful test until all the data roll in. No one wants his model's babies to come out with green heads and an ugly tail! Be Foolishly careful.

Monthly Growth Screens
     (Jan. 3 to present)
21.22%  Relative Strength  
18.94%  YPEG Potential  
  7.65%  Low Price/Sales  
  4.29%  S&P 500 Index  
  2.81%  Investing for Growth  
 -7.40%  Unemotional Growth  
 -8.91%  EPS Plus RS  

Annual Value Screens
     (Jan. 1 to present)
  5.05%  Dogs of the Dow  
  5.04%  Dow Jones Ind Avg  
  4.07%  Beating the S&P  
  0.22%  Dow Combo  
 -0.72%  Unemotional Value  
 -0.72%  Beating the Dow  
 -2.59%  Foolish Four