A Dow/Value Line Model?
(TMF Sheard)
LEXINGTON, KY. (July 7, 1998) -- One of the games we've played since the Workshop opened is How Else Can We Torture the Dow? Well, we're not quite done yet. Let's look at another.
The Value Line Investment Survey has obviously been an integral part of my research for the past few years, but I've never really done anything with it in conjunction with the Dow stocks. I've probably been persuaded to ignore this possible combination by the fact that in the past, many of the Dow Dogs which have made the Unemotional Value approach so useful have scored very poorly in the Value Line ranking system.
That's not completely surprising, because Value Line uses trends in earnings (and to some degree, in stock price) to build its rankings, so by definition, the Dow Dogs won't really score well on such a system.
But I wonder how well the rankings would help in picking out some of the Dow growth-oriented companies that may not sport much in terms of dividend yields?
At the beginning of the year, there were no Dow stocks with timeliness rankings of 1, only three stocks with rankings of 2, and eighteen stocks holding a #3 ranking.
If we take those 21 stocks with rankings of 3 or better and then rank them by their returns over the final six months of 1997, here are the five stocks that fare the best: Travelers Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %>, Walt Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>, American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %>, Wal-Mart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %>, and Int'l Business Machines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>.
Their returns for the first half of 1998 are:
Travelers Group 12.76% Disney 6.58% American Express 27.98% Wal-Mart 54.48% IBM 10.17%
As a group for the first six months of 1998, we would have an average return of 22.39%, which is considerably higher than any of the Dow high-yield methods and beating all the major indices. So this may be a start in another search towards a Dow method based on momentum in both earnings and stock prices. But, of course, before it's worth anything as a workable strategy, it would require some extensive research to see how such a plan would have performed in different types of markets. If anyone's looking for a research project, here's one worth devoting a couple hundred hours to. Bueller? Bueller? Anyone?
Check out the latest file updates for the Workshop:
New Rankings
| 1998 Returns
| New Database
[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]