The
Dow Approach
The
Dow Approach
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FOOL GLOBAL WIRE LEXINGTON, KY. (January 17) -- Rankings Change!! At today's close, Goodyear Tire <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GT)") else Response.Write("(NYSE: GT)") end if %> and DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> were tied for the final spot in the top ten, each with a dividend yield of 2.04%. Because of Goodyear's lower stock price, it gets the final spot and DuPont drops out. This places Goodyear in the #3 position for the Beating the Dow order. With Goodyear and DuPont virtually deadlocked, and Caterpillar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> only a hundredth of a point behind in yield, expect the rankings to change a bit over the next several days. As always, if you're investing now or updating, double check the order on the day you make your investments. With some of the recent rankings changes in the Beating the Dow order shaking up the models, I think it's time to bring up a frequently asked question about the holding period. A reader asked today why we don't update our Dow portfolio holdings more frequently if the deep-discount commissions to do so don't represent a big hurdle. And it's actually a very good question. If the approach points to the most out-of-favor stocks, why wouldn't we want to get the current ones more often than once every twelve months? Beside the issue of long-term and short-term capital gains treatment, the real reason is that these stocks, being turn-around plays of a sort, don't necessarily move quickly or on our preset schedule. When we first buy them, they might languish for months, even a full year, before actually kicking into gear. But even when a stock starts to rise in price enough that it's no longer among the select group of four or five, it may still have several months of solid recovery and growth ahead of it. Right now, for example, DuPont has been on a monster tear, up 21% in the last 30 days alone. Yet it's not been among the top five stocks to buy for several months, and after today has even dropped out of the top ten yielders. For those who are still holding it from a BTD portfolio dated in the middle of last year, had they sold it when it fell out of the top five rankings, they would have missed a huge spurt in recent weeks. Even the Foolish Four model, which sold it at the end of 1996, has missed much of the recent gains. By updating every time the rankings change, trading costs and taxes aside, you're working against the idea of getting a full recovery. Sure, you're always buying the current most out-of-favor stocks, but you won't be holding them long enough to profit from the recovery. In fact, some research suggests that even twelve months is too short of a holding period and that seventeen or eighteen works better. So, in this case, updating more often is a losing proposition all the way around. |
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