The Dow Approach
The Dow Approach
| Dow Dividend Strategy | What's Here | The Statistics Center | Spin-Off Help | The Archives | |||||||||||||||||||||||
FOOL GLOBAL WIRE LEXINGTON, KY. (Feb. 25, 1997) -- In the past I've had recourse to bemoan the dreaded Sheard Effect -- that inescapable universal law that whenever I discuss some wonderful approach online, it's dashed by the investing gods. No doubt some of you feel the same way; whatever you buy is destined to break all historical trends and immediately sink the decades-long history of the Dow Approach. What would be the consequence, however, if you did indeed bring down the wrath of the financial deities by investing at the market peak? In September of 1995, I wrote about this topic in our Fribbles area ("So You Say Your Luck Is Awful?"), which detailed the results if you were unfortunate enough to have the worst timing possible for your market entry points. It seems worthwhile to revisit that essay here, for the same fears plague investors facing their first entry into the market or a transfer from the world of under-performing mutual funds into individual stocks. The topic was covered in a September 1995 Smart Money article by Jersey Gilbert, which outlined the fortunes of an investor who invested $10,000 at exactly the worst time in each of four different years (the years' peaks for the S&P 500). The four dates were January 1973, January 1977, December 1980, and August 1987. In all four cases, leaving the investment in the S&P 500, despite the drop right from the start, would have produced a better return than T-bills over the succeeding 15 years (or 8 years in the case of the 1987 drop). The 1973 investment would have taken the longest time to catch up to the T-bill investment, 12.8 years. The other three "bad" investments all managed to catch up to their rival T-bill investments in far less time. (The 1977 investment took 5.9 years, the 1980 investment 4.1 years, and the 1987 investment 4.3 years.) Let's say your timing is even worse, however. You managed to invest $10,000 each year from 1979 to 1994 on precisely the worst day of the year (that is, the peak). Don't ask us how you were that unlucky, but let's say you were. That $160,000 investment ($10,000 for 16 years) would still have grown to $540,000, compared to the T-bill portfolio which would be worth less than $280,000. The point, of course, is that if you're a long-term investor, even one with atrocious timing year after year, you're still better off in the market than out of it. And of course, we hope and trust that you'll do better than the S&P 500 return while you're in the market. It would be too Wise not to. Postscript: GOODYEAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GT)") else Response.Write("(NYSE: GT)") end if %> overtook DUPONT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> again for the tenth spot on our high-yield list. The difference is virtually non-existent, however, so the rankings could easily shift right back tomorrow.
(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. |
|
||||||||||||||||||||||
|
|||||||||||||||||||||||
|
