For instance a web site dedicated to this strategy

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Unformatted text preview: ve made investing in the Dow 30. For instance, a web site dedicated to this strategy ( claims that you would have earned 17.7% a year from 1973 to 2002 investing in the ten highest dividend yield stocks in the Dow, a much higher return than the 11.9% you would have made on the rest of the Dow. Not only is this comparison an extraordinarily narrow one – after all, there are several thousands stocks that are not part of the Dow - but it can be misleading. Many of the Dow Dog stocks are riskier than the rest of the Dow 30 stocks, and the higher returns they make could be just compensation for the higher risk. In addition, any investor investing 21 over these stocks over the periods covered (the sixties and the seventies) would have faced a substantial tax liability from the high dividends. It should come as no surprise that those studies that do control for the risk differences and factor in the tax effects conclude that the superior performance of the Dow Dog stocks is a mirage.4 Perhaps, the best test of a strategy is to look at the stocks that would be picked based upon the strategy and ask yourself whether you would...
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.

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