Beating the Dow With Bonds : A High-Return, Low-Risk Strategy for Outperforming The Pros Even When Stocks Go South [Hardcover]

John McCarty (Author), Michael B. O'Higgins (Author)

Book Description

Publication Date: December 23, 1998

In "Beating the Dow with Bonds," Michael O'Higgins, bestselling author of "Beating the Dow" and one of America's top-ranked money managers, provides a proven system for achieving the lowest-risk, highest returns in a chaotic stock market--investment advice requiring less than five minutes per year that will help you beat the pros 95 percent of the time "regardless of market conditions."

In 1989, Michael O'Higgins rocked the investment world. By following a very simple formula, he asserted, investors could beat the pros 95 percent of the time by putting 100 percent of their money into the "dog" stocks of the Dow. Not only did his formula work for nearly a decade, but the publication of "Beating the Dow" spawned a veritable industry, including websites, mutual funds, and $20 billion worth of investments, elevating the theory to legendary status.

Now O'Higgins is back -- and geared to rock the investment world again. With stock market fluctuations ranging from all-time highs to all-time lows, the "King of the Dow Dogs" insists that incorporating bonds -- once considered the ugly stepsibling to stocks -- into your portfolio is the only way to win.

In "Beating the Dow with Bonds," you will learn: How to tell when stocks aren't the best place to be for the highest returns -- and where to go in the meantime. How to protect yourself from radical market fluctuations and continue to beat the Dow. A reliable, easy-to-understand method of assessing the attractiveness of T-bonds, T-bills, and stock in order to achieve the best return with the least risk. Why, in the thirty years since December 1968, this new strategy of asset allocation would have produced almost "thirty times"the cumulative return of the Dow Jones Industrial Average (DJIA) and S&P 500 -- and "five times" the cumulative return of a "Beating the Dow" five-stock strategy. How investors would have gained annual returns of 24.1 percent using this new strategy--verses annual returns of 18.2 percent with a Dow-based, stocks-only strategy and an 11.2 percent annual performance by the DJIA and S&P 500.

For investors with as little as $5,000, "Beating the Dow with Bonds" provides a safer, more reliable opportunity to beat the Dow not just in today's market -- but in any market.

Editorial Reviews

Amazon.com Review

Michael O'Higgins is worried. The ideas advanced in his 1989 classic, Beating the Dow, have been adopted by mutual-funds and market gurus alike as a proven formula for getting consistently high returns with a minimum of risk. In that book, O'Higgins introduced a system that become known as the Dogs of the Dow, which prescribed investing in out-of-favor Dow stocks--an approach that has produced annual returns that have handily beaten most all market averages.

These days, however, O'Higgins is less concerned about beating the market than surviving it. In Beating the Dow with Bonds, O'Higgins considers the wild valuations of today's stock market and sees the specter of a sharp and steep decline. To face this inevitable selloff, O'Higgins offers a survival strategy that involves annually allocating assets among stocks (Dow Dogs), T-bills, and T-bonds. While most members of the baby-boom generation know how stocks work, they'd be hard-pressed to explain the arcane world of bonds. O'Higgins explains them admirably. Had you followed O'Higgins's new system for the last 30 years, which saw six bear markets, your portfolio would have enjoyed an average annual return of 23.77 percent versus 18.03 percent with his Dow Dogs portfolio and 11.77 percent with the DJIA.

O'Higgins is no Chicken Little--rather, he's a market contrarian with a proven and profitable track record. If you think the stock market will go up forever, then look elsewhere for advice. But if you believe in gravity, then get this book and read it soon. Highly recommended. --Harry C. Edwards

From Library Journal

In his earlier work, Beating the Dow, O'Higgins presented his "dogs of the Dow" investment strategy that involves investing in "out-of-favor" Dow stocks to result in returns ahead of most average market strategies. Now he explains how to prepare for what he projects as a rapidly approaching time of decline in today's overvalued market with his survival strategy that involves allocating assets among Dow dog stocks, T-bills, and T-bonds. The arcane world of U.S. Treasury bonds and bills is well presented, helping investors better understand how these ventures work as well as how to achieve better returns with these less risky tools. O'Higgins insists incorporating bonds, once considered the ugly stepchild to stocks, in a portfolio, rather than focusing entirely in the market, should beat the Dow Jones Industrial Average in a low-risk manner. Investors worried that the bear market on the rocks below is about to overtake their investments will find this advice of great value. Jack Perkins's immediately identifiable presence lends credence to this valuable contribution to the finance genre. Highly recommended for all public libraries.ADale Farris, Groves. TX
Copyright 1999 Reed Business Information, Inc. --This text refers to an out of print or unavailable edition of this title.

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Product Details

• Hardcover: 288 pages
• Publisher: HarperBusiness; 1st edition (December 23, 1998)
• Language: English
• ISBN-10: 088730947X
• ISBN-13: 978-0887309472
• Product Dimensions: 9.3 x 6.3 x 1 inches
• Shipping Weight: 1 pounds
• Average Customer Review: 2.6 out of 5 stars  See all reviews (33 customer reviews)
• Amazon Best Sellers Rank: #1,165,928 in Books (See Top 100 in Books)

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30 of 31 people found the following review helpful:

2.0 out of 5 stars Short on content and poorly edited, but important, April 4, 1999

By 

A Doctor in Ann Arbor - See all my reviews

This review is from: Beating the Dow With Bonds : A High-Return, Low-Risk Strategy for Outperforming The Pros Even When Stocks Go South (Hardcover)

O'Higgins' "Beating the Dow with Bonds" is an updated version of his very successful "Beating the Dow" which outlined the now well-known "Dogs of the Dow" strategy. In his new book O'Higgins presents a simple system whereby investors decide at the beginning of each year whether their money should be in treasury bills, treasury bonds, or stocks.

Simply stated, O'Higgins recommends investing in stocks only when the average yield (the inverse of P/E: E/P) of the S&P 500 exceeds the yield on government bonds. If this is not the case, then one uses the change in the price of gold is an indicator of inflation to decide whether to invest in US Treasury bills or US Government zero-coupon bonds.

While I find the strategy interesting, and am persuaded that the stock market is tremendously overvalued at present (a main point of the book), I think that this information could have been presented in 10 to 15 pages. O'Higgins reiterates the same information over and over again, and the book is the full of what I consider "filler." A full 65 pages (one fourth of the book!) contains synopses of the 30 companies comprising the Dow Industrials. Four pages list "selected" discount brokerage firms addresses.

I have very little patience for sloppy editing. Between O' Higgins, his cowriter (John McCarty) and their editor I would expect such glaring errors as missing words in sentences (not to mention nonsensical sentences) would not make it to publication. They did.

In summary, I would recommend that interested readers check out a copy from their local library and read pages 166 through 170. After reading this outline of O' Higgins' method, thumbing through previous chapters (noting the figures) will provide a quick, and probably useful, overview of his rationale. O'Higgins is making some very important points in "Beating the Dow with Bonds," and he is certainly a well-respected market veteran (as he points out on a number of occasions), but due to the rambling nature of the book and the sloppy editing I cannot recommend its purchase.

18 of 18 people found the following review helpful:

2.0 out of 5 stars Check this investment method carefully., January 6, 1999

By 

[e-mail] (Portland, Oregon) - See all my reviews

This review is from: Beating the Dow with Bonds : A High-Return, Low-Risk Strategy for Outperforming the Pros Even When Stocks Go South (Audio Cassette)

Are you interested in spending thirty minutes per year in order to trounce the Dow Jones Industrial 30 stocks by a factor of eighteen over a 29-year period? Michael O'Higgins, in his recent book, "Beating The Dow With Bonds", lays out a seventeen step method for doing just that, beating the Dow using a nearly risk free method. All the necessary information to follow O'Higgins new strategy is available in Barron's Market Week, and it will not take more than 20 - 30 minutes per year to make the calculations. What really grabs the reader is the stellar performance of this investment approach. Table 9.1 on page 150 contains all the data needed for analyzing O'Higgins new tactics. The cumulative return with this new system is 47,886 percent versus the DJIA's return of 2,640 over the same twenty-nine year time period. O'Higgins is well known as the co-author of "Beating the Dow". In BTDWB, he compares this new strategy with his former Dogs of the Dow approach. The results are impressive, as the new strategy will generate, as mentioned above, a 47,886 percent return versus 12,377 percent for a Beating the Dow Five-Stock's. Another advantage for this new investment scheme is, this can all be accomplished with less risk. O'Higgins asks the question, "Are these results too good to be true"? He claims they are not. On closer examination, these results are too go to be true.

The strategy necessary to accomplish such outstanding returns requires one to look up some easy to find data in Barron's. First, identify the S&P Earnings Yield % and compare this value with the 10-Year U.S. Government T-bond Yield to Maturity after making a minor adjustment of adding 0.30% to the T-bond Yield. If the S&P Earnings exceed the adjusted bond yield, then it is time to select the five Dogs of the Dow (DOD) stocks. O'Higgins reviews the DOD process he originally laid out in his first book. If the adjusted bond yield is higher than the S&P 500 yield, then it is time to look up information on the 'Gold Indicator'. If the one-year change in the price of gold is higher than it was one year ago, then invest 100 percent of your portfolio in U.S. Treasure bills due to mature a year from now. If the one-year change is lower than the price of gold one year ago, then invest 100 percent of your portfolio in the highest yielding U.S. government zero coupon bonds available that are due to mature in twenty years or more. O'Higgins lays out all seventeen steps (there are actually about eleven or twelve critical steps) in great detail. The above description is only to explain the bare bones approach of his recent thesis. Note that the 0.3% correction is a "soft" number. Reading O'Higgins one might accept this as a rigid value.

One becomes suspicious of this strategy when O'Higgins moves investors out of the stock market beginning in 1981 and keeps them in either bonds or T-bills right through the greatest bull market of the century. How can this be so? It all comes down to uncommonly outstanding performance in two of the 29 years; his 30-year zero coupon bonds yielded 156.12% and 106.90% in 1982 and 1985, respectively. If one returns those stellar bond years to the DJIA return of 25.79% (1982) and 32.78% (1985), according to O'Higgins figures, then the DJI and BTD 5 Stocks both will out-perform O'Higgins new strategy. To build an overall investment philosophy where two years of outstanding performance is the key kicker is truly data mining.

Following O'Higgins BTDWB method, I ran the numbers for two consecutive weeks late in 1998. One week I was in 30-year Zero Coupon Bonds; the next week I was in stocks. Where you will have 100% of your portfolio positioned depends on the week you make your assessment. O'Higgins BTDWB strategy is simple and purports to generate excellent returns, both enticing to the novice investor. Nevertheless, it is a flawed system. With interest rates where they are today, it is highly improbable followers of this system will see future returns match the high historical returns. In addition to the fundamental flaws of this investment strategy, BTDWB needed a keener eye when it came to editing the book. Examples of this showed up on page 48, where the Price to Sales Ratio is given as: "To get the price to sales ratio, divide the sales per share figure by the stock's current market price". Price to Sales is the reciprocal of what is stated. Graphs are consistently lacking in fundamental information. On page 50, no units are provided for the y-axis and one of the graph lines is missing as there is a Small Cap value of $4,495.99 floating in space at the northeast corner of the graph. In Chapter 4, a brief case is made for investing in small cap stocks. O'Higgins tells us he will address, in the final chapter, when to be in small cap stocks. He never follows through with this information. The graph on page 106 does not contain any identifying information on the y-axis. Chapter 11 is nothing but filler. These are examples of numerous errors in the book.

Overall, "Beating the Dow with Bonds" is an interesting but flawed read. Both the novice and experienced investor would do well to go back to the fundamental analysis and hard work involved in investing. Forget the quick and simple methods espoused in the popular press.

Lowell Herr

8 of 8 people found the following review helpful:

1.0 out of 5 stars Poorly edited. Why was it rushed to print?, April 18, 1999

By 

Dan Narikawa ([e-mail]) (Los Angeles, California) - See all my reviews

This review is from: Beating the Dow With Bonds : A High-Return, Low-Risk Strategy for Outperforming The Pros Even When Stocks Go South (Hardcover)

O'Higgins has summarized his approach to making a switch from stocks to bonds on pages 165 to 170. The problem is the instructions for calculating yields and yield differences are confusing and unintelligible. The BTDWB allocation strategy results are summarized over a thirty year period in a table on page 151-152. The BTDWB would have selected 1-year TBills as the optimum investment nine times since 1972. But the data presented shows T-Bills were not the best investment eight out of nine times. This book and BTDWB strategy is flawed. I wish I could get my money back.