Michael O'Higgin's investing classic holds up as well in the New Millenium as it did when it first hit book stands 10 years ago.
He maintains that it is still possible to beat the DOW by buying the 10 highest yielding stocks and tweaking your holdings each year, with correspondingly greater rates of return with a two- or five-stock selection from the group. O'Higgin's admits in the new eidtion that the strategy has been muddied by a drop in the relative importance of dividends as a part of total yield of the DOW. Dividends and payouts have lost lost out to stock buybacks, in part because dividends are taxed at a higher rate than long-term capital gains from stock sales. Changes in the DOW have also reduced the overall dividend payout. Of the most recent additions, Microsoft pays no dividend and Intel and Home Depot have nominal payouts. O'Higgin's strategy may also be less effective because it's simplicity and past returns attracted the attention of Wall Street money managers and of many, many individual investors. There is at least one web site devoted to the Dogs of the Dow and a number of similar investment strategies were profiled for several years on the Motley Fool website.
Nor is the most valuable part of O'Higgin's book his thumbnail sketches of other value strategies for beating the market with a basket of DOW stocks. Several seem downright ridiculous. I remain skeptical that investing based on presidential election cycles or end-of-year asset sales by fund managers can yield meaningful, long-term results for individual investors.
The value of this book is O'Higgin's championing of value investing in general and his highlighting of the resilience of the DOW stocks in markets bull and bear. Most people aren't professional investors and lack the time and resources to profit from a strategy of active trading. If the efficient markets guys are right, then buying all 30 DOW stocks and holding on long-term will beat returns of most professionally baskets of stocks, with less risk and less payouts for taxes and trading costs to boot. Or maybe buying the highest yielders in any given year and holding. Anyway, you get the picture.
Regardless of whether you think the high-yield 10 is still capable of outgaining the overall DOW, O'Higgin's book is, to me, as valuable in 2001 as it was when I first read it in 1993.
