Many investors follow the Dogs of the Dow, a well-known trading
strategy that is intended to buy value stocks. Originally, the Dogs of
the Dow strategy consisted of buying the 10 highest yielding stocks in
the Dow Jones Industrial Average and rebalancing the portfolio once a
year.
Every January, a new list of Dogs would be compiled and
changes made to the portfolio to reflect them. Most years, at least some
of the stocks remain on the list and turnover is relatively low.
Once
the Dogs of the Dow strategy was first published, a number of
variations have been developed. One of the variations of the strategy is
to buy only the five lowest priced stocks from the list of the 10
highest yielding stocks. This is the approach Amber detailed last month. She suggests using call options to lower the purchase cost and increase the potential gains from the strategy. (more)
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