PracticalWisdom wrote:DoD may take slightly more time to implement than a standard index portfolio but if a 2% edge is maintained over the course of a long investment horizon (20+ years) the ending portfolio value would be close to double that of the indexer. The time spent seems minimal compared to the possible results. It doesn't have to be an all or nothing approach either. A portfolio could be divided into multiple portions and include both DoD and index funds as components.
Yes, personally, 95% of my portfolio is divided in half.
One half is DOD. One half is 4 part permanent portfolio. I'm very happy with this strategy because I feel the the PP cushions me in case of a market crash and the Dividends from DOD should "mostly" stay consistent during a market crash.
What Works on Wall Street (which I have read in detail) is a poor work as the author does not understand basic statistics (at least at the time he wrote that book) and many of the strategies he presents are not statistically significant. He makes errors in backtesting.
I'm not sure if the author is the same O'Shaughnessy who made a few funds that shut down due to poor performance?
If it is the case that the market is not efficient, and that value-strategies are underrated, surely a simple mechanical investing strategy such as dogs of the dow wouldn't work due to the few sophisticated investors who could bid up the price of these undervalued stocks? One couldn't look at overall numbers because the dollars invested is more important than the numbers of investors on any side.
I am investing following a Dogs of the FTSE100 which is the UK proxy for DOD. Today / tomorrow I will be rebalancing. I thought I would ask about your opinion on whether such a UK proxy would bring about some obvious flaws in the eyes of a more experienced investor?
@Seppia: Around 75% of FTSE100 revenue comes from abroad, I think this is actually much higher than DOW?
@GP: I'm not an experienced investor, but some things I'd keep in mind: some of the best divident payers in FTSE100 had a horrible year in 2020, for example banks had massive losses and were outright banned by FCA from paying out dividends to preserve capital, although this has now been lifted and payouts are expected to resume this year. Big oil companies also took a big hit. Those industries might look bad on paper but there's likely to be some recovery later this year and beyond - probably worth factoring in in rebalancing. Generally FTSE100 is an old economy index so should return to having good yield as companies recover. This is at the cost of growth which is unlikely to be a significant long-term driver of returns. So to balance things out, one might want to add a more aggressive, growth oriented fund/investment trust to the mix.
@ducknald_don: yeah, the index is still below it's Dec1999 peak in nominal terms, and massively below in real terms. Which means it's either: 1) an ideal time to buy before it reverses-to-the-mean big time, now that the UK is investable again, or 2) likely to continue underperforming since it's full of old economy companies which are shrinking instead of growing, and any new high-growth companies are quickly taken over by overseas competitors due to short-sightedness of UK investors. I think some recovery is likely in short-medium term but I don't see any catalyst for outperformance in the long term.
@Bankai
I’ve never understood the “X% of revenues are generated abroad” argument.
South Korea probably has an even higher share. Would you be fine investing 100% in South Korean companies?
The argument is that even if the UK is in a prolonged recession, FTSE should still do OK due to most earnings being generated abroad and those earnings then converted to a weakened £. Now, does it actually work - I'm not convinced. And I agree that home bias could be detrimental and some exposure to other markets is desirable.
Like Seppia, I've never understood that argument either. Just because you own stock in a UK corporation that generates revenue in foreign countries, you wouldn't have stock in foreign corporations.
I should maybe add that this is the accumulation phase, reinvesting all the dividends and adding an equal amount (+ inflation) each year with a plan of doing it for 5+ years more. I started 2 years ago so hesitate to change the (simple) strategy because I would like to be consistent.
After the two years, in the midst of the pandemic (added a bulk of cash 2 weeks before the market slump) ca. -2.75% ROI and -7.5% in total
But since the funds are turning large'ish, thought I would dig around on the forum to find some more info.
I think the biggest danger of following someone else's system, whether Dogs of the Dow or anything else, is that the average person would not have enough confidence in it to stick with it through ups and downs, especially since it's not their system. The average person would be more likely to start following it after it's had a good year and abandon it after it's had a bad year.
You are adding some customization by basing it on FTSE so it's more of your own, which is a good thing psychologically. But you have to think ahead of time how confident are you in the strategy and what conditions would make you abandon it? You should allocate to it based on your confidence in the strategy (and sticking with it).
I see what you mean. I saw the portfolio being down 35% in March last year and persevered not changing anything. I would not be able to engage in any advanced financial analysis at the moment becauase I am busy studying other things. Some of them will surely come handy when learning about finances in the future.
Some points I had in mind when setting this up:
- a natural dollar cost averaging spread over a few years, maybe a decade (since it is the accumulation phase)
- FTSE100 hardly appearing overvalued (but as was stated earlier, perhaps it will just not be growing anymore because full of old contracting companies)
- wanting to start having stocks to start riding the volatility asap rather than wait until the last moment and have an unexpected downturn
- yield as a proxy of being undervalued (however, could be just a troubled company of course, and some people talk that it is not the best measure of being good value for money).
It was hard to sell some positions that were 40% down, but I did re-balance today. I might look at the portfolio less often than the last year. Non-constructive thoughts about it / worries took more of my time that I would want in 2020. Then again, it was hard not to hear about financial troubles, hardship etc.
The argument is that even if the UK is in a prolonged recession, FTSE should still do OK due to most earnings being generated abroad and those earnings then converted to a weakened £. Now, does it actually work - I'm not convinced. And I agree that home bias could be detrimental and some exposure to other markets is desirable.
It was interesting that the FTSE 100 actually rose after the Brexit vote, thanks to our currency going down the shitter.
