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| Charles B. Carlson, CFA |
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Cisco Systems (CSCO) and Travelers (TRV) have joined the Dow Jones Industrial Average, effective with the opening of trading on June 8. The change is the first in the Dow since Kraft Foods (KFT) joined the Dow in September 2008. Being removed from the Dow are General Motors, which filed for bankruptcy; and Citigroup. How will the change affect the Dow Underdog strategies? Actually, the change won't have any impact on investors who employed the strategy at the beginning of this year. Indeed, the historical results of my “worst-to-first” strategies were based on holding a basket of stocks for the entire year, regardless if a stock was removed from the Dow during the year. Thus, to be consistent with my strategy, investors who purchase a basket of the Dow Underdogs at the beginning of this year should keep that basket intact even if stocks are being removed from the Dow. Again, if you already own a basket of the Dow’s worst performers, you should continue to hold the stocks for the 12-month holding period even if one or more of the stocks is removed from the Dow index. Going forward, we are now tracking Cisco and Travelers on our Web site. For investors who want to put the strategy into place, the same rules apply. Simply buy a basket of the five or 10 worst-performing Dow stocks (based on percentage price change over the last 12 months) on the day you implement the strategy. This Web site is updated daily, so it’s easy to see what Dow stocks are the 10 worst performers over the preceding 12 months. |
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