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| Charles B. Carlson, CFA |
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Dow Jones & Co. announced on February 11, 2008 changes to the Dow Jones Industrial Average. Bank of America (BAC) and Chevron (CVX) will be added to the index. Two Dow stocks that are being removed from the index are Altria (MO) and Honeywell (HON). These changes are the first for the Dow Industrials since April 8, 2004. The changes are effective with the opening of trading on February 19, 2008. How will these changes affect the Dow Underdog strategies? Actually, the changes 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 purchased a basket of the Dow Underdogs at the beginning of this year should keep that basket intact even if some of the 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 will begin tracking the new Dow components on our Web site beginning February 19, 2008. 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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