Ask Colin

I want to use the "Dogs of the Dow" 10 high yeilding leaders method of stock selection. Should I apply technical analysis at least for the selection process and for selling a stock if the chart looks drastically wrong?

Firstly, let me say that I put the High Yielding Leaders material in as an afterthought and clearly pointed out that I had not tested it. There was an error in the data also, which made it look better for Australia than I showed it. Last year also did not turn out very well, so it may be that this approach does not translate well to the Australian market. Frankly, I regret including this material now and if I were doing the report again today, I would leave it out.

However, if you want to test it, please go ahead, but do not put money into it until you have tested it. I know two others who have tested it, but their results are not public at this point.

The system is based on taking the trades indicated. If you start putting in other filters, you invalidate the testing and have to test it on the new rules. You may well be right and if your testing proves it, you may be onto something. I worry though about imposing a subjective filter onto an objective system and testing it with any pretence to precision.

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