Ask Colin

I have been testing Dogs of the Dow system on last 5-6 years ASX data. Surprisingly, it works really well...average annual return beating the index by a large margin. Even more surprising is that it doesn't really matter what time of the year starts the testing, I tried March, June, Sept, Dec, it always beat the index... I feel so depressed that it even beats my average return. All it needs is once a year approx. half a year work, always 100% invested no matter if the market is going up or down...I wonder if I add TA into the system to get rid of the real dogs, it may enhance the return?

Other have tested the Dogs of the Dow system on the Australian market and for further back than you have gone, and have reached similar conclusions.

I am not sure that you can improve the system with technical analysis. I say this because you would be looking to spot trends and use a market timing approach to be only in those stocks in uptrends. However, the Dogs of the Dow is a total return system. Technical analysis is a capital gain system, as I taught you in the seminar. It is difficult to compare them unless you bring them to a common base, which in this case is going to have to be total return. So, the technical analysis system will save losses when prices fall, but unless they fall more than the dividends you forego when out of the market, you will not have gained.

On your philosophical point - I have formed the view that there are many ways to make money in the markets. Many different approaches work. But only for some people. It all comes back to the person, their attitudes and belief systems. Nobody can succeed with a system at odds with their beliefs. So, it is futile to try to find the best one (life is too short to gather all the data probably - read Winning the Loser's Game by Charles Ellis. Even if you found the perfect system, it might not suit you anyway, so all your work may be in vain.

However, I suggest you keep working on it. Every exploration you make adds insights and deepens your understanding of the way markets work.

Keywords: