A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

POTSHOTS THAT COMPLETELY
MISS THE TARGET
Some attempts to discredit the unpredictability of the market
are so ridiculous that perhaps they should earn the sobriquet
of “greater fool” theories. Among these are the Super Bowl
and the Hemline indicators, both described in chapter 6.
Under close examination, other picturesque potshots also
misfire completely. These include the Dogs of the Dow, the
January Effect, the “Thank God It’s Monday Afternoon”

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Pattern, and the Hot News Response.
Dogs of the Dow
This interesting strategy capitalized on a general contrarian
conviction that out-of-favor stocks eventually tend to reverse
direction. The strategy entailed buying each year the ten
stocks in the Dow Jones 30-Stock Industrial Average that had
the highest dividend yields. The idea was that these ten
stocks were the most out of favor, so they typically had low
price-earnings multiples and low price-to-book-value ratios as
well. The theory is attributed to a money manager named
Michael O’Higgins, who publicized the technique in his book
Beating the Dow
. James O’Shaughnessy tested the theory as
far back as the 1920s; he found that the Dogs of the Dow had
beaten the overall index by over 2 percentage points per year
with no additional risk.
The canine contingent of Wall Street analysts raised their
ears and marketed many mutual funds based on the principle.
By the mid-1990s, more than $20 billion of investment-fund
dollars were placed in Dogs of the Dow funds sold by such
prestigious firms as Morgan Stanley, Dean Witter, and
Merrill Lynch. And then, just as might be expected, success

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bit the dogs. The Dogs of the Dow consistently
underperformed the overall market. As the “Dogs” star
Michael O’Higgins opined, “the strategy became too
popular” and ultimately self-destructed. The Dogs of the
Dow no longer hunt.