An investment shortcut that really works

Being an active investor takes a lot of time and effort, so it's no surprise that everyone is always looking for a short cut. Usually, they don't work, and the lazy get their just deserts in the form of losses.

But a short cut that does seem to deliver is the Dogs of the Dow' strategy. Back in 1991, Michael O'Higgins published Beating The Dow, a book that laid out his theory that, if you buy, at the beginning of each year, the five highest-yielding shares in the Dow only, you outperform the market over the coming year. And it appears he was right: since 1973, the annual returns from the strategy have averaged 17.7%.

The theory is also thought to hold up pretty well in other markets, so this year Tom Stevenson in The Daily Telegraph has thoughtfully looked into which shares one might buy in the UK.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

First, he swapped the Dow for the FTSE 100. Then he looked for the ten highest yielders in the index and, to make sure he ended up with big firms only, knocked out the smaller five. This left five dogs of the FTSE, all, as O'Higgins intended, pretty contrarian tips (a high yield suggests investors consider a share high risk, as they are asking for above-average payments in return for holding them). The five are: DSG (DAGI, 164.5p, owner of Dixons and PC World), Boots (BOOT, 594.5p), Rentokil Initial (RTO, 163.3p), Severn Trent (SVT, 1,035p) and Alliance & Leicester (AL, 970p).