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After reading an unbelievable sell recommendation by one of my BloggingStocks colleagues, I didn't know whether to laugh or cry. In Thirteen Dow stocks that are doomed, we are informed that 13 of the 30 are going down and we should all bail out before it is too late.
I find this silly on many levels. For one, 13 stocks amount to a large-cap index fund and since large-cap stocks have lagged the market the probability that they will outperform going forward is real and has many investors promoting them.
Furthermore the "Dogs of the Dow" theory suggests that an investment in the 10 worst performing DJIA stocks in a given year will outperform the entire index in the next has proven true more times than not. While I would not recommend this approach, simply as a percentages game, betting against it seems like throwing caution to the wind unnecessarily.
If you take the time to read the rationale for selling these stocks you will find almost nothing backing up this sentiment. Each stock comment is so sparse you may find yourself as baffled as I did and wonder how one could take such a strong position on such limited data.
Rather than berate my colleague further, I have decided to track the stocks over the next year and let the facts fall where they may. I disagree with his position and think the 13 stocks will at least meet with similar returns to the S&P 500 and DJIA indexes.
The following are the 13 stocks, two indexes and the closing prices for Friday December 11, 2009.
- Alcoa (AA): $14.61
- AT&T (T): $28.01
- Bank of America (BAC): $15.63
- Boeing (BA): $55.60
- Chevron (CVX): $77.76
- Exxon Mobil (XOM): $72.83
- General Electric (GE): $15.92
- Home Depot (HD): $28.49
- Kraft (KFT): $26.79
- McDonald's (MCD): $61.66
- Procter & Gamble (PG): $62.34
- Verizon (VZ): $33.73
- Walmart (WMT): $54.65
The DJIA closed at 10,471.50 and the S&P 500 closed at 1,106.41 as the baselines for future comparison. By the way, "my pal Warren" owns five or six of them.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture and planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: Among the positions discussed in this post I own shares of GE.
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Reader Comments (Page 1 of 1)
12-14-2009 @ 5:08PM
cbadner said...
I read the same article and, since I own 5 of the stocks reviewed, I did additional research today. My decision is to continue my ownership of the stocks and to keep my practice of buying each of my stocks every two months.
Mr. N's article was ridiculous and worthless, in my opinion, too.
12-14-2009 @ 5:39PM
kpinvest said...
Go get him Sheldon! If nothing else, I vote we move to fisticuffs during lunch hour on 12/10/2010. Or pugil sticks.
Otherwise, I agree with cbadner, the poster above me. I don't believe any opinion is worthless, but the points are a little inane. Wouldn't it be funny if the market had its 30% correction in October?
12-14-2009 @ 6:52PM
Sheldon L said...
The prediction business is a tough business and you don't make the Investors Hall of Fame even with a .350 lifetime average.
12-21-2009 @ 5:02AM
pm1040 said...
How does GE stay on a hot list. Since Immelt took over the stock has gone from $60/share to $15+change/share. For the first time ever GE has not raised its dvidend but reduced it by 80%. Its earnings are now flat for the next yr. What in heavens sake has he done that is good for he company?? He is a ZERO.