Good Dog!

Champion Bloodlines

Both the Top 10 and the Low 5 DDSs have historically rewarded investors. And while past performance is no guarantee of future returns, in the period beginning January 1977 through the last trading day of 1996, assuming total return proceeds were reinvested at the beginning of each calendar year, the 20-year record puts the DDS ahead of the DJIA with an average compounded annual total return of 17.62 percent vs. 14.25 percent for the full 30 DJIA stocks.

Surprisingly, the Low 5 provides an even higher average compounded annual return for the same 20-year period--20.18 percent. Put it this way: Hypothetical investors who put $10,000 in the Low 5 DDS at the beginning of 1977 and followed the strategy annually could have seen their investment grow to more than $395,000 in 20 years, compared to the more than $256,000 for the DDS Top 10 portfolio and the nearly $144,000 for the full DJIA portfolio. (Results exclude the effect of state and federal taxes, commissions, and sales charges.)

There are two forces at work behind the returns of the DDS strategies. The first is the effect of yield. Dividends paid by the companies in the DJIA have increased in 60 of the past 68 years, and this accounts for about 40 percent of the overall return. Second, compounding these dividends accounts for 10 percent of the improved total return. The success of the DDS offers another reason why time in the market is more important than timing the market.

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This article was originally published in the October 1997 print edition of Entrepreneur with the headline: Good Dog!.

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