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You Can Always Bet on the Winner of This Race!

Kentucky Derby Blog Post Image

The Kentucky Derby is known as “the run for the roses”.

On The BIGG Success Show today, we had the first ever BIGG Derby – the run for BIGG success! It’s impossible to recreate it in written form so we highly recommend you listen in to the exciting race coverage.

Listen to Charlie Horse call the BIGG race! 

Thanks for joining us at the first ever BIGG Success Derby. It was an exciting race with BIGG bucks for the winner. The field consisted of five thoroughbreds:

  • Stumbling Block
    He’s been a strong contender every time out this season. You can never count this horse out; he’s always in the running.
  • Uninformed Optimism
    This horse is a relative newcomer to the racing scene. We’ve heard some great things about him. He’s fresh and ready to go! Hopes are high for a great run.
  • Consistent Delivery
    He’s not a flashy horse, but he has an amazing track record. He’s demonstrated time and again that he will finish strong.
  • Fear of Failure
    He’s a real threat who often comes out of nowhere to defeat his opponents.
  • Persistence
    This horse is undefeated in competition. But the talk is that he will be severely tested today with this field.

What a day! We hope you enjoyed our broadcast of the first ever BIGG Derby. Until next time, here’s to your BIGG success!

Direct link to The Bigg Success Show audio file | podcast:
http://media.libsyn.com/media/biggsuccess/00125-050208.mp3

Image credit: WikiMedia Commons

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The Dogs of the Dow

By Bigg Success Staff
04-30-08

Bigg Success with Money

betting 

Contrarian investors go against the grain. They invest in companies that are “out of favor” with other investors. These companies are often characterized by things such as a low price/earnings ratio or a high dividend yield.

Price/earnings ratio (P/E ratio) is the quotient of the stock price divided by the earnings per share. Sometimes referred to as the “earnings multiple”. For example, if a company’s stock is selling for $10, and its earnings are $1 a share, its P/E ratio is 10.

Dividend yield is the quotient of the annual dividend per share divided by the stock price. For example, if a company pays out a dividend of $1 a year, and its stock price is $20, its dividend yield is 5 percent.

If a company has a relatively high P/E ratio, it generally means that investors perceive something better in the future. For example, they may expect a relatively high rate of earnings growth. That’s why these investors are often referred to as “growth investors”.

Contrarians are often called “value investors”. They do the opposite of growth investors. They look for stocks with low P/E ratios. For any number of reasons, investors don’t have high expectations for these companies.

The dogs of the Dow

There are underdogs in every competition. In horse races, they are called “dogs” and people who mainly bet on “dogs” are called “dog players”.

That leads us to one way to make a contrarian play with stocks – the dogs of the Dow strategy. This strategy dates back to at least the early 1970s, but gained popularity in the early 1990s when Michael O’Higgins wrote Beating the Dow.

Dow refers to the 30 stocks that comprise the Dow Jones Industrial Average, the oldest and single most watched stock index in the world. To many people, “the Dow” and “the market” are synonyms.

The idea behind this strategy is to buy Dow stocks with the highest dividend yield. Those are considered the dogs of the Dow.

It’s a relatively easy strategy to implement:

  • Determine how much you want to invest in this strategy.
  • Divide that amount by 10. This will be the amount you invest in each stock.
  • After the final trading day of the year, select the ten Dow stocks with the highest dividend yield.
  • On the first trading day of the year, buy the ten dogs of the Dow stocks.
  • Repeat this process year after year. Something to note, though, is make sure you hold your winners for a year and a day so you can take advantage of the lower capital gains tax rate.

Like any stock market strategy, in some years you’ll win. In others, you will not. For example, this strategy seems to do particularly well when there is a flight to safety. You may find that being a dog player is a valuable part of your larger portfolio.

Hear today's lesson and laugh on The Bigg Success Show. 

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(Image by Will Palmer, CC 2.0)