Dogs of the Dow screen using the StockScreen123 Stock Screener

The Dogs of the Dow screen is as simple as it gets when it comes to screening and normally would be a poor choice to illustrate how to use a screener. However, the features of StockScreen123 are so powerful; we chose to use a simple screen to make them more apparent.

After you login select “New Screen” from the Start Screening section. You will arrive at the Criteria tab of the screener. Begin by selecting the Dow Jones Industrial Average from both the Benchmark and Universe dropdown lists.

Next, select “Use Wizard” to add new criteria. Once the new window opens expand the value and then the dividend income selections. Double clicking “Yield” with the left mouse button opens the wizard for yield. Select greater than from the dropdown list and enter 0 as the desired percent yield. Use Add Wizard Rule and voila, you have criteria.

Use the Save As selection to save the screen. You get to choose your own name (something catchy like Dogs of the Dow would work) and add a description. For example, identify the 10 DJIA stocks with the highest yield. Use the Save button at the bottom of the window and you now have a saved screen.

Screening for Dogs of the Dow

Choose the Run tab of the screener to start screening. Notice that you have some additional selections to make. The default maximum number of stocks is 0 which generates all the results. But we only want 10 dogs so enter a 10. Since we want the 10 with the highest yield, we need to rank the results using the Quick Rank ranking option. Type “yield” (without the quotation marks) in the space provided and choose higher is better from the dropdown.

Now when you choose Run Screen you get the dogs. If you want to see what the results were on a different date, simply change the date in the appropriate place. My suggestion is to always restore today’s date before you wander off.

Just above the results on the left is the link to download the results.

For now, we will not discuss the report options other than to say you can sort the results by any viewable field and, if you prefer to view a different set of data, you can create your own custom reports.

Checking the strategy

There is a lot of controversy about whether or not the Dogs of the Dow continues to be a valid investing strategy. If you are interested in the dogs or any investing strategy, StockScreen123 provides the opportunity for you to review the strategy performance since March 2001.

Start by selecting the Backtest tab. The maximum number of stocks and the ranking option you selected when you ran the screen remain the same. You can choose a slippage value (we left it at the default of 0.5%) and the price to use in the testing.  The Dogs strategy was intended to run every year so choose the one year rebalance frequency from the dropdown list.

Although you can set custom dates, to examine the backtest functionality select some number of years – for example, 5, and Run Backtest. For this 5 year period, the Dogs underperformed the DJIA on a capital

appreciation basis although neither made money. Since this is not total return, the Dogs would have fared better if the dividends were included.

The red line is the equity curve of the dogs and the blue line is the equity curve of the benchmark – in this case the DJIA. Portfolio turnover is indicated by the vertical blue lines just below the equity curve. Details of the trades are listed on the site but not here.

Now, you can experiment a little. What if you only wanted the top seven? Set the maximum number of stocks to 7 and Run Backtest. The smaller Dogs of the Dow still under perform but not as much. Choosing only 5 is about the same.

There are some other options. A ranking system from Portfolio123 might be better than choosing the top yielding stocks.

Leave the maximum number of stocks at 5 and choose the All Stars: Buffet ranking system. Run Backtest and notice that the Dogs now significantly outperform the DJIA. Do the same with the All Stars: Zweig ranking system and the Dogs will under perform the DJIA. There is value in the Portfolio123 ranking systems but just like an investing strategy, you need to understand the makeup and philosophy of the system.

Another option is to choose a different stock universe on the Run tab.

CAUTION!

Before going out and betting the farm on your new Dogs of the Dow strategy, remember that this is an insignificant period of time and not a robust test of the strategy. This may be worth investigating further but is by no means conclusive.

There can be significant risk to over estimating the value of your backtesting. It is wise to remember, for example, that backtested performance is no guarantee of future results. Consider the investors that stuck to their guns during the market correction in 2000 or 2008 just because something had been working.

There is a risk of data mining as well – torturing the data so long that it will confess to anything. A common thinking error is to test until we get the expected result. Be careful; think clearly.

Conclusions

Even with the cautions, it is certainly a pleasure to be able to sift through some investing ideas with an easy to use tool. What would take hours of effort to reach the same conclusion can now be accomplished in a matter of minutes.

A 30 day free trial of Portfolio123 is available. The Dogs is a good strategy to learn the system during the trial.

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