Trading Secrets

chapter 15

S&P 500 dog effect

This is possibly one of the simplest investment strategies ever devised. It is also one of the most profitable. Here is what you need to do.

On 1 October each year, buy the ten worst-performing stocks in the S&P 500 Index of US stocks based on their price performance for the previous three years. Hold these shares for only three months, until 31 December, then sell them. That’s it.

You don’t even have to pore over the finer details of fundamental analysis used by stockbrokers and equity analysts when deciding on the ten shares to hold. So, forget about dividend yields, price to earnings multiples and price to book values (the ratio of a company’s market value to its net asset value). This strategy does not rely ...