Many investors make mistakes during falling markets, as we have experienced this summer. Investors listen to the negative prognostications of television moderators and newspaper columnists; investors panic and sell, right before the market jumps 1000 points.(1) 1 I have seen this behavior every time we have a market decline.
So why do intelligent, experienced investors continue to make this mistake and lose money unnecessarily? There are 2 reasons:
(Here’s a quick quiz to prove my point: Does the stock market do better during presidential election years? Many investors think that this is the rule, that the stock market always does better in election years. Fact is, during this century, the stock market has risen in 69% of the presidential election years. However, during this century, the stock market was higher in 62% of all years, election or not. So the fact is, election years hardly make a difference. It’s simply an old wives tale that presidential election years are so much better for the stock market)!
2. Many investors have no plan and invest by the seat of their pants (or by the seat of their brokers pants), they are easily influenced by the opinions of others and caught up in emotionally negative whirlwinds. If the investor had a plan, the probability is, they could stay with it.
So, we have always advised our clients that there are two requirements to making money in the stock market:
Patience, as this table shows:
Historical Chance of making money in stocks: (2)
Any 1 year 72%
Any 3 years 84%
Any 5 years 89%
Any 10 years 97%
Any 15 years 100%
While we can’t give our investors patience, we can provide them a system that has been extremely rewarding.
The Dow Dividend Strategy has not only beaten 96% of all mutual funds over the last 15 years, it has helped investors preserve their capital during this summer’s declining market. From the peak of the market on July 17, through August 31, the Dow Jones Average dropped 19%. The Dow 10 portfolio dropped a far smaller 9%, thereby helping investors protect capital and calm nerves. Measured through September 30, 1998 , here’s how the Dow Strategy performed this year: (3)
Dow Jones Industrial Average |
.5% |
Dow 10 Strategy |
2.7% |
Dow 5 Strategy |
6.4% |
Average General Equity Fund (4) |
-4.89 |
If you’d like to stop losing money in mutual funds and instead, use a strategy that has held it’s value during turbulent times, and also has produced superior returns, call for our report on profiting from the Dow Dividend Strategy or check off on the coupon.
(1) The Investment Company Institute estimates that net outflows (sales) of equity funds were 11.2 billion in August. August was the first time in 8 years that the average equity fund lost assets. After this wave of selling, the Dow jumped 966 points between August 31 and October 20.
(2) This presentation is based on historical information from January 1, 1926 through December 31, 1997 as reported in the Ibbotson and Sinquefeld 1997 yearbook. It is not a guarantee of future results.
(3) Beating the Dow Newsletter, October 1998
(4) Lipper Analytical, Barrons October 5, 1998, p MW78