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100 Don’t Make Me Say I Told You So

could best be achieved by investing in stocks that are “cheap”

compared with other stocks in the market. Value investing is
like a consumer who will patiently wait for a product to go on
sale before making a purchase.

This method of investing is based on the belief that, at some
point, other investors will recognize the true value of the beaten-

down stock, purchase it, and drive the price higher. Companies

that have suffered setbacks, but are still ripe for a turnaround,
are classic value stocks. Value stocks typically have relatively
low price-to-book and price-to-earnings ratios, higher dividend

yields, and lower forecasted growth rates.

Perhaps the best-known value approach is called “The Dogs

of the Dow.” It is an investment strategy that chooses stocks

annually, and holds them for one year. The stocks chosen for the
portfolio are the ten stocks of the Dow Jones Industrial Average
that have the highest dividend yield as a fraction of their price.

The logic for this method is that the stocks that make up the

Dow are large, well-established companies that pay dividends
to shareholders. Because the prices of these stocks have been
pushed down for some reason, their dividend yield becomes a

higher fraction of the stock price.

Since these large, well-established companies are not likely
to go away, proponents of this method feel that it’s only a

Chapter 3: You Must Have Growth In Your Portfolio