Who Let the Dogs Out?

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I was so impressed by the performance of M’s ‘Underdogs’ portfolio (using the Dogs of the FTSE strategy), the winner of my Monkey Stocks League Challenge, that I was determined to set up a similar portfolio of my own.

Dogs of the FTSE?

The Dogs of the FTSE strategy is the UK equivalent of the US ‘Dogs of the Dow‘ strategy and setting up this portfolio is relatively simple:

  • Choose the ten FTSE 100 shares with the highest yield.
  • Invest equal amounts in all ten and hold for a year.
  • At the end of the year, sell the ones no longer in the top ten, replace with new shares with highest yield.
  • Pocket profit / reinvest / cry at losses* (*delete as applicable)

The rationale is that “a high yield indicates that a company is out of favour with investors. When that happens, its shares will be undervalued relative to its prospects and intrinsic worth. When the market realises this, the firm’s share are likely to rebound and give investors a decent profit.”

Allegedly.

Still, according to Money Observer, over the past 15 years, the Dogs strategy has performed impressively, though of course, past performance is not a guarantee of future results, etc, etc. (*update 01/03/17- here’s Money Observer’s article about the success of the 2016 Dogs).

The strategy was considered back in 2010 by the ermine, although I can’t find an updated post on whether he followed through on it or not.

My Doghouse

I could have just set up a ‘notional’ Dogs of the FTSE portfolio like other sound-minded folk, but risking some real money makes it more interesting for me and worth the effort of tracking the progress of the portfolio. Risking real money also satisfies my gambling gremlin!

I received a bonus from work as part of my severance package so decided to invest the entire lot (as close to) in this ‘experiment’. Note that this will lead to a massive boost to my savings rate for this month!

So, who are the mutts in my Doghouse?

  1. AstraZeneca plc (AZN)
  2. Capita plc (CPI)
  3. HSBC Holdings plc (HSBA)
  4. Intu Properties plc (INTU)
  5. Marks & Spencer Group plc (MKS)
  6. Persimmon plc (PSN)
  7. Royal Dutch Shell Plc (RDSB)
  8. Royal Mail PLC (RMG)
  9. SSE plc (SSE)
  10. Standard Life plc (SL)

Some of these were actually just outside the top 10 but I didn’t want to include any shares which I already held in my portfolio, or any where a dividend cut had been announced (hope I haven’t missed any announcements…).

The shares were purchased on 10th February 2017 (via regular investment to reduce costs). Here’s the live link, which I’ll stick on my header menu at some point. I’ll probably do quarterly or half-yearly updates.

As at close of trading, 10th Feb 2017

Risky

Yes, I’m aware that this strategy is on the risky side, though not as risky as randomly and blindly selecting shares out of the hat like I’ve done before… However, these stocks represent only a small part of my portfolio, it’s a bit of fun (gosh, should investing actually be FUN?), plus I may make some profits along the way. Or not. This will also expose me to the pleasures/perils of buying and selling as opposed to my usual buying and holding strategy.

I was a little concerned at first about the timing of my purchases – stock market is currently high and likely to dip in the year with Brexit/Article 50 triggering, the end of the Trump rally or more shenanigans and other stuff happening in the UK and around the world which may affect the financial markets.  Should I have waited to buy low?

I went ahead anyway because stuff happens all the time and I don’t know how to time the unpredictable market. Plus the money would be doing nothing if left to sit in my bank account, except to tempt me to spend it!

Anyone else tried this strategy before?

I’d be interested in any success/sob stories!

Anyway, have a great weekend all!

28 thoughts on “Who Let the Dogs Out?”

  1. I’m quite interested in this strategy, but then I think “But I hold all these in my Index tracker, and all the winners too!” and then tend to do nothing. My mate once appeared in some City publication as the manager of a Dog Fund which reminded me of the old Chinese proverb about happiness being watching a good friend falling off a roof. But I actually did feel for him as the editorial slaughtered his performance and was unnecessarily cruel. There was a real snobby bitchiness about it which, I felt, summed up the type of people he had to deal with on a daily basis. Just another reason to let the computers do your investing for you!

    • Hi Jim

      Yeah, I realised that I already probably hold all these in my index tracker but was curious to see how they would perform in isolation, without all the ‘winners’ as a buffer!

  2. Hi Weenie,

    I’ve not been brave enough to invest in anything other than Vanguard Lifestrategy so far, so I certainly haven’t used this strategy before.

    I will be very interested to see how you get on with it though and I look forward to future updates. I think it’s actually important to have a fun element to your investing, as long as it’s just a subset of your overall investment strategy, so that you’re not risking everything.

    Good luck with it!

    OR

    • Hi OR

      My main strategy remains investing in index trackers so yes, this is very much just a subset of my overall strategy. Let’s hope the updates will be more of the ‘Hurray’ type rather than the ‘Oh no’ type!

  3. Hi weenie,

    This sounds interesting and I think even ere Jacob endorsed the dogs of the dow at some point so if it’s good enough for him then it’s certainly a strategy worth considering for the rest of us mere mortals 🙂

    What were the companies you left out due to you already holding them, and what ones because of the announced div cuts, just out of interest?

    Thanks!

    • Hi TFS

      I already hold BP, Centrica, Legal & General and Vodafone. I’m not sure whether that’s good news or bad news! 😉

      The two that had announced divi cuts were Easyjet and Pearson. Incidentally, the latter is currently number 1 in the high yield table at 7.78% but I wasn’t tempted!

  4. I dabbled with a dogs portfolio about 20 years ago (Sainsbury’s and Ladbrokes were in there i recall) and believe it performed relatively well. It does require some discipline though, so stick to your plan and don’t be swayed by all the background noise that your shares will undoubtedly attract in the press throughout the year. Having been burnt by a few individual shares (not necessarily dogs), and panic sold over the years, i tend to prefer the relative stability of collective investments these days (easier to sleep at night), but i also enjoy a punt every now and then though, so can totally understand why you’ve done it – good luck with it. Long term it should work out. Short term, I guess the benchmark will be how the FTSE performs relative to the rest of the world this year.
    Hopefully you have kept some rainy day money aside to see you through your current situation, and won’t be forced into any early sales out of necessity.
    ps – for me Money Observer is the best investment mag out there (i think Andrew Pitts talks a lot of sense). I wonder if they would consider featuring articles from financial bloggers (might be a way for you all to earn a little pocket money)???

    • Hi KC

      Thanks for sharing your experience with a dogs portfolio. I think I will have the discipline to stick to the plan, though it’ll be hard to try not to check on its progress too often! Yes, I have funds to see me through my current situation so will not need to sell in an emergency.

      I’m not sure my rambling efforts are fit for a magazine such as Money Observer – financial bloggers like Monevator are probably more suited, ie they know what they’re talking about haha!

      Thanks for stopping by!

      • the more i think about that Money Observer suggestion the more i like it. if you could get say half a dozen of you all committed to it, and prepared to submit a monthly/quarterly basic summary update of your FIRE status’s (which shouldn’t be too onerous for you all as you all keep your stats anyway), and base it upon a relevant and simple pre-determined template, that would need drafting up, it could make for a very educational feature article over the next few years as you all progress towards your goals. Money Observer would get themselves a new column (featuring established FIRE bloggers who would hopefully commit themselves for a few years), and you’d all get yourselves an expanded reader base, some extra cash, plus a big incentive and a little bit of ‘competition’ to keep pushing for FIRE. You could have a league table showing where you all are relative to your FIRE dates, your goals, the type of investor you are, current portfolio compositions, the tax efficiency of your pots, saving rates, views on the markets, etc etc.
        it could make for a very interesting study of FIRE bloggers. Or, maybe it’s one to discuss down the pub during a big session and then forget all about it!!!

  5. Great post Weenie,
    I love investing and know by experience that Tortoises do win the race to FI. But deep down I am a trader or to put it another way I fight the urge to make a fast buck.
    Michael O Higgins wrote about this in the 1990’s and it works most years. Harvest the yields, If you tell me a man is waiting for the best time to invest I will show you a man that never invests. Over the long term it doesn’t matter. Why limit to one year?.Let it run. Start another portfolio off in year 2. We are now playing recovery funds.
    Love your continuing story and good luck for your future.

    • Hi SD

      I’m definitely going down the Tortoise route, slowly but surely – it’s just that I also fancy a little glimpse of what it’s like being the Hare so am willing to risk a bit.

      Great to hear some evidence that it works most years. I don’t intend to stop after one year, I was thinking of doing it for at least a few years so that I could at least do some comparisons and hope that it works ‘most years’ for me too!

      Thanks for your kind words and for stopping by.

      • Hi Weenie,
        Just to clarify, when I said ‘Why limit to one year?.Let it run’ I meant just that! Basically this is a recovery share system where at least one of the investing variables has been fixed. Time. Artificial mechanical systems cannot work in the long term because of multiple different cycle times amongst its constituents. Ermine is spot on with his follow up comments.
        By removing the strongest pack member with another sickly individual each year will over time eventually kill the pack.
        I could bore people for hours with stock market systems, Advise to myself is KISS with trading hands firmly clasped behind the back. Never do listen though!

        • Hi SD
          Oh, I see what you’re saying. However, the point of this portfolio is precisely to follow the strategy, which is to pick the top 10, hold for a year, sell the ones that drop out of the top 10, replace with new ones.

          I already hold some other ‘dogs’ in my portfolio, namely BP, Centrica, Legal & General and Vodafone. I also hold BLT, GSK, RIO and STAN, all previous dogs. I intend to let these ones run (all purchased a year or two ago), so perhaps this pack of ‘dogs’ will come good in the long run, even if the ones determined by the artificial mechanical system don’t! 🙂

          KISS should be the way to go forward but let’s see what happens with the dogs!

          Thanks very much for your input.

          • Hi Weenie,
            This is great fun. I have joined you on this using my dealing (fun) account.I can’t totally stop trading. I am a good boy in my SIPP and ISA’s accounts where I only buy defensive shares, low ter funds and ETF’s..
            For ease of comparison purposes I have bought the same 10 shares but in £500 clips because my dealing costs were much higher. I believe over the long term one off purchase costs become less relevant, Entry price is what matters. After 12 months I will keep the same 10 shares ie let them run. I don’t think any of them are terminal but M & S may slowly disappear, You will be following the system and changing. Good luck!

  6. I hold some of these mutts in my HYP – AZN, RMG, RDSB. But I bought them long enough ago that they show a decent profit in price, never mind the divi collected over the years. So the ill wind will blow me some good if the theory is good 😉

    Good luck. I think the dogs will probably come good if they stay alive, it’s the ones that go bust which may dent the performance. I used to hold IUKD which has similarities with this philosophy and its performance was dire.

    • Hi Ermine

      Yes, let’s hope the dogs do survive! Didn’t know that IUKD followed the philosophy. It’s showing a yield of 4.9% which isn’t bad but its share price hasn’t been great these past 10 years or so.

      • It draws from the FTSE350 and has a larger no of shares (50 ISTR) so it’s not the same as Dogs, but the philosophy is similar. I think limiting to 10 and excluding known divi cuts gives Dogs a better chance than IUKD. There is no good automatic method of screening for value, because the massive attractors of value traps lurk in waiting to kill you. Value investing has to be done on manual IMO 😉

  7. Hi Weenie,

    Thanks for running the experiment, I will watch with interest! Like Ermine, I appear to have a number of these already in my portfolio (and bought quite a while ago), so if they do continue to go up I will be a very happy bunny! Are you planning to do this as a one off for the year or continue to cycle through each year?

    Cheers,

    FiL

    • Hi FiL
      This won’t be a one off as I’m hoping to cycle through each year, ie sell off the ones outside the top 10 and replace with new ones.

      The thought of selling (especially at a loss) is already making me nervous, haha but I will definitely go through with it!

  8. Astra Zeneca, SSE, Standard Life and Royal Mail I’d also buy. The rest are a mixed bag methinks… HSBC carries a risk premium by the virtue of being a UK bank whom the US didn’t clean out with fines in the 2008-2011 financial crisis Foreign Bank Fining Spree. There’s a risk some government somewhere with a budget deficit might seek to remedy this. Capita’s revenue stream is far from secure, comes mostly from the UK & Ireland, is very exposed to financial services… so Brexit.
    I really hope this works out for you. It would sort of validate some of the value investing philosophy, which I personally find very appealing. Finding intrinsically good companies that have temporarily fallen out of grace, investing in them and reaping the rewards for doing so… there’s something Miracle On 34th Street-esque about it 🙂

    • HSBC plummeted on the back of recent profit reports, Capita appear to be looking good at the moment but it’s early days yet, let’s see what happens in 12 months, although I do hope there’s a miracle! :-)_

  9. Weenie, what is your cost to trade?

    Say its £10, thats £100 to get started on a £2400 investment
    That would equate to 4.2% in transaction costs (horrendous)

    Is it bad that that is the 1st thing that came to mind for me?
    I worry I may be no fun 😉

    maybe you’re with fidelity and I needn’t worry (0.1% transaction charge)

    • £1.50 per trade as I purchased them as ‘Regular Investments’ with AJBell Youinvest, so a total of £15 which isn’t so bad, though not as cheap as Fidelity. It’ll cost £9.95 per trade to sell though.

  10. I read in the Investors Chronicle many years ago that to translate the US “Dogs of The Dow” strategy to the UK you should really be looking at the FT30 rather than the FTSE 100. This is because the FT30 index is constructed much like the Dow Jones rather than the cap-weighted FTSE.

    • Hi Garry

      Thanks for this, I hadn’t heard of the FT30 before but see that it was superseded by the FTSE 100 in 1984. The most recent list I can find is Sept 2016, and only one of my dog picks is in there (Marks & Spencer).

      Interesting to see the companies which were last in the FT30 in 1984, companies that I was aware of when I was a child which are no longer around, eg ICI, Woolworths and British Leyland.

    • Hi Garry
      Thanks for posting that – an interesting read, although the ‘play money’ they’re referring to is a lot of money in my eyes! I’m looking forward to see how things pan out after 12 months and in future years.

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