More on Strategies

     As I've stated before, my main strategy is "theme" investing. This is where I forecast trends then buy stocks of  companies which should benefit if my thesis is correct. But what if I am wrong about both the trend and my investments? It is always a good idea to hedge your bets with some other strategies. Think of your total portfolio as separate buckets of money where the buckets are different strategies. This will provide you with diversification among industries, company size and style, (growth vrs value). It's important for the strategy to fit the times. At this time, overall stock multiples as expressed by the P/E ratio are near record highs. My thought is that record low interest rates justified these lofty valuations. However, interest rates are on the rise and expected to go higher. This means that at some point lots of money will leave the market in favor of lower risk alternatives such as CD's (certificates of deposit), bank accounts, and money market accounts. I don't know what level of rates will cause this migration but I know it will happen. That's why I like a strategy that avoids the high valuation stocks. There is an old strategy called the "Dogs of the Dow" portfolio. This is where the highest dividend payers in the Dow Industrials index are bought at the first of the year and held until the first of the next year. Usually the high dividend is a result of the stock price declining over the past year or longer. If the dividend had not been cut or reduced, the yield soars. Companies are reluctant to reduce or cut the dividend because that may be the only reason the stock doesn't decline more. Typically, these dogs have low P/E ratios (valuation) because investor demand is low. I like high yields combined with low valuations. I am not recommending this strategy or any of its variants, which are many, to my readers.  I just think it is important to know about it and research it further to see if it is right for one of your "buckets" at this time. In my next post, I will talk further about fat dividend yields and my thoughts about saving for retirement.