Mastering the Dow 30: A Path to Independent Investing Success

October 28, 2023

As an investor, my preference lies with long-term winners, and I have a strong aversion to daily trading. Daily trading is fraught with challenges, as various forces like governments, central bankers, financial giants, algorithmic/HFT traders, and the emotions of fear and greed can exert short-term control over market prices. This power dynamic has been amplified significantly with the advent of exchange-traded funds (ETFs) and futures trading.

My approach, however, revolves around empowering individuals to take control of their stock market investments. This involves gaining an intimate understanding of the 30 companies in the DJIA broad market index and investing directly in companies that align with your interests and risk profile. In other words, rather than fighting against market forces, the key is to ignore them.

Over the past ten years, the average total return for the 30 stocks in the DJIA stands at an impressive +9.98% per year, up until October 27, 2023 (compared to +11.45% as of August 11). Even if we anticipate a slight dip in the next decade, with an average annual return of around 8.0%, this remains a remarkable figure. By reinvesting returns at this rate, your portfolio would double approximately every 9 years (in line with the Rule of 72).

I firmly believe in investing in winners, and historical performance suggests that past winners will likely continue succeeding. I’ve categorized the Dow 30 into quartiles, with the top 7 performers over the last ten years being MSFT, AAPL, UNH, V, HD, CAT, and CRM. The next quartiles follow this order: (Second) MCD, JPM, MRK, CSCO, AMGN, NKE, HON, and WMT; (Third) PG, TRV, GS, JNJ, AXP, INTC, KO, and CVX; and finally, (Fourth) BA, DOW, DIS, IBM, VZ, MMM, and WBA.

Over the last few months, several companies have shifted in rankings, with some gaining and others losing positions. Notably, the highest-ranked stocks (first quartile) have seen a decline in their average annual total return from +21.24% to +19.90%, whereas the second quartile’s return dropped from +12.43% to +11.64%, the third quartile from +8.87% to +7.46%, and the fourth quartile from +3.49% to +1.03%.

While there were no losers in terms of average annual total return over the past ten years up to August 11, 2023, as of October 27, WBA and MMM have slipped into negative territory, with VZ coming close.

Market capitalization varies significantly across the quartiles, with average caps of $946B, $236B, $199B, and $115B, respectively. Even when we exclude the two largest caps, MSFT and AAPL, the following five companies in the first quartile have an average market cap of $308B, indicating that size does matter concerning long-term total return.

However, it’s intriguing that while total return includes dividends received and capital gains, the average dividend yield as of October 27 was lowest among quartiles for quartiles one through four: 1.47%, 2.46%, 2.87%, and 4.74%.

Surprisingly, even in a period with low interest rates, high-dividend payers did not outperform, as Quantitative Easing favored robust growth companies. The impact of today’s higher interest rates on companies, ┬álike Home Depot (HD), which has a high debt-to-equity ratio, remains uncertain, especially in consumer discretionary spending segments.

Analysts tend to favor companies with recent strong total return performance, evident in their consensus ratings. These ratings range from 1.79 to 2.38 from the first quartile to the fourth, with quartile four still maintaining a good average consensus rating of 2.38 despite its underperformance. The notable exception is MMM’s lower rating of 3.18. This highlights why I advise investors to consider an independent analytical approach and not rely on Wall Street.

I firmly believe that corporate fundamentals are vital to our investment decisions. Fundamental ratios, in fact, play a crucial role in distinguishing top-quartile Dow 30 companies from lower ones.

My reports on Dow 30 companies continually demonstrate that sufficient information is available online for independent investors to succeed without relying on Wall Street, ETFs, or algorithmic/HFT trading. This success entails building a portfolio comprising America’s best-known, highest-quality companies. To achieve this, one needs to align their risk tolerance with ten of the Dow 30 stocks, diligently gather data, incorporate long-term technical analysis, and exercise patience by ignoring industry hype.

Much like choosing a house and vehicle that suits your needs, your liquid financial assets can be similarly customized. There is no necessity to rely on Wall Street, as my multi-decade experience on Wall Street has led me to regard it as an adversary, whereas the Dow 30 serves as a friend.

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