Dogs of the TSE

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bill
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Re: Dogs of the TSE

Post by bill »

nisser wrote: 07 Dec 2017 19:07
gobsmack wrote: 07 Dec 2017 14:25
nisser wrote: 07 Dec 2017 12:49 ...
3 PWF Power Financial Corp 4.60%
...
6 GWO Great-West Lifeco Inc 4.20%
I think PWF owns a stake on GWO so you may end up overweight GWO if you buy both.
I was aware and briefly discussed that. Excluding the entire family (POW, PWF, IGM, GWO) or picking 1 of them only, didn't seem to make any difference and there's no way to predict what will happen. It may be a double dud or the brothers in charge may have found the G&M article excruciatingly embarrassing and decide to change things and the stock doubles. Since I can't predict the outcome, I chose the simpler option.
I was wondering the same thing when I read this. Wouldn't POW give you holdings in both PWF & GWO? FWIW I held POW this year, it turned out to be my "Dog of the Year" at around 21.5% return incl dividends.
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Re: Dogs of the TSE

Post by nisser »

RPABVG wrote: 13 Dec 2017 07:05 I'm a bit unclear on something...If you are looking at the top 40 or Top 60 by market cap and then based on the P123 testing its determined that investing in the top 10 by market cap is superior, does top 40 or 60 even matter anymore? Aren't you just investing in the top 10 largest stocks by market cap on the TSX? In other words, who cares about the top 40 or top 60? Just buy the largest 10 stocks on the TSX (minus REITs and Income Trusts) and your done. Am I missing something?
It’s top 40/60 ranked by yield %, not ranked by market cap. There’s a difference. You’d be buying altagas and IPL this year if you did by top 60.
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Re: Dogs of the TSE

Post by RPABVG »

Right, that is the dogs of the TSX strategy but when you did your back testing, didn't you say that the best returns were found when you ignored yield, just focused on Market Cap and bought the 10 largest companies?
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Re: Dogs of the TSE

Post by nisser »

I apologize if the posts gave you that impression; The strategy has always been yield-based. I was testing to see what's the best basket of stocks to start from to pick the 10 highest yielding stocks.
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Re: Dogs of the TSE

Post by RPABVG »

Got it. I must have missed it earlier, thanks for the clarification.
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Re: Dogs of the TSE

Post by RPABVG »

Just to clarify something...what index universe are we supposed to be comparing this strategy against? Is is the S&P TSX (of which there are 249 companies) or is it the Toronto Stock Exchange (of which there are 810). Thanks!
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Re: Dogs of the TSE

Post by AltaRed »

Doesn't really matter. Anything below the top 100 or so is the tail trying to wag a dog (unsuccessfully) on returns. Use the TSX Composite if you wish.
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Re: Dogs of the TSE

Post by DenisD »

Since it's a large cap strategy, I'd use the S&P TSX 60 total return index. On P123, I'd use XIC, the only total return Canadian benchmark.
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Re: Dogs of the TSE

Post by RPABVG »

I used P123 and sorted by top 40 market cap and yield. However, its what universe you pull the top 40 from that matters. S&P TSX has a slightly different top 10 (of the top 40) than the Toronto Stock Exchange. I'm assuming we want to use the S&P TSX.
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Re: Dogs of the TSE

Post by DenisD »

I'd use S&P TSX for Dogs. Canadian all fundamentals (IIRC, that's what they call it) with appropriate restrictions for a small cap strategy.
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Re: Dogs of the TSE

Post by Shakespeare »

Today's dogs of the 33 left of the DJ 40.
dogsfeb2.png
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Re: Dogs of the TSE

Post by nisser »

Quick update, but all 10 picks are down ranging from -25% (enbridge) to -3% (GWO)! :thumbsup:
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Re: Dogs of the TSE

Post by twa2w »

Does that make them an even better buy now? I should calculate, Enbidge aside, how would that compare to the market.
Wasn’t there a version of the Dogs, that threw out the highest yielder each year.
I guess no strategy out performs every year.
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Re: Dogs of the TSE

Post by nisser »

All jokes aside, it is definitely trailing the XIC, which is what I typically benchmark it to but not by a whole lot. XIC is down 3.4% YTD. I will look at it at year end but because I have other things in this account it'd be quite a lot of work to do it multiple times
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Re: Dogs of the TSE

Post by Taggart »

On page 35 of this PowerPoint Presentation done in 2014, David Stanley mentioned that the BTSX strategy up to that time had 19 beats, 1 tie, and 7 losses vs. index total return. There was a telling moment once where David Stanley said he was close to giving up on BTSX. The same as all strategies. You have to have a lot of patience even when things are going wrong.

-------------------------------------------------------------------------------------------

In Britain they have their own strategy of Dogs Of the FTSE 100, and no it doesn't work over there every year either. It failed to beat the FTSE 100 in 5 out of 17 years.

Strategy is identical to BTSX.

"Following this strategy is simple: choose the 10 FTSE 100 shares with the highest yield, invest equal amounts in all 10 and hold for a year."
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Re: Dogs of the TSE

Post by nisser »

Thank you for posting that reference. So BTSX return from 1987-2013 has been 12.47%.
I've played with p123 for almost 6 months so I wanted to revisit and retest this. I feel like I've learned a lot more tools so wanted to see if everything still held up. Previously I was using their screener function to test but I've now retested using their simulation. It accounts for slippage, trading fees and allows me to do a better and more informative rolling test.

So I kept all the same rules: 40 largest TSX stocks by market cap, exluding income trusts, no sector weights chosen purely by dividend yield.
From 2003-today, the annualized return is 10.30% with a 75% active return over XIC. So clearly alpha has degraded from 1987-2013.

If I do a 1 year rolling test offset by a single month, the picture is fuzzy at best. It looks almost perfectly normally distributed, although you could argue that the right side is a bit fuller. If I look at all the starting months that had excess returns, nothing stands out.
BTSX with plain yield.png
BTSX with plain yield.png (104.05 KiB) Viewed 262 times
Curiously, if I repeat 10 year rolling tests (with 1 month offsets), you start seeing a difference. All 10 year periods had excess returns which is reassuring. Surprisingly the top 50%ile of tested periods were predominantly in Dec-March, while the bottom 50%ile of returns was remarkably clustered in Apr-July. I'm no statistician so if someone wants to do significance analysis, I can share the data.
10 year rolling test, plain yield.png
10 year rolling test, plain yield.png (97.7 KiB) Viewed 262 times
So I'm not sure what to think about this strategy. I'm still doing it but some of the robustness testing is showing that it could be all due to randomness. On the other hand, the 10 year rolling tests are all positive although it ranges from 10-90% excess over the benchmark. What if I get stuck with a dud and end up with a 0-5% excess return over 10 years? If I do continue this, I may switch my rebalancing to one of the favourable months.

Of note, I tested a bunch of other factors to see if anything helps out at all. Shareholder yield, free cash flow yield, dividends paid in the last ttm, yield compared to 5year average (which may be more of a value factor than yield alone), projected annual dividends to price, sustainable yield and various permutations of equal weights; nothing really improved the return convincingly.
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Re: Dogs of the TSE

Post by Taggart »

The dogs strategy doesn't seem to work too well in Australia. Not the first negative article on this theme I've read from down under either.

Dogs of the ASX …. Woof Woof!
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Re: Dogs of the TSE

Post by SQRT »

By definition any of these well known strategies will be ineffective over time. They work until they don’t. Buy in May and go away? Sure. October is a bad month but Dec is good? Right. Buy the worst performing bank last year? Sure. What if it is always CIBC? But hardly ever TD? This stuff makes me smile.
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Re: Dogs of the TSE

Post by kcowan »

SQRT wrote: 07 Jun 2018 17:55What if it is always CIBC? But hardly ever TD? This stuff makes me smile.
I agree. I think it is a desire to take the emotion or judgement out of investing. My gut and logic has always applied to stock investing. More often it has been good rather than bad so I have been lucky. I believe the real problem in investing and business in general is the people who don't pay attention and learn from their mistakes.

There were a few mistakes in the 80s and 90s but I learned from each one. As a result, I am no longer reaching for the brass ring. Patience is the key.
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Re: Dogs of the TSE

Post by DenisD »

nisser wrote: 07 Jun 2018 12:41Previously I was using their screener function to test but I've now retested using their simulation. It accounts for slippage, trading fees and allows me to do a better and more informative rolling test.
IIRC, P123 introduced the rolling backtest in the simulator a year or so ago. I haven't got around to trying it yet. Looks like it gives useful results. Instead, I downloaded output from the screener rolling backtest and screener backtest into Excel spreadsheets and created some useful pivot tables.
What if I get stuck with a dud and end up with a 0-5% excess return over 10 years? If I do continue this, I may switch my rebalancing to one of the favourable months.
If you mean 0-5%/year, my 10 year rolling excess returns for my Canadian large caps range from about 2-4%/year and I don't consider them duds. :wink: If you want more, you'll have to develop a more advanced algorithm. But, if it's too aggressive, you run a higher risk of poor out of sample performance.
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Re: Dogs of the TSE

Post by nisser »

The 10-90% return is cumulative over 10 year rolling tests.
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Re: Dogs of the TSE

Post by Shakespeare »

I have updated https://www.finiki.org/wiki/Beating_the_TSX following private communications with David Stanley and Ross Grant.
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Re: Dogs of the TSE

Post by Taggart »

There's a lot of controversy as to who actually first started the Dogs of the Dow theory.

John Slatter senior portfolio strategist for the Cleveland-based Hickory Investment Advisors, Inc. says he was the inventor of the strategy and yes I still own his book "Straight Talk About Investing" published in 1995.

From the Washington Post:

A Stock-Picking Plan For All Dow Seasons
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Re: Dogs of the TSE

Post by Shakespeare »

Taggart wrote: 08 Aug 2018 19:38 There's a lot of controversy as to who actually first started the Dogs of the Dow theory.

John Slatter senior portfolio strategist for the Cleveland-based Hickory Investment Advisors, Inc. says he was the inventor of the strategy and yes I still own his book "Straight Talk About Investing" published in 1995.

From the Washington Post:

A Stock-Picking Plan For All Dow Seasons
A response from David Stanley posted with permission:
David Stanley wrote:This is in reply to ‘Taggart’s’ post about the history of the Dogs of The Dow theory. My copy of ‘Beating The Dow’ was published by Michael O’Higgins in 1991. In the book O’Higgins gives data for the method starting in 1973. In the article cited by Taggart is the following: “Knowles tested the system, called the "Dow 10," back to 1973.” Knowles’ book was published in 1995 according to Taggart. I don’t know how it works in the field of financial publishing, but with scientific research, honors are awarded on the basis of publishing date. I hold no torch for either author, but on the basis of date of publication I would conclude that the honors lie with O’Higgins. I’m not sure if there is any meaning to this and I certainly am not trying to start an argument since it would seem that these two individuals came to the same conclusion independently and, for some reason, one published before the other. I would think there is plenty of glory to go around.
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Re: Dogs of the TSE

Post by ig17 »

https://pdfs.semanticscholar.org/9daf/2 ... f861f5.pdf

Page 2 of the PDF, Page 146 of the original:
One of the first reports of the superior performance of high-yielding DJIA stocks appeared in The Wall Street Journal on August 11, 1988. John Slatter, an analyst with Prescott, Ball & Turben, Inc., examined the total returns of the ten highest dividend yielding Dow stocks for the years 1973 through 1988 and found that they outperformed the DJIA overall.

Expanded studies subsequently appeared in books by O’Higgins and Downes (1991) and Knowles and Petty (1992).
It appears that Slatter published first.

EDIT: replaced the link to point to the real source of the quote.
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