Spectacular returns -achieved with higher risk?
One might have thought that such spectacular returns must have been achieved with higher average risks. Again Professor Siegel shows us that this is not the case. As can be seen from the table above, the standard deviation (in parenthesis) of the annual returns on the Dow 10 strategy actually was lower than that of the Dow 30 and slightly higher than the S&P 500 index. And the Dogs of the Dow strategy performed spectacularly in bear markets of 1973-74. During these 2 years the Dow 30 was down by 26.5 percent and S&P 500 Index was down by 37.3 percent, but the Dogs of the Dow strategy had actually gained 2.9 percent! Why does it work for the Dow Industrials? Should it not work outside the DJIA too? The strategy works for the Dow Industrials because these stocks are a group of superior survivor firms. These are large, well-known companies with immense financial resources and solid long-term track records that have weathered many economic storms. Their size and history provide these compa
