Indeed, both of these strategies have excelled, as Figure 9-3 shows.^14
The Dow 10 strategy returned 14.08 percent per year over the past half
century, and the S&P 10 returned a dramatic 15.71 percent per year, more
than 3 and 4^1 ⁄ 2 percentage points a year above their respective bench-
marks. And both these strategies have a lower beta than either the Dow
Jones Industrial Average or the S&P 500 Index, as shown in Table 9-3.
The worst year for both the Dow 10 and S&P 10 strategies relative
to the benchmark indexes was 1999, when the high-capitalization tech
stocks reached their bubble peak. The Dow 10 underperformed the S&P
500 Index by 16.72 percent that year, and the S&P 10 underperformed by
over 17 percentage points. It is during the later stages of a bull market,
148 PART 2 Valuation, Style Investing, and Global Markets
FIGURE 9–3
Dow and S&P 500 High-Dividend Yield Strategies(^14) Interestingly, an equal investment in the 30 Dow Jones Industrial stocks beats the performance of
the S&P 500 Index from 1957 through 2006 by 73 basis points even though the Dow’s beta is less
than 1. The managing editor of the Wall Street Journalhas the primary responsibility for the selection
of the Dow stocks. As noted in Chapter 4, the companies in the S&P 500 Index are chosen primarily
on the basis of market value, assuming that the firm is profitable.