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rd80 (99.11)

5 Dow Stocks vs Treasuries

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July 05, 2012 – Comments (3)

Continuing a 'stocks vs treasuries' theme, I picked five contenders from the 30 DJIA members for a run against the 10-year. 

No surprise, the stocks are a better choice for many investors with a long time horizon who can stomach some volatility. If you've been following, this run was set up a little different than my other articles in this format.  I was a little less conservative with the stock price appreciation assumptions and added a 'what if' showing how far each stock would have to fall before the 10-year would win - I assumed no dividend growth at all for that case.

After doing a couple of these, I'm finding the real value in a discounted cash flow isn't so much as a predictive tool but as a great way to compare cash streams and play 'what-if' games to help quantify risks for various investment options.

Thanks to fellow Fools anchak and rfaramir for comments with ideas for tweaks to the format.

As always, questions, comments or recommendations are welcome here or at the article. 

Fool on!

Russ

3 Comments – Post Your Own

#1) On July 06, 2012 at 1:05 PM, ikkyu2 (99.51) wrote:

I think it might be illustrative to run this analysis retrospectively.  Pick a date 10 years in the past - say 2001.

Make sure one of your Dow 30 picks is GM.  After all, in 2001, it had been a Dow 30 stock for 75 years.

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#2) On July 06, 2012 at 1:08 PM, ikkyu2 (99.51) wrote:

Full disc: long GM 2004-2008 :/

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#3) On July 06, 2012 at 2:07 PM, anchak (99.83) wrote:

Rd.... Nice little list.....

 

As ikkyu2  points out - you REALLY can't pick something for 10years - and go to sleep - RipVanWinkle style....the logic I mentioned - would have let you to pick GM - over and over - because it continued to be a part of Dow30 and with the stock price being pummeled and the management doing little - the theoretical Dividend and the correspondent Yield  - was looking richer and richer.

Common sense neeeds to rule in these cases - or if you are analytically bent - I would suggest using the Piotroski method - by his original work - only P/B<.75 qualifies for the tail - and I would look at P-Scores - between .5- .75 Book - if the P-Score - portends to BK risk - drop the stock.

 I know this - because I tracked Piotroski actively during the crisis days - GM prominently featured as did BAC and C - later on.

You have to rebalance this maybe once/twice a year - or depending on appetite.... or risk events.

The main thing is to ensure - survivability - to assure the dividend.

 

Best 

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