Options — On The Dow Dogs


No, we are not really talking about REAL DOGS here … just Investment Dogs.  It has been stated that if a person simply purchased the “Dogs of the Dow” at the beginning of each year and sold them at the end of the year (a year and a day so that you get long-term capital gains treatment) over time you would beat the Dow Jones Industrial Average in total return.  Notice I said over time and not each year.

You can read more about the Dogs of the Dow here.

The table below shows the returns of various investments through the year 2018.  You will note that since 2000 Dogs of the Dow and Small Dogs of the Dow have lead the way in returns, on average.  Not every year.

Dogs of Dow 2018 Table

The Dogs of the Dow are simply the 10 highest dividend yielding stocks in the Dow Jones Industrial Average at the end of each year.  The Small Dogs (what I call the puppies) are 5 the lowest priced of these 10 stocks.  If you are interested in the Dogs of the Dow X or the Small Dogs of the Dow X you would simply go to this site and sign up for their newsletter and they will tell you what to buy, when to buy and what to sell and when to sell. The Dogs of the Dow and Small Dogs of the Dow simply is buying at the beginning of the calendar year and selling one year later.

Here is what the Dow Dogs did if you would have purchased them on 12/31/2018 and held them till this morning.


Note a $100,000 investment (about $10,000 or less in each holding) would have netted a return of $14,774.46 or 14.77%.  Not too shabby, even though the actual stock market did better.  This table above does not include dividends of which all these stocks do pay dividends.  Thus you may add another 2.5% to 3% to the end result.  These stocks are ranked in order of lowest price to highest price today.

Now I have been using these stocks since December 2015 in my “Options Portfolio” which is a small part of my overall investment portfolio … and I have been getting much better than a 15% return per year.  In fact, I bought my $46,000 pick up truck in 2017 from gains I made in 2016.  Then I purchased a new $25,000 motorcycle in 2019 from gains I made in 2017 and 2018.  You will not see this $25,000 in the numbers below because it was actually moved out of this account and placed into a more liquid position in early December when I moved the account from one brokerage firm to another.  Keep in mind that I started this portfolio with only $10,000 back in December 2015.  I started out doing so well that I added another $10,000 to it in late 2016.  I will be adding another $20,000 to this portfolio on January 2020.  Also, remember even though I’ve taken out about $70,000 it was before you see the numbers represented below.

How am I able to do this (see below):

My Account 2019


Please notice that my return for this year is over 111%.  The Aggressive Investor Benchmark per Schwab Investments is only 27% per year.  I have grown a beginning value of $50,252 (12/31/2018) to a total value of $106,442 in the past one year (through yesterday.

As of today the account is valued at $108,582 so the actual return through the close of business today is $58,330 or 116.07%.

The ironic part of all this is that the most I would have lost in any one investment if that investment went to zero would have been 2% of my total portfolio value in this account.

How did I do it?  Simply by purchasing options on the Small Dogs of the Dow plus occasionally some options on some of the bigger dogs.  Now while I am purchasing options that are greater than one year out in time … I don’t necessarily hold them for a year.  I hold them until I have a nice gain and it looks like time to sell them and buy some more.  This can be between a few weeks and 6 to 9 months.  I shoot for a total return on each holding of 100% to 200% without much fear of the option going to $0.00 … which some do … but the most I lose is about 2% of the portfolio value (though it would be 100% of what is invested in the option itself).

Here are my true REALIZED GAINS so far this year (through yesterday):

My Account Real Gains 2019

And here is what I am holding in the account as I write this (through yesterday) … MY UNREALIZED GAINS:

My Account Unreal Gains 2019

My only concern/problem is that I am going to have to pay taxes because of over $26,000 in realized gains this year … but you know what … when you make money you must pay the tax man.  It’s is better to spend 25 cents on the dollar in paying tax and keep 75 cents of each dollar than it is to lose a dollar just to write it off and have Uncle Sam forgive 25 cents in taxes … your still down 75 cents per dollar if that happens and while it may make sense to the multitude of Tax CPAs out there … it really never made that much sense to me.

The market had a great last day today (look at the chart below):

Last Day of Market 2019

As you can see, even though it was below water most of the day (the yellow line from yesterday’s close) at the end of the day, in the last hour the market was open, it rallied to close 76 points higher on the Dow Jones Industrial Average.

For those interested, here’s the DJIA for the past one quarter … the last quarter of the year all while the Impeachment Hoopla was going on in Washington, DC:

DJIA LAst Quarter

You see, regardless of what is going on in Washington DC … Mr. Market is going to do what Mr. Market wants to do without encouragement from any politician.  Knowing this as fact, rather than investing $100,000 in 10 stocks or $100,000 in 30 Stocks … why not invest a few thousand in a few stocks throughout the year and magnify your returns with options (at least on a small part of your portfolio).

In this case I could have invested $100,000 in a few dogs and generated profits of about $14,000 — but instead I invested half as much in a few options four or five times this year and generated more 100% more than I started with.

Rule of 72

In the world of investment there are rules or laws you need to be aware of.  One of these, that is important to understand, is the rule of 72.  This rule states that if you know the return you are getting you can calculate how long it will take money to double.  For example if you are earning 7% on your money if you simply divide 72 by 7 you can quickly calculate that it will take about 10.286 years for your money to double…

Rule of 72

Or … if you want to know how much you should earn to double your money (say in five years) you would simply divide 72 by 5 and this would tell you how much return you would need each year to double your money in five years (if you remember to reverse the formula).  For example…

Rule of 72-2

We now know that earning 5% you would double your money in 14.4 years … so if you earned 14.4% you would double your money in 5 years.  See below…

Rule of 72-3

So, if a person is earning 100% on their money year in and year out … how long does it take to double the money?

Rule of 72-4

Hmmm at this rate I wonder just how long it would take a person to turn $10,000 into $1,000,000 (that’s one million dollars) if they could do this consistently?  Well Let’s see!

Rule of 72-5

Now I know what you are thinking … this sounds way too good to be true … and it may be.  However, it is being done all around the country.  It is possible to turn $10,000 into $1,000,000 in a period of five years or less if you follow a system that is proven.  Options are proven to provide large gains because of leverage.  This is being done without a lot of risk.  And you know what … even if it were to take 10 years of 15 years to turn $10,000 into $1,000,000 that would still be equivalent to returns of 36% to 58% per year – and there is absolutely nothing wrong with those kinds of returns if the most you can lose on any single investment is only about 2% of your total portfolio value.

Options News Letter …

I am setting up an options email newsletter for 2020 that will begin on 01/02/2020.  It will tell you exactly what options to purchase and how much to invest in those options assuming you are willing to risk up to 2% of your investment portfolio on any one option.  You may not be able to participate in all the options recommended with only $10,000 since we will be buying five at a time and 2% of $10,000 is only $200.00.  It would be better if you came in with $20,000 … but since you will have to make the trades yourself you can start with what you would like.

Some of you may want to build “paper portfolios” just to see how you would do before investing your hard earned money.  In any event … if you want a tracking portfolio or actual portfolio (and I would not recommend the latter if you have a financial advisor that you are working with already) just send me an email to freewavemaker@gmail.com and asked to be put on my mailing list for the Dogs of the Dow Options Portfolio updates.

At the present time I am not charging for this service.  I will leave it up to you to tell me if it is worth anything or not.

Here’s wishing you a happy and prosperous new year in 2020,

Jerry Nix | Freewavemaker, LLC


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