The simplest money making strategy

We just finished an amazing 2019 with a big win for the stock market. It turns out my one year prediction by the last year end for a 20% increase for S&P in 2019 was too conservative, although it was the boldest prediction one dared to make at the darkest hour back then. So now what is for 2020? It is more difficult to predict for the year of the presidential election due to a lot of uncertainties involved. But let me still try. Here is what I'm thinking:

• The market will be more volatile for this year. Given the very euphoric sentiment built up in the past couple of months, I think the risk for a good dose of correction is in the card. This may come during the first quarter. Today's selloff is just a warm up. More to come!
• If we indeed see a sizable correction to wipe off some froth, then we should be on the way for a good run again, potentially a Melt-Up phase finally being triggered for the 11 year long bull market. I will give a 10-20% upside move based on the closing price (3231) for S&P by Dec 31, 2019. Of course, it will be much higher if we calculate it based on the lowest point if a correction is materialized.
• However, the Melt-Up will only come if Trump gets re-elected! This is a must for this bull market to continue for a while. If a DEM gets elected, a market crash is nearly a certainty as the market will be in panic to price in a rollback of all the pro-market/pro-business policies instituted by the Trump administration. 

Put aside the prediction that is just for fun, let me show you a simple strategy with a proven track record based on half a century of real life testing. It is called 

the "Dogs of the Dow" (DOTD), an investment strategy that has been around since 1972. And it's really simple, too. All you have to do is find the 10 stocks in the Dow Jones Industrial Average with the highest dividend yield on the last trading day of the year. And then, you invest equal dollar amounts into each of them and hold them for the entire year. You may find more information about this strategy here.  In the past nearly 50 years,  the DOTD outperformed the Dow itself by 3% in average. And with dividends factored in, it averaged a return of 14.3% for those who used the strategy. The rationale is straightforward: you earn highest dividend income which will boost the overall return to start with. Then these big dogs are stable blue chips that will enjoy a good upside movement along with a good market, but even if in a bad market, they tend to fare better with less volatility, given their size and more resilient businesses. There is modified DOTD, called the "Dobermans of the Dow".It uses the following two criteria to identify the top 10 stocks from the Dow:

Step 1: Rank Dow constituents by Return on Equity (ROE), keeping the top 20.
Step 2: Rank remaining names by Free Cash Flow Yield, keeping the top 10.

I think it makes more sense by incorporating the ROE weight. Here is the result for 2019: The Dobermans generated a total return of 29.6% compared to 25.3% for the Dow. It appears based on the backtesting,  the Dobermans have outperformed the DJIA in 18 of the last 22 years, averaging a 14.4% annual return. The cumulative return of this simple, 10-stock portfolio is +1,227% versus +502% for the Dow.

If you like this idea, see below the list of the top 10 stocks for Dobermans DOTD:

My myself, I'm not happy with this average performance. And I have a better idea with much less risk to try to boost the performance potentially for a double or more. This is something I'm going to share with my DW Family as one of the ideas for 2020.