DOGS OF THE FTSE

As we posted yesterday we see more possibility and more potential profit in European indices. As we shared we are overpositioned in FTSE index plus we are strong buyer of some English stocks too. But there is an eternal question which stock we have to buy if our hypothesis is that the FTSE is bullish itself. As we are aware that we are horrible stock picker and market timer we love the system of Dogs of the Dow and Dogs of the FTSE. This methodology developed first for Dow Jones but you can use easily for any other markets.

The idea of the Dogs of the FTSE is that a portfolio of the 5 or 10 worst performing FTSE stocks last year(2013) historically beaten the index in the first three months of the following year (Q1 2014). The selection with this system is so easy and not subjective at all, it helps us being as objective as much as possible in the market and close out all the mental weaknesses.

So we picked up some stocks like Barclays, HSBC and some other blue chips because the rule says we have to ignore the middle,- or small cap company stocks. So far, the FTSE is around 1% on YTD, but we are over 9% so far. It is statistically proven that in the last more than 40 years you can beat the FTSE or DOW with this underdog system.

Sounds too simple and crazy? Yes, right. But, in most of the cases the simplest systems make the best performances. Complexity breaths confusion.

HSBC chart shows its relative weakness in 2013:

The BFM Assets Team.