Not All Dogs Turn Good

Being an investment contrarian can have a huge payoff. Buying at the end of 2008 and 2009, investing in financials, and most recently betting on housing, have all been contrarian moves that have paid off well for patient investors. But like all things in investing, simply pursuing an investment angle because it sounds like a winning move is very foolish and often costly.

Each January, one of the most popular contrarian strategy kicks into gear and is known as the Dogs of the Dow trade. Basically the bet involves investing in the 10 worst performers of the Dow Jones Industrial Average (or S&P, or whatever index you choose) of the preceding year. Similar to a coin flip, over time the Dogs of the Dow theory has worked and, in some cases, worked very well. As a value investor, I can attest to the intrigue of investing in a business that has seen it share price drop by 50% or more in a year or less. In 2011, one of the Dow's worst dogs was Bank of America (BAC), which was down over 50% in 2011. BofA was top pick in 2012 as a result of the incredibly attractive stock price that was created by the 2011 decline. As it turned out, BofA took top honors in 2012, climbing 104%....323 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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