Malcolm Graham
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The biggest dog in the Dow might soon break free

There is a classic investment strategy with a good track record: the so-called Dogs of the Dow.

Simply put, you buy the worst performers in the Dow Jones Industrial AverageDJIA, -0.31 on expectations they’ll rebound and, possibly, outperform the other Dow components.

The Dogs of the Dow strategy is especially attractive at this time for investors who have seen “mean reversion” work time and again. In plain English, mean reversion is when out-of-favor stocks with strong balance sheets bounce back, “reverting to their mean” in price. Stocks above their mean, on the other hand, tend to fall.

There is no bigger dog than General Electric GE, -1.85 stock this year. The conglomerate is down 18%. (The best performer in the Dow, Boeing BA, +0.02 is up 36%. Apple AAPL, +1.21  is second, at 30%.)

The holy grail of very long-term investing is to accumulate on the dips, if appropriate. Is it appropriate to hold, buy or sell GE here? Let us explore the good, the bad and the ugly. However, the most important short-term information is coming from the chart.

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