The Myth
Wall Street Journal, 11 August 1988, John Slatter
Beating The Dow, Michael O’Higgins, 1991
The Dividend Investor, Damon Petty, 1992
The Motley Fool Investment Guide, 1996

None of these even agree on what the returns were for any particular year! It might be news to most people that publishers of books for the general public don’t fact-check their books with the exception of Wiley & Sons.

The Reality
The Dogs Of The Dow Myth, Mark Hirschey, The Financial Review 35(2000):1
If you want reliable information I would suggest peer-reviewed journals: Financial Analyst’s Journal, The Journal of Portfolio Management, The Journal of Financial Planning. In some cases the math may be daunting but there is usually a summary in fairly plain English AND you’ll know a panel of judges reviewed the article for sccuracy as well.
Diogenes

Having read your book thoroughly and found it admirable I am just a bit disconcerted by the blog. I am very dubious that there is a simple way to secure an income stream as you suggest. Historically dividends have not kept pace with above average inflation in this country for one thing.

Another might be that you seem to ignore the possibilty that one of your ten Dow stocks could be sold at a lower price than purchased, depleting your capital. I too have always wanted to help free people from the drudgery and inanity of wage slavery but anything beyond grade school arithmetic brings on a glazed look! Fred

Secondly the vast majority of the shares available are held by hedge funds, pension funds, insurance companies, and college endowments and they do not care about dividends, just total return. Dividends are not contractual, they can be cut, omitted, or fail to keep up with inflation at the whim of the board. Dividend investing is a thing of the past simply because the corporations don’t need the individual investor any more. Fred

I’m recommending the DoD strategy not because it once had market beating performance, but because 1) It’s simple; 2) It provides an appropriate cash flow without having to liquidate—this is important if you’re going to live off the proceeds of your investments instead of spending them down like a traditional retiree; 3) It closely mirrors the performance of the DJIA.

I tend to agree with Jacob that for really early retirees, the savings rate makes the biggest difference. Case in point: we started out around 15 years ago with $0 net worth, today we’re looking at semi-retiring in the early 40s. The *one* single factor that mattered was saving >50% of our take home pay.

It took me a while (roughly ten years) before I found a strategy that I’m comfortable with for generating my retirement income (value-based dividend growth). Since bargains don’t come around that often, it usually takes a long time to build up a portfolio. If I had known (or decided earlier) to go with this strategy, I would have built up a much better portfolio than what I have now.

So I’d say work backwards from what you plan on holding in retirement, and go from there.

Unfortunately, I am not a mathmatcian, which would give me a vocabulary to explain the issues I see with value averaging, but an English major.

Anyway, here goes. You seem to have hit on one issue with your reply, as you stated when your portfolio grows to a point where it is significantly larger than the amount of money you are adding per period then a one or two percent change in the total market seems to have an outsized effect on how much you would need to purchase, i.e. I have 1,000,000 and I am adding 15,000 per quarterly period plus or minus the change in the total value. If there is only a 1 percent decline, I must add the 15,000 plus 10,000 for the one percent change. That is much more than if I just had 100,000 and needed to add the 15,000 plus 1,000 more for a one percent decline.

Second proplem, which I think you also refer to, a situation like the current market where the rate of increase in the market is larger than the rate used to compute the value path. Essentially , I have not purchased since March 2009 because the value path indicates no need to purchase because of the rate of market growth, but logically, I really should be buying now because we are so early in a new market cycle.

In summation, value avergaing may not help me avoid buying too much in top of market if the market is growing below the chosen rate in the last years of a market cycle. Likewise, I may buy less in the begining of market cycle because the rate of market growth is higher than the rate I choose.

Even with these proplems, I am going to stick with it for at least one market cycle because I have not found another way to avoid my biggest problem which is buying too much at the top of markets.