Here's how to apply these techniques yourself if you're interested.
"Unemotional Value 4* (1961-1997 annualized return 18.20%)
Universe: 30 stocks in the Dow Jones Industrial Average
How It Works:
Step 1: Sort the Dow stocks in descending order of dividend yield. Keep the top 10 stocks. Keep this list handy for step 3.
Step 2: Sort the remaining 10 stocks in ascending order of price. [Larry's note: i.e. lowest priced of the ten at top, highest at bottom]
Step 3: If the top stock on both lists is the same (i.e., the highest yielding stock is also the lowest priced stock), discard it. Otherwise keep it.
Step 4: Buy the top 4 remaining stocks from the list in step 2.
This variation had a standard deviation of 20.71% during the '61-'97 period analyzed in Sheard's book. It has the advantage of greater diversification but is likely to perform a little less well than the more volatile 2nd U.V. method.
(*Source: Backtest Hall of Fame)
As of today (written 6/13), the following stocks meet the "Unemotional Value 4" criteria:
"Unemotional Value 2* (1961-1997 annualized return 21.67%)
[Steps 1-3: Exactly the same as above.
Step 4: Select the top 2 remaining stocks from the list in step 2.]
This variation had a standard deviation of 25.84% in the '61-'97 period analyzed by Sheard. As indicated, for its likely greater total return it sacrifices diversification and so, in any particular year, may have wide swings up or down in value. This factor should probably not be taken lightly by the prospective investor. But for a certain percentage of one's portfolio this strategy could over the long-term provide a very good total return on one's initial investment.
As of today, the following stocks meet the Unemotional Value 2 criteria: