You certainly want to know how successful the Dividend-Alarm strategy is. We will be happy to show you examples so that you can see how well the interplay between phases of the Dividend-Alarm indicator and the signals of individual stocks works.
To do this, we look at the last two indicator phases (buy + sell phase) and check how potential transactions have developed.
The goal of this review is to recognize and understand that buying stocks should not be an absolute priority until a buy phase and buy-signal come together. Likewise, the constellation of a sales phase / sell-signal has its right to be there and delivers very good results.
If we come to the following conclusion, we have done everything right:
By considering the same phases and signals, it was retrospectively correct to…
… to part with the stock at that time, because the development has not yet been crowned with success.
… because it was close to the bottom.”
Approach of the Dividend-Alarm strategy
Our Dividend-Alarm strategy is basically based on a very simple approach and is therefore part of the Buy & Hold strategy. The focus is on truly long-term investments. We try to collect stocks with an absolute undervaluation only when the market is at this level.
Many years later, it is also possible to part from individual stocks as soon as they are in an absolutely rare overvaluation situation. Here, too, the focus is on interacting with the market. If the market and one stock is overvalued, then the harvest should also be harvested.
Thus, the Dividend-Alarm procedure can also be classified as a buy & hold & sell strategy.
The overall history of a securities account position can be defined in roughly the same way:
A historically undervalued stock is included in the portfolio with a very good risk/reward ratio, while the market is at a similar level. The stock will normally remain in the custody account for many years and you can collect the dividend income in peace. From a purely statistical point of view, there is always an interesting option to buy back if the market and the stock are worth buying again.
After a few years, the situation of overvaluation may also return. Here, especially in the market and in the stock. Now you can take advantage of this opportunity and realize your profits, which are often in the high three-digit return range due to the low entry level and the long holding period.
Two pillars of Dividend-Alarm strategy
The Dividend-Alarm indicator is at the heart of this, as it monitors the overall market. If he recognizes overvalued (sales phase) as well as undervalued market phases (purchase phase), the actual transaction window is opened for us investors.
At this point, the Dividend-Alarm signals come into play. For each individual stock, its own signal thresholds are calculated and only the interplay of phases and signals results in the most effective transaction points for long-term portfolios.
The goal of the Dividend-Alarm strategy is to become active in the market only if two traffic signals of the same colour (phase & signal for market & stock) come together. The buy option is the most important one for us Buy & Hold investors.
During the neutral phase it is much quieter in the depot. Here you don’t have to do much, you can concentrate on building up cash and keep an eye on the rebalancing options.
It is advisable to hold back if two different traffic light signals occur.
Finally, I would like to recommend my blog article Dividend-Alarm Practice – 9 possible scenarios of the Dividend-Alarm indicator. In this article I’ll show you the 9 combinations of phases and signals that exist and how best to act in each situation.
As already shown above, the two most important scenarios are the buying phase & buy-signal and the selling phase & sell-signal. The other 7 scenarios are much more common in terms of time, so it is important to know how to proceed.
The last two indicator phases
Before we take a closer look at individual examples, we would like to show you what time periods we are talking about here. The following chart shows the Dow Jones between the end of 2014 and the end of 2017.
I have drawn the last two indicator phases. The selling phase is marked in red and was active for almost 2 months at the beginning of 2015 and the green marked buying phase lasted a good 2 months at the beginning of 2016.
For a typical buy & hold investor, the selling phase is not really interesting. It is not always as pronounced as a buying phase in which there are countless entry options. Nevertheless, let’s take a quick look at the figures.
During the final selling phase (March to May 2015), the Dow peaked at 18125 points. The fact that this was only a weak selling phase was seen in the number of sell signals. Only 16 US stocks generated a sell-signal here. The remainder of the US equities monitored by the Dividend-Alarm did not generate a sell-signal.
Those who had some of the sell signals in their portfolio during the selling phase could now check whether the individual candidates were ready for a sale. However, most of the portfolio would have remained unaffected.
Sell signals also help buy & hold investors, as a sell-signal can also be interpreted as “not buying”.
If you traded the Dow with ETFs, you would have saved yourself the price losses until the next buying phase. At the peak, a low of 15670 points was reached. This corresponds to a loss of 2455 points or -13.5%. This was not really much, due to the fact that the market did not generate a lot of sell signals in the mass market.
Less than 12 months after the sales phase, it was possible to invest cash again. In January and February 2016, the Dividend-Alarm indicator generated a buying phase. This was significantly stronger than the selling phase, as 50 of the 199 US stocks monitored by the Dividend-Alarm generated a buy-signal.
In the low, the Dow reached 15670 points. By the end of 2017, no further phase was generated and the Dow rose to 24524 points in mid-December. This corresponds to an increase in value of almost 57%.
Important to know:
To this end, it must also be acknowledged that the triggering of the phases and signals did not only take place in the subsequent consideration. No, directly live during the eight-week period, it was possible to follow the development of the indicator and make decisions on a daily basis.
Due to this automatism, it was only possible to part with a few securities with sell-signal, but we got an entry option which gave us on average a 57% increase in value. In individual cases, this performance was even significantly higher. But with more details.
The observance of the indicator phases works very well for downs. Those who prefer to work with ETFs and indices can also use the Dividend-Alarm indicator very well in this form.
However, individual stocks with dividend payouts are more interesting for dividend investors, so here are a few examples.
I would like to begin with the last selling phase, which, as can be seen on the chart above, took place at the beginning of 2015. True to the dividend alarm strategy, all stocks that have also generated a sell-signal in this good eight-week period are now eligible for this scenario.
As already mentioned, this was only 16 US equities. At that time, the dividend alarm system monitored a total of 206 stocks, 44 of which generated a sell-signal. Most of the sell signals were from European stocks. Here, a sale resulted in significantly better results or hedged against major price falls.
The first stock I want to show you is the V. F. Corp stock. Even before the sales phase, it generated its own sell-signal for some time. The chart (red frame) now shows the sell-signal during the selling phase.
Now, signal activation does not automatically imply a direct recommendation for action. In principle, I always recommend a closer examination of the stock. We are also happy to provide you with other valuation models and the latest news.
The first step is about curbing possible price losses on expensive stocks. These amount to about the V. F. Corp stock from the top (price USD 75.99) to the low in February 2016 (USD 48.32) at -36%!
In the overall view, from the peak of 2015 during the selling phase until the end of 2017, if you had simply kept the stock in your custody account, you have practically achieved a result of almost 0%. In addition, there are the dividends distributed, but it shows that a sale would have been worthwhile.
As you can see on the chart, the low point falls exactly at the time of the last buying phase. Unfortunately, the V. F. Corp stock did not generate a buy-signal at that time, otherwise it would have been a perfect entry point. So we could concentrate on other stocks which I will show you soon.
From my own personal point of view, automated selling has been more than worthwhile with the help of the indicator and the sell-signal. And it doesn’t matter at all whether you sold your stocks for almost USD 76 or USD 72.
Another example is the Bristol-Myers stock. This stock also generated a sell-signal during the selling phase. Here they had the opportunity to part with the stock between 68.32 USD and 63.46 USD.
Although the Bristol-Myers stock reached a new high of USD 76.77 in July 2016, the stock then fell to USD 46.82 at its peak.
If you look at the entire price trend since the selling phase and until the end of 2017, then a sale was definitely a good decision. Here, too, total earnings plus dividends paid are only a minimal plus. This is an absolutely bad result for a period of three years.
Let me give you one last example. This is the German Linde stock. In the absence of the dividends paid, the stock is practically exactly where it was during the 2015 selling phase. So not much could have happened. But please take a close look at the chart.
I have drawn you the selling phase in which you could have sold the stock at prices between 182 euros and 194 euros. The sell-signal even existed a little earlier. Only the sales phase further limited the range for a sale.
As mentioned above, the highest price during the selling phase was EUR 194. In the coming months, Linde’s stock price fell to 116 euros, which represents a loss of around 40%.
And as you can easily see on the chart, the Linde stock generated a buy-signal during the last buying phase. What’s it like with the stocks of V. F. Corp and Bristol-Myers. If you had been convinced of Linde, you could have put her back in the depot after a year or so.
In addition to saving on the price loss, your new Linde stocks had to rise by a staggering 65% (plus dividends) by the end of 2017!
A simple hold of the stocks, because everyone says it, because you are committed to the buy & hold strategy or because you just do it that way, the bottom line would not have brought you a return – in 3 years!
Not all stocks that generated a sell-signal at that time are worse today. But in terms of overall development, after all, almost three years have passed, the overall performance of most of them is very poor. In addition, stocks without a sell-signal also performed significantly better.
For example, I can mention a Pfizer, which is at practically the same level from the beginning of 2015 to the end of 2017. Only the dividends made it possible to achieve a small plus here.
A Kroger, for example, has lost 48% in the peak since the last buying phase. Even if it has recovered somewhat by the end of 2017 – even including dividends – the bottom line remains a strong minus. For a period of 3 years this is an absolutely bad result. Especially if you could have achieved 65% even with Linde stocks since the last purchase phase.
All these sales scenarios are not about knowing what the future development could look like by means of a glass ball. BUT, you have at least received the option (selling phase + selling signal) to make a systematic decision.
And although few U. S. stocks received a sell-signal, some quite acceptable results could be achieved if a decision was made to sell.
When the sales phase and sell-signal interact, it is therefore important not only to avoid losses in the coming years, but also to achieve lean results. And the probability of not regretting a sales decision later on is very high.
The last phase of buying was already much more lucrative for US stocks than the selling phase.
The Dividend-Alarm system already monitored 300 dividend stocks at the beginning of 2016. A total of 87 stocks generated a buy-signal during the buying phase. 50 stocks alone were US equities. This was a very strong sign that the US market was pounding in.
Let us now look at the last buy phase, even though I have already anticipated a perfect example with Linde. Based on the Dow chart, you could see that the last buying phase took place at the beginning of 2016 and that there was a good 8 weeks to place its investments.
This is analogous to the previous scenario, all stocks that generate a buy-signal during a buying phase. As in the past, I will again be focusing on US equities for this sales volume, which are monitored by the Dividend-Alarm. But I’ll also introduce you to a German stock.
Since the hit rate was very high and there were also countless stocks to choose from, it’s not so easy for me to decide on only three to five stocks here. I am therefore concentrating on high-capitalised stocks and stocks were waiting for this phase has really paid off.
Let’s start with one of my favorite stocks, American Express. It fits exactly into our popular scenario, the stock has a high market capitalization and waiting was absolutely worth it. Even though the American Express stock had not been able to generate a sell-signal a year earlier, the stock price returned significantly up to the buying phase.
In addition, the decline in stock prices only really picked up momentum during the buying phase, and absolute lows were then reached in the second half of the year.
In the chart I have drawn the possible transaction window (purchase phase + buy-signal). You could put American Express stocks in your custody account at prices between 58 USD and 47 USD, if you didn’t strike on the first day of the buying phase. It makes sense to work with a Trailing Stop Buy during the buying phase. In this way, you also participate in falling prices and can enter at a significantly lower price.
In total, you were able to achieve a performance between 47% and 81% by the end of 2017 and depending on the entry price. And don’t forget, the dividends of distributed American Express will be added to the top as a icing on the cake!
Also here again my personal opinion. For me, the automated and systematic entry into the stock with the help of the dividend-Alarm indicator and the buy signal was more than worthwhile. And for me it doesn’t matter at all whether you bought your stocks for 58 USD and 47 USD. The overall performance (increase in stock price + dividend) is more than sufficient over the almost two years.
My next example shows the chart of the Caterpillar stock. This is also an extraordinarily good company. You can see our scenario on the chart. The buying phase and the buy-signal came together within the green frame.
Even Caterpillar did not make a sell-signal in early 2015, but you can see from the performance of the stock price that it was worth the wait. From 92 USD at the top it went down to 58 USD. And only during the buying phase could you collect Caterpillar stock between 67 USD and 58 USD.
Where was the Caterpillar stock at the end of 2017? At approx. 143 USD! Depending on the price at which you would have invested the Caterpillar stock in your custody account, your performance would be between 213% and 246% – plus the dividends paid out! You also waited a long time and didn’t buy the stock at an early price of 92 USD higher. Isn’t that a fabulous result?
As you can see from the Dow chart at the beginning of the article, you were able to achieve the best results with US stocks. But a well diversified portfolio should also include other stocks. For example, some from Europe and Germany. One of the world’s best-known companies is Siemens, and when viewed as a whole, this result also looks very good, even though it was not possible to beat the Caterpillar stock price.
Please take a close look at the chart. The first thing you can see is the lack of a sell-signal at the beginning of 2015, and if Siemens was already in the portfolio, the price losses would be limited. But then, at the beginning of 2016 there was the long awaited chance. Within a price range of 6 euros (85 euros to 79 euros) you could have invested in new Siemens stocks.
Up to the high in May 2017, this resulted in a peak performance of approx. 70% plus dividend payments! This is an absolutely enormously good result for just over a year. Especially if you don’t look for stocks manually, but do it systematically, you also have the patience and self-confidence to invest most of the cash, especially in the neuralgic market phases.
The Siemens stock took out everything that was possible. Only small losses after the selling phase (without own sell-signal) and after the buying phase an absolutely worth seeing performance.
Not all stocks that generated a buy-signal at that time have developed so strongly. But it’s only two years ago and you have to look very carefully for really negative results. Thus, even with a boring Union Pacific +88% + dividend or Iron Mountain +67% + dividend.
The purchase scenarios are also not about looking into the future. BUT, also here at least you have the option (buy phase + buy-signal) to make a systematic decision. In addition, the hit rate and achievable performance is significantly higher than in sales scenarios.
When the buy phase and buy-signal interact, it is primarily a matter of having made the entry at one of the lowest points in the coming years. The probability of achieving above-average overall returns with these investments in the future is very high thanks to the very good risk/reward ratio.
It sometimes takes a lot of patience to prepare for the respective phases. This requires consistent implementation as soon as the respective situation becomes ubiquitous.
Orientation to the phases in connection with signals can prevent price losses and there are almost always extraordinary opportunities for long-term oriented investments.
The application of the Dividend-Alarm strategy is simple and easy. However, it is not a self-perpetrator and needs the active support of its user. Find out more about the details of the Dividend-Alert strategy now.
How do you determine the correct entry and exit points?
Would you have recognized the right time for the above-mentioned stocks?