On Friday June 24, 2011, we published an article regarding the topic of Dow’s Theory of value and price regarding Dish Networks (DISH). At the time, we suggested that a recent recommendation to buy DISH by a widely read Dow Theorist was not in keeping with Charles H. Dow’s theory on value based investing. At the time of the recommendation, DISH was trading at $28.39 and within 6.65% of the 52-week high of $30.28 set on May 31, 2011.
Our June 24th article referenced the following critical concept of Dow’s regarding values:
“The best way of reading the market is to read from the standpoint of values. The market is not like a balloon plunging hither and thither in the wind. As a whole, it represents a serious, well-considered effort on the part of farsighted and well-informed men to adjust prices to such values as exist or which are expected to exist in the not too remote future. The thought with great operators is not whether a price can be advanced, but whether the value of property which they propose to buy will lead investors and speculators six months hence to take stock at figures from ten to twenty points above present prices."In reading the market, therefore, the main point is to discover what a stock can be expected to be worth three months hence and then to see whether manipulators or investors are advancing the price of that stock toward those figures. It is often possible to read movements in the market very clearly in this way. To know values is to comprehend the meaning of movements in the market."Source: Hamilton, William Peter. Stock Market Barometer. Page 38.
In our conclusion about Dish Networks (DISH) not being priced at the most optimum level for purchase, we said the following:
“The lack of attention paid to the price as it relates to values, in the case of the recommendation of DISH, may cost an investor a decline of 30% before a material gain is achieved unless the company is bought by a larger institution.”
At the time of the June 24, 2011 recommendation by the Dow Theory Forecasts (DTF), Dish Networks (DISH) was expected to gain at least 30% in the following 12-months. The stock was able to achieve a sizable 12.75% gain in the very first month. However, as we fast forward to the most recent price of Dish Networks (DISH), we see that DISH has fallen as low $21.37 or 24.73% in a two-month period following the recommendation by the widely read (DTF) newsletter.
Obviously, the situation with Dish Networks (DISH) has not been resolved since the recommendation by DTF was specific about the increase in the stock price should take place over the next 12 months. However, the most important point that should be considered when attempting to buy a stock is whether the price is reflective of values. Buying any stock at or near a new 52-week high is definitely not based on values.
Those who bought DISH between June 24th and July 22nd using the recommendation of DTF would be justified in being disappointed with the performance of the stock thus far. Applying Dow Theory to individual stocks that are primarily on our Dividend Watch List should result in more optimal investments returns rather than haphazard speculation.
If you are considering any stocks that are on our most recent Dividend Watch List, we’ll be more that glad to profile a brief Dow Theory analysis upon request.
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