That bearishness came out in full force during the long 1990s bull market. Before that decade, the Dow's dividend yield had historically fluctuated between extremes of 3%, when Weiss would consider the Dow overvalued, and 6%, which signaled undervaluation.
Because the Dow's yield stayed below 3% during the latter part of the decade, Weiss considered the average overvalued and advised readers to put as much as 70% of their money into cash. The ill-timed move took a particularly hefty toll in 1999, when her newsletter underperformed the Wilshire 5000 by nearly 35 percentage points, according to Hulbert's calculations.
But those numbers are really a "best estimate" because Investment Quality Trends did not specify an asset allocation strategy in every issue. In months the newsletter did not specify an allocation, the Hulbert ranking service kept the portfolio fully invested. As a result, its reported track record may well have benefited from that methodology and from a bull market that Weiss never saw coming.
Still, Weiss says her dividend-yield strategy is as valid as it was when she started her newsletter nearly 37 years ago. Yet she also admits that times have changed and that her parameters, at least when it comes to the market as a whole, might require some fine-tuning. "The yield profile of the Dow has evolved because it has more stocks that pay little or no dividends than it used to," she says. "There could certainly be a new paradigm for the Dow in which a 1.5% yield signals overvaluation and a yield of 3% would mean undervaluation."
Currently, the Dow's dividend yield stands at 2.4%. To become undervalued by Weiss' revised standards, the Dow would need to dive to a groan-inducing 6250.