A strategy that has outperformed the Sensex for the last 8 years

Termed as one of the most "mechanical" stock-picking approaches, this technique has been widely described in Michael O'Higgin's excellent book, "Beating the Dow".

O'Higgins defined his set of out-of-sight stocks as the ones which give the highest dividend yield. So his technique was simple -
1. Divide your money into 10 equal packets.
2. Now log on to any website financial website and extract the list of the top dividend yielding companies.
3. Invest equally in each of them
4. Revisit after one year. Sell off the ones which are no longer there in that list. Make another round of investment

If your stock is still in there - you would have made a neat 5-6% arising out of the dividend payout. If the stock is not there, it's because the stock value has increased or the dividend payout has been reduced. The incidence of the second happening is low, unless something drastically wrong has happened to the company or the industry per-se. (this might have been true in bubbles like the dot com boom)

I would recommend a filter mode here. Pick from the BSE 100 stocks only so that we can keep penny companies out. Or perhaps, pick stocks from only B1 and above scrips. (this may however mean a lower dividend yield and one tends to find more under-valued scrips in the lower capitalization levels)

My 10000 rupees on January 1, 2004 would have been invested in - (see article)
1. GE Shipping
2. Procter & Gamble
3. Hind Lever Chemicals
4. Tata Chemicals
5. Gujarat Narmada
6. HCL Infosystems
7. IDBI
8. Hero Honda
9. Neyveli Lignite
10. SSI

My 10000 rupees on January 1, 2005 would have been invested - (see article)
1. HPCL
2. Kochi Refineries
3. Hindustan Lever
4. Rashtriya Chemicals
5. Indian Oil Corporation
6. GE Shipping
7. Vijaya Bank
8. BPCL
9. Bank of India
10. Hero Honda Motors

So, if I were to invest my 10000 rupees on 2nd January, 2006 - (see icicidirect data. I have considered only 500+ cr m-cap companies)
1. Bongaigaon Refinery
2. J B Chemicals & Pharma
3. Hindalco Industries
4. Kirloskar Brothers
5. Pidilite Industries
6. DCM Shriram Consolidated
7. Kirloskar Oil Engines
8. SAIL
9. EID Parry
10. Hindustan Construction Co.

This technique is very interesting and takes little effort. Best of stock picking dummies like myself :-)