|
|
| Back to Guru Analysis | See All Bios |
Validea Momentum Strategy | Momentum of the ‘Very Best’ Companies
Validea Momentum Strategy is a proprietary methodology developed by
Validea.com based on their interpretation of how to actually use the
book "How To Make Money In Stocks" written by the well-known publisher
of the innovative and respected Investor’s Business Daily newspaper.
In that book, a massive study was described that identified the common
fundamental, technical and chart pattern characteristics of
the 500 best growth stock over the past 30 years.
The Validea Momentum Strategy seeks to identify the "very best"
companies that have high Relative Strength and buy them at the "right" time.
This methodology has a general principal that stocks are priced what
they are worth at the time. Low priced stocks and stocks selling at their
low are low for a reason, and you want to avoid them. Instead, you want to
pick stocks that are selling near or at their high. You expect to pay a lot
for the very best merchandise with the intent that you
will "Buy High and Sell Higher". However, this methodology also requires that
a number of other characteristics be met that were present in the 500 stocks
just before and during their tremendous rise in stock price.
Among these characteristics are excellent quarterly and annual growth
rates, earnings consistency, very high Relative Strength (momentum, that is,
price performance of the stock compared to all other stocks over the past 12
months confirmed by it outperforming the S&P500 over the recent 3-4 months),
decreasing long term debt-to-equity, high ROE, presence in a ‘leading’ industry
(one of the top performing industries over the last 6 months or one of the industries
with the highest percentage of stocks making new highs that day), as well as other
factorsThe ideal time to buy a stock with this strategy is when the overall stock
market has bottomed out and is going up, and the chart pattern of the price of the
stock has just broken out of a ‘consolidation’ (a drop back in price by no more
than 50% from its highs lasting at least 6 weeks) which results roughly in the
image of a cup, sometimes with a handle at the end. It is not always easy to
recognize these conditions and to protect oneself from mistakes, this strategy
calls for the discipline of absolutely selling if the price of the stock drops
by more than 8% below your purchase price—no exceptions.
This strategy is appropriate for momentum investors who are comfortable
paying a premium for fast growing companies.
|
| |
| Back to Guru Analysis | See All Bios |
|
|
