• Stock Strategies
  • Investing’s Odd Couple: Value and Momentum

    by Kevin Truitt

    For value investors, the sweet spot in investing is being able to buy an undervalued stock right before its value is recognized by the market and just before its stock price begins to take off.

    But how can a value investor tell when a stock is in the sweet spot? The answer, according to Brian Nelson, president of investment research company Valuentum Securities, is to identify stocks with good value that are just starting to exhibit good technical/momentum characteristics.

    Doing so helps an investor avoid:

    • value traps: stocks whose prices continue to fall—so-called “falling knives”—or stocks whose value will never be recognized by the market,
    • underperformance due to the opportunity cost associated with holding a stock with great potential, but whose value takes an inordinate amount of time to be recognized by the market and
    • speculative momentum or irrational high-yielding stocks whose technicals are unsupported by their fundamental valuation (“greater fool” stocks).

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    Kevin Truitt earned an MBA in corporate finance from the DePaul University’s Kellstadt Graduate School of Business. He has over 15 years of commercial banking experience at First Chicago, BMO Harris and National City Bank. Kevin currently serves on the Chicago AAII chapter’s board of directors.


    Discussion

    Fernando Robles from FL posted over 3 years ago:

    Like this article. For me, when and what to buy has always been a problem. This article helps


    Jon Silverberg from NY posted over 3 years ago:

    I'm a mutual fund and ETF investor, exclusively. Any suggestions for how to combine these 2 strategies in that world?


    Terrence Kulasa from AB posted over 3 years ago:

    is there a stock screen that uses these criteria to select stocks?


    Frank Klamik from WI posted over 3 years ago:

    Bill Gunderson Management, uses this system.He has three portfolios and covers mutual funds and ETF's. It's worth a look


    Gerald Scott from MI posted over 3 years ago:

    Where do I find the answer to Terrence's quwestion ? i.e. " Is there a stock screen...."


    Jean from AAII posted over 3 years ago:

    The First Cut column in this issue describes a screen based on the concepts in this article. It's linked under Related Articles above on the right side.
    http://www.aaii.com/journal/article/nelsons-combination-of-value-and-momentum


    Lee Martin from CA posted over 3 years ago:

    The fundamental on QSTR looked good so I bought in about a month ago. The stock is up about 30% for me. It looks like it still has room to run.


    Joost Tanis from IL posted over 3 years ago:

    It would be nice feature to have the moving average variables in Stock Investor Pro


    Wayne Thorp from IL posted 6 months ago:

    Stock Investor is a fundamental stock screening and research database program, so to include moving averages would deviate from the program's intended purpose. In addition, the program only has monthly price data, and 120 months at that, so a moving average based off of that data would be of limited use.

    Wayne A. Thorp, CFA
    AAII


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