Where to Find Driehaus Data

Comments on “Revisiting the Driehaus Momentum Approach,” by Wayne A. Thorp, CFA, in the May 2019 AAII Journal:

This looks like it would be difficult to get the data [for the Driehaus screen] and would require daily involvement.
—John Roediger from Maine

Wayne Thorp responds:
The data is easily accessible from most financial and brokerage sites. However, you are correct that momentum approaches such as this require close monitoring. That is why there is no such thing as a one-size-fits-all investment approach. Everyone has unique situations and risk tolerances.

Moaty Matters

Comments on “Economic Moats Matters Less Than a Stock’s Valuation,” by Brian Nelson, CFA, in the May 2019 AAII Journal:

I’m not surprised by this finding that narrow-moated companies outperform the wide-moated ones. Small caps tend to outperform large caps as well, and as a small company your moats are likelier to be narrow. Interesting information.
—Fred Ghost from Maryland

Moats were ingrained in earlier profiles but making the transition emphasized here to “enterprise valuation” should help to make more objective stock investments! Thanks for the guidance.
—George from Mississippi

It was important to me that I separated moat/no-moat from the economic value added (EVA) analysis. It is quite possible for a relatively low-moat company to be a high EVA creator, and indeed to be a recreator. This means it might be going through constant redevelopment of processes, products and services. Some of these might be low-moat, and some wide-moat. EVA is a measure that I introduced into a lean enterprise transformation, including it in the “what is gained” in the improvement strategies undertaken. Others have found it difficult to blend the concepts and blew it off. I believe it is essential to real and sustained improvement.
—Ronald from South Carolina

Implementing Stop-Losses

Comments on “Trailing Stop-Losses Effective at Curtailing Downside Risk,” Dispatch in the May 2019 AAII Journal:

I am a huge advocate of using trailing stops, especially on already profitable positions. However, I am not aware of [any] equities trading firm that offers them on their platform. The exception would be TradeStation. Even so, I believe industry regulation prevents these types of orders from being held on the exchange servers, as well as on your broker’s servers. But do you have to keep your platform open in order for your stops to move? And, why is there not an industry standard platform at this point, as is the case with Forex trading?
—Jeremy Viles from New York

I have a TD Ameritrade brokerage account and have all my stocks on a 15% trailing stop-loss.
—Bob from Argentina

I sometimes use stop-loss orders at Fidelity in my IRAs. It’s easy to set up. If I actually want to sell the stock in the near future—and I need cash soon but want to enjoy the ride and some high dividends—I set the level at 5%. If I want to hold the stock “within reason” but still be protected from disaster, I set the level at 12% to 15% to avoid losses that would occur with a (20%) bear market—also preempting a 2007-style 50% collapse while I was not watching. I have wrestled with the level to set over the years and would be interested in what academics have discovered. Perhaps a customized formula based on the standard deviation of each stock/sector?
—Dave from Florida

For traders, a stop-loss is essential for good money management. But that exit point should be based upon whatever trading methodology is being used, which means that repeatable fixed levels as described in the article probably would not be applicable. For investors, a trailing stop-loss level can get you out of situations that are slowly moving against the reason(s) you bought the stock in the first place.

For example, you bought Stock X because improving fundamentals are being recognized by increasing prices starting from a depressed price level. You spent time identifying the company, so you place a trailing stop-loss to move up as the stock price rises. The stop-loss should account for the normal price movement noise or volatility to avoid whipsaw actions. In any case, setting an objective exit point helps avoid emotion-driven mistakes.
—Ronaldo from Maryland