What I learned from a $799 book | stockbee


What I learned from a $799 book

The Hardcover edition of Being Right or Making Money by Ned Davis retails for $799 on Amazon. The paperback edition retails for $249.

Ned Davis is one of the most respected analyst on the street commanding huge following amongst institutional clients. Many years ago his firm published the above book and it was updated in 2000, just prior to 2000 market top. There is a reason the book is so much in demand. It details the methodology used by the firm to do top down analysis. It details various macro economics, sentiment, technical, financial, and inter market indicators used by his firm to arrive at timing model. If you want to become real "Big Picture" macro analyst, this book is a must read.

Now more important than the excellent macro indicators and their interpretation is their equity selection model. "Price Momentum Based Equity Selection (The General Theory of Relativity)", that is the title of the chapter which details the equity selection method.

The equity selection method uses one year relative strength. Buys the top ranked 5% stock with strongest momentum and holds them until they fall below the top 10% in momentum rank.

Momentum based systems work in most market environment that is why an IBD 200 kind of triple momentum based (price, sector, and earnings), works.

I have one copy for sale for $749 plus free express shipping, if anyone is interested.


Semsons said...

you are a big fan of momentum. But most of famous investors are value guys. Of course it is not exclusive. Is there any study that shows that the trading active momentum strategies are more profitable than more pasive/easier value strategies?.

There is some comparison here


Pradeep Bonde said...

There are many ways to skin the cat.
Validea is a newsletter, no credibility. Peter Lynch was value investor is a news to me.

Value anomaly is well known anomaly and things like P/S, P/E, P/B etc all work.
When value stocks make moves, they also have momentum. The earnings breakout and virgin/neglect, and Episodic Pivot strategies get you mostly value stocks.

I think you are making a big mistake by assuming value stocks do not have momentum and they don't make 100% plus kind of moves.

In fact some of the wildest momentum moves are triggered by value investors. There is a reason for it.

Just this year PNCL airline was a stock which came in to my Episodic Scans at around 6 dollars. I investigated and took position. The stock tripled in six months. The reason , it was highlighted as best value opportunity by Mohnish Pabrai in value investors conference. All value investors were loading up on it. You can see it in the funds holding.
Airline sector was value investors favorite in 2004-2005, look at how many airlines stocks have tripled in 2006.

Similarly last year CTCI was value investors favorite and it more than doubled in two months.
I can give you hundreds of examples of value stocks with momentum. The entire shipping sector or steel sector was value investors favorite sector in 2002.Many stocks in that sector went up more than 500% in span of 12 to 18 months. MT went up from few cents to 36 in two years. There were tons of value funds loaded up in it. FRO in shipping went up over 1000% plus in two years. Again it was that time a value investors favorite.

A stock with momentum can be also be value stock.

As to momentum, well two of the most researched and proven anomalies are momentum and earnings.

Semsons said...

hi Pradeep,
well I said that momentum and value are not exclusive. That's something clear to me. Nowdays, I think oil sector is a favorite one for value investors such as Rodriguez, Dreman etc.

Do you think this scan would be good to detect value sectors/stocks with momentum?.

-10% close to 52wk minimal
-low ratios (P/E, P/B, D/E..)
- 4% breakout

Another question. Do you know some simple way to know sectors favored by value investors?.


Pradeep Bonde said...

One of the things which I used to do earlier was track holdings of some 50 value funds in Morningstar. It was lot of work. After that you can buy based on breakouts from that list.
Just using a filter will not help because in many cases one really need to ferret out the value story. Many companies are value traps, so one needs to go a bit deeper. But generating top 50 funds holding and looking at them is best. Within that focusing on the small mid cap often gives you better results.

Is best to find value fund holdings. Try it.