Investing in fast growing companies can produce stunning returns - and that’s exactly what we’ve seen in recent months. Growth strategies have been in a sweet spot since the EU referendum, but the popularity of many growth shares means that some now look pretty expensive. So if you were a buyer now, how could you tackle this challenge?
Part of the answer is in understanding how many growth investing strategies work. Take a look at those used by popular British investors like Robbie Burns and the late Jim Slater, and you’ll see some common themes.
Typically, they look at a number of ‘growth’ measures, particularly earnings growth, and mix them with positive price strength and a fair valuation. The key is that they want growth and momentum at a reasonable price - and it’s a strategy that has a big following.
On the flipside, there’s another set of growth strategies that also look for common growth features. But the difference is that they pay no attention to valuation. Instead they take much more interest in price action.
This is undeniably a much more trader-oriented approach, with more precise rules on when to buy and sell. But it can open the door to fast-paced growth stocks that might appear expensive, but show signs of momentum that will carry their prices higher.
A key feature of growth strategies with a focus on price action is they often use both fundamentals and chart signals. It’s a combination that doesn’t have to be complicated. In fact, one of the leading players in this field is Charles Kirkpatrick, whose growth strategy is actually quite straightforward - and it’s one that’s performing very well right now.
How to find growth stocks at any price...
Kirkpatrick is a legend among growth investors. Back in the 1960s he was inspired by academic research into the predictive power of relative price strength. And while no-one paid much attention at the time, Kirkpatrick went on to devise a handful of very successful strategies. He continues to track them through his newsletter, The Market Strategist.
One of those strategies is a growth checklist that uses relative rankings based on two main features. First is a focus on stocks in the top 10% of the market for relative price strength over the past 130 days. Second is a focus on stocks in the top 10% of…
