Charles Kirkpatrick’s approach to value and momentum investing

Friday, Nov 16 2012 by
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Charles Kirkpatricks approach to value and momentum investing

In brief 

Charles Kirkpatrick is a US investment strategist whose mechanical stock selection techniques – blending value, growth and momentum – have earned him a following among technical investors. Kirkpatrick has won awards for his stockmarket analysis and academic writing and he continues to publish a weekly technical stock market letter, The Market Strategist. 

Background 

Kirkpatrick is president of technical research publisher Kirkpatrick & Co., which has been producing The Market Strategist since 1976. He has written three books, among which the 2008 publication of Beat the Market: Invest by Knowing What Stocks to Buy and What Stocks to Sell won huge acclaim. Kirkpatrick believes that investors face an impossible task in predicting the market or the economy. His approach is to look for fundamental and technical indicators as a signal to buy and sell stocks. Central to this philosophy is a focus on relative strength – the performance of a stock price versus the rest of the market. Beyond that, he looks for value and growth drivers to hone the strategy. 

Kirkpatrick’s focus on relative strength dates back to research he carried out in the 1960s with Robert Levy, who wrote a paper claiming that relative strength could be used successfully in stock selection. While Levy’s views were largely ignored by investors and analysts at the time (who tended to favour the efficient market hypothesis) Kirkpatrick stuck with Levy’s theories. In 1982 he began tracking them in real time on a weekly basis. He revisited the story 17½ years later in an award-winning paper that reflected on how the strategy had gone on to perform. It wasn’t exactly a secret – Kirkpatrick has earned guru status for performing exceptionally well against the market using a strategy that is basically devoted to relative strength. 

Investment strategy 

Kirkpatrick’s approach is mechanical – he relies less on what the company actually does and more on ‘relative’ indicators connected to the stock price and fundamental data. He is a strong believer in behavioural biases, so his strategy seeks to strip out potential frailties like investor impatience, lack of discipline and fear of being wrong. 

He employs a three-step process called STRACT – setup, trigger, and action – which he uses to react to individual price share price movements. His buy and sell indicators include price-to-sales, reported earnings growth, and share price strength.…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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About Ben Hobson

Ben Hobson

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