At Stockopedia, it’s no secret that we are big fans of systematic investing strategies that give investors the confidence to trust in the ‘quant’ and leave their emotions out of stock picking. Natural instincts to over-trade, follow the crowd, buy high and sell low are all potential flies in a carefully crafted investing ointment, so sticking to strategy rules is important. For US investor Charles Kirkpatrick, the same tactics helped him develop an investing approach that blends value and price momentum – and in recent months it’s performed extremely well.
Kirkpatrick runs a technical research firm that has been publishing The Market Strategist newsletter since 1976. In his 2008 book Beat the Market, he claimed that his formula had outperformed the S&P 500 by 7.7 times over 25 years. Inspired by research during the 1960s that the relative price strength could be a major indicator of which shares to buy and sell, he developed three distinct strategies for trading bargain, value and growth stocks.
Demanding criteria
Over the past year, Stockopedia’s Charles Kirkpatrick Value screen has produced an eye-catching 72.5% return, outperforming the FTSE by 55.3% – but it’s hampered by the fact that there are only two stocks in the portfolio (and only very limited numbers ever manage to qualify). So while this value strategy can apparently find strong potential performers, there aren’t nearly enough options in the UK to execute it with enough diversification. The reason for this is that Kirkpatrick set the bar high by requiring his shares to be among the top 10-20% of the market for relative price strength over the past 130 days and in the top 10% for relative reported earnings growth over the past four quarters. He also wanted to see a relative price-to-sales ratio that ranked among the lowest 30% of the market.
Those demanding criteria might produce ample opportunities in US markets, but the scant number of qualifiers in the UK has left the portfolio relying on the performances of technology outsourcing company Regenersis (LON:RGS) and logistics group SIG (LON:SHI). But looking further afield can help to broaden the investment universe. While there are about 2,000 stocks in the UK, there are over 7,500 across Europe giving many more possible options for such a strict screen. In fact, in the short time…
