Moving up... and down

Keen readers of the Momentum Monday piece would have noticed a new inclusion in the report. 

Titled “ Momentum Movers,” as is the case with the other lists in the report, they are not intended to be replicated as a portfolio. Rather they are designed to generate ideas for further investigation and then for you to overlay whatever metrics you prefer to whittle the list down.

In this piece I will explore the rationale of the two tables and how one may apply it within their own total strategy.

First, a bit of history. As you know Stockopedia is a tool… not a tip sheet. The power in Stockopedia is the TIME it saves me by standing on the shoulders of investing giants and benchmarking businesses against one another. The relative nature of the StockRanks means I am not just trying “to find a good stock”. Rather “I am trying to find a good stock compared to others.”

Further, I am NOT reinventing the Momentum Rank. To learn more about that measure and the factors that go into (including analysts revisions if available) click here to read it in detail.

To that end, when I look at StockRanks, I don’t just look at the absolute number. Obviously holding stocks that are 99 or higher might make me feel good… but the reality is in a relative sense where moves can only go between 1 - 100, the ranking will more likely go down, rather than up if you are holding the best of the best all the time. This is a key difference between relative and absolute style investing.

What I like to do is compare stocks in similar industries and with similar operations (if possible) in order to ascertain whether company A is performing better than company B in a sector where dynamics are very similar. For example I may be looking at two Fund Managers where the StockRank is above 90, which is to be expected given the capital light nature of each business. However when I compare one against the other and then I compare it against stocks in the similar sector then it becomes illuminating. There really is no point comparing a GQG (Capital light strong margins.) with a WOW for example (Capital heavy, tighter margins)

But this isn’t the only light Stockopedia shines for me on a stock (and here in is the motivation behind including this new section.)

If I was to say to someone that there are two Stocks that have a Momentum Rank of 70, that would normally be taken by someone new to the service, that these are within the top 30% of stocks from a Momentum perspective and that is not too bad. However if I was to say that for one of the stocks it had improved from 50. Whereas for the other it had fallen from 90. All of a sudden the perspective of the two 70 Ranks changes.

Therefore as a Momentum investor, the absolute score is not as relevant to me as the direction it has come from.

As a QM investor I want to make sure that my screens identify Quality and that Momentum is headed in the right direction.

So helping to answer the Momentum question, I have added two lists to the Momentum Monday report.

1. Stocks that have crossed above 50 over the week and month

In this table I want to identify stocks where the Momentum Rank has improved to at least be in the top half of performers (That is still 900+ stocks). Price can often be the first sign of any operational improvement, therefore what I am looking for here is a Momentum Rank that has been improving, (suggesting the worst may be over).

Unfortunately there will be some whipsawing in this list (Stocks that move just above 50 and then fall back below and vice versa). But what I am trying to establish is whether there is an accompanying improvement story supporting the improved Momentum ranking. I have also added the overall StockRank for general interest purposes.

And ‘yes’ I realise that this list would work best as an automated filter. However at the minute the Screener only records stocks that have gone up over 90 and it doesn’t break it down to individual factors (Q, V, M). So for now I will produce this list.

2. Stocks that have changed Momentum significantly in the past week and month

It is not enough in my view to see the absolute number in the StockRank and take that as gospel. I also prefer to see the direction of the ranking. Has it been improving, or has it been declining? I therefore have included this table which will show stocks that have changed Momentum ranking by 10 or more points over the week and/or month.

In this section changes can be positive and/or negative. For example: If Momentum has dropped by a lot for a stock I may want to know why. Even if I am not directly invested in it, if it operates in a sector where I do have a stock I am invested in then maybe there are lessons I can take. Alternatively if something has spiked in Momentum where am I missing out on potential gains?

I can choose to use this in conjunction with a broader QM strategy, or I could just block out the noise and follow the tickers. I can’t deliver hard evidence on the validity of this measure, but it makes sense (to me).

Update 27/07/24: I have also added a minimum market capitalisation requirement of $50 million in order to help identify investable companies. But we encourage all members to make decisions based on their personal liquidity needs ands preferences. 

For the moment these lists are compiled manually in an excel spreadsheet and presented on a weekly basis. I am told that in time attention will be given more to the ranking process and the ability to screen on it in the future. 

Until then, I hope you find these lists illuminating and the beginning of what I hope is a profitable journey. As these are new lists, we welcome any feedback.

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