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VMware And Two Other Best Buy Stocks From A Momentum Master
By KEN KAM
posted by KEN KAM
Marketocracy.com
Momentum investors do well when market trends tend to persist for a while. But for much of the past 10 years, sectors have come into and fallen out of favor so quickly that many momentum investors have been whipsawed.
Jim VanMeerten (track record) is a rare momentum investor who has done well in a choppy market. Jim started his model mutual fund portfolio at Marketocracy on March 3, 2005 and for more than 5 years now he has averaged about 12% a year while the S&P 500 averaged about 1%.
While his record may not be as impressive as some other investors I track like Mike Koza and others featured in The Warren Buffetts Next Door, Jim has the kind of track record it takes to be a Marketocracy Master. [Disclosure: I make Jim's portfolio available to clients of registered investment advisors through a separately managed account.]
According to the detailed trading records I keep, Jim makes money on 42% of his stock picks. However, when he is right about a stock, he makes 1.7x the money he loses when he is wrong. In other words, Jim cuts his losses off quickly while they are small, and lets his winners run. That’s how he avoided getting whipsawed during the past 5 years.
By way of background Jim was born in Chicago and raised in Fort Lauderdale, FLA. He spent many years as a certified public accountant but eventually became a financial advisor. He currently lives in Charlotte, North Carolina and invests full-time.
I asked Jim to tell me how his investment discipline led him to the stocks that are among the top holdings.
Here’s what Jim said:
All of my top holdings look alike. This is because all the stocks in my portfolio have to meet the same criteria and they will stay in the portfolio as long as they meet my criteria but not one day longer.
I want to invest when the economy is healthy and the market is heading up. There is no single indicator that tells me when it’s a good time invest, so I want to see as many indicators in my favor as possible. I’d rather be approximately right than precisely inaccurate.
To judge the health of the economy, I use a consensus of 21 economic indicators. To see where the market is heading, I review over 25 technical indicators every day. If the winds are favorable then I use over 27 technical indicators to screen 12,000 stocks, ADRs, closed-end investment companies and ETF’s to find those few that meet all of my technical criteria.
At this point, I usually end up with a list of about 10 stocks that meet all my criteria. Some days none pass the screening so I won’t buy anything – I don’t spit in the wind.
My last step is to review 4 graphs containing moving averages and turtle channels that include the latest trading activity in 5 minute intervals. If a security can pass all those tests I might consider buying it.
The final and ultimate test is a 3 fold hurdle:
•The price has to have appreciated in 50% of the last 20 trading sessions
•Wall Street brokerages must have published buy reports based on expected increases in sales and earnings
•And last, there has to be a wide and positive retail following
I don’t buy because Wall Street and the general public likes a stock but I realize if 10 Wall Street firms have sell reports out, then there are a lot of brokers asking all their clients for sell orders and I would be foolish to think my pick will swim against that out flowing tide.
Now the picks:
VMWare Inc ( VMW) – Virtualization and cloud infrastructure software. Competes with Microsoft. [Yesterday VMW and other cloud computing stocks fell hard when a vendor lowered its sales projections. The notes below reflect VMW stats before the sell off.]
•Wall Street has 14 buy and 19 hold recommendations
•Analysts expect Sales to increase 37.30% this year, 19.40% next year
•Analysts estimate EPS to increase 39.00% this year, 21.60% next year
•May have become over valued as my momentum indicators are neutral and the 14 day relative strength index in 45.27%
•Short interests are very slightly increasing
•Positive investor sentiment
Aberdeen Asia Pacific Income Fund ( FAX ) – Holds sovereign debt of mainly Australia.
•Wall Street firms do not make recommendations of closed end funds but are pushing recommendations to clients to acquire sovereign debt and most view Australia favorable
•My technical indicators have 11 positive and 2 neutral signals at present
•Short interests are decreasing
•14 day Relative strength 72.16%
•Positive investor sentiment
Trina Solar Ltd ( TSL) – Produces monocrystalline ingots, wafers and cells for use in solar panels. Competes with companies like JA Solar.
•Wall Street has 21 buy and 4 hold reports published
•Analysts look for Sales to increase 75.60% this year and 12.90% next year
•Analysts estimate EPS to increase 64.30% this year and continue at an annual rate of 20.00% for the next 5 years
•Technical indicators have 10 positive and 3 neutral signals
•14 day Relative Strength Index is 55.14%
•Short interests decreasing
•Positive investor sentiment
See, they all look alike:
•Positive price momentum
•Wall Street recommending buys based on increases in sales and earnings
•Positive investor sentiment
The rest of my portfolio looks very similar statistically.
To receive a free email update when Jim VanMeerten and other Marketocracy Masters change their top holdings, click here.
Disclosure: Ken Kam is the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and Ken have financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.
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