In my last article, I looked at a way of using momentum to overcome some of the biases that value investors face when considering when to sell a successful investment. The idea was to surf the StockRanks. Buying quality companies when they were at value multiples and holding until the value had outed and the momentum was fading.
Surfing Examples
One of the requests from subscribers was to see if the Stockopedia data team could find examples. Unfortunately, screening for these has stumped the data heads. However, they have been able to provide some historical data for some subscriber ideas. Here, for example, is Reach (LON:RCH) :
This isn’t the perfect example. This was never a particularly high-quality stock, and in this case, investors would simply be better off selling as soon as the Value Rank dropped below 50%.
However, I have been able to find a personal example, and sadly, one where I jumped off the wave too soon. To get an idea of how I could have done better, I used the StockReport “Print” function. This enables me to see a snapshot of what the Stockreport looked like week-by-week:
The company is Iqe (LON:IQE), and here is the chart for the period 2016-2019:
I bought the stock in 2016 at around 17p per share as a value share when the stock ranks looked like this:
So again, not a particularly high-quality stock. However, by the start of 2017 the share price had risen, leading to the Value Rank dropping and the Momentum Rank rising. The stock ranks now looked like this:
I thought I had done well to sell above 50p in mid-2017 when the value appeared to have outed and the stock ranks now looked like this:
However, selling the stock with such a strong momentum proved to be the wrong move, as the stock peaked at 180p in November of that year. At this point, the momentum was pretty strong, so it would have been pure luck if I sold at this point.
