Just a quick note after my last blog about the Compound Income Scores portfolio monthly screening and the challenges of the decision making process. Having given it some thought I've added a couple more columns of data related to price movements which were in the background calculations. In addition to this towards the far right hand side of the Scores and the Portfolio sheets I have added what I describe as Triple Trend Momentum suggestions or TTM for short with Buy, Hold, Avoid and Sell suggestions. These are based on estimate revision data (which is already reflected in the Scores) as well as relative and absolute price momentum measures, hence Triple Trend Momentum or TTM. Price momentum is not reflected in the Scores although relative price momentum has been available as a data point for comparison and to help with decision making if one wished to factor that into your decisions. This addition hopefully helps to improve on that and make helpful suggestions as to which stocks you should be focussing on and also help to avoid value traps etc. with poor momentum.
The reason for these suggestions is that you would probably want to be trying to buy stocks that are seeing earnings estimate upgrades (or at least not getting downgrades) as stocks with these characteristics have been shown to outperform generally while the converse has also tended to be true. In addition the relative price momentum is also a well known contributor to the powerful and outperforming Momentum factor. While less well known is the absolute price momentum factor, which, when combined with relative price momentum can produce better performance and less in the way of draw downs when things cut up rough in the market.
This was described in the following research paper by Gary Antonacci called Risk Premia Harvesting Through Dual Momentum. He also wrote a book called Dual Momentum Investing if you are interested in reading more about it and the graph below details some of his finding from this post on his website.
Final Thoughts & Conclusion
Hopefully subscribers might find this useful as a guide to which stocks to focus on from the top two quintiles of the Scores say, as well as those that might have some positive momentum even if they do not score that well.
So in summary the suggestions are based on the three momentum factors discussed above, earnings revisions (1 & 3 Months), relative price momentum (12 Months) and absolute price momentum (based on the share price being above or below the 200 day moving average) thus:
BUY = EPS Estimates unchanged or positive, 12 month price momentum positive and the share price being above the 200 day moving average.
HOLD = Only 2 out of 3 of the above is true.
AVOID = Only 1 out of the 3 above is true.
SELL = All 3 of the above are negative.
I have labelled them as suggestions as you would probably not want to follow them blindly, but they should hopefully help us with the decision making process when picking which stocks to buy, hold or sell based on their Scores, other fundamental and technical factors. These changes will be live from todays update to the Scores. Any feedback or questions from subscribers is welcome or if you would like to sign up to access the Scores, you can do so by following this link or those in the site menus.