Speaking of Louie....
I was going through a pile of papers looking for something and stumbled upon a copy of the explanation of Navellier's sell discipline . It was in the April 1996 Smart Money. Here's what he said:
While fundamentals guide our buy decisions, sell decisions are based on a risk-reward ratio I devised. It's complicated, and you need computers to use it because of all the math involved, but the main elements are understandable. For risk, we measure how much a stock's price normally jumps around, known as standard deviation. The more volatile a stock, the riskier it is to own. For reward, we measure the portion of a stocks return that exceeds the gain posted by the whole market; that way we know how much of the stock's climb can't be explained merely by the market going up. That's called alpha.
Both of these factors are averaged over the last 52 weeks to lessen the influence of short-term blips. Then we divide this average alpha (the potential reward we might expect) by the average standard deviation (the potential risk of owning it). The higher the result, the better. In this portfolio, the ratios range up to 0.957. If a stock's ratio falls below 0.2, it's a sell candidate, unless there are some extraordinary overriding consideration.
Although he was specifically discussing his Smart Money portfolio, I would doubt that he set up different algorithms from the ones he uses in his real portfolios. Incidentally, rather than representing momentum, as I said previously, his portfolio was Growth. The competing portfolio was Value and it was managed by Scott Black.
I won't beat this thoroughly dead horse anymore.
Nice strong move by the market today. Too bad our little puppy isn't participating much. By the way, Jerry Favors has been dead on in predicting the market recently. Last Friday in his regular segment on CNBC, usually at about 3:40PM, he said his work predicted a near term high about Feb. 1 and a short term low Feb. 8 + or - 2 days and then a STRONG RALLY. Maybe we'll get some benefit from it.
Bob |
