“Don’t chase hot stocks” — time and time again, investors are warned not to jump on the bandwagon of a red-hot stock. But in his latest for NASDAQ.com, Validea CEO John Reese says that there are plenty of exceptions to that rule.
“Generally it’s good advice — throughout history many investors have been pummeled because they tried to ride the momentum wave, and jumped on hot stocks just before the wave crashed. (Just ask those who went headlong into tech stocks around 2000.),” Reese writes. “But the ‘don’t chase hot stocks’ advice is, in fact, incomplete,” he adds. “The full version should be more like this: ‘Don’t chase hot, expensive stocks’.”
Reese says that distinction is an important one. “High-flying, overpriced stocks often lose steam and then come crashing down from great heights,” he says. “But high-flying inexpensive stocks can continue to fly high for some time — and they don’t have as far to fall if their momentum wanes. If used alongside valuation metrics, momentum can thus actually be a very helpful part of your stock-picking approach.”
Reese talks about three investment gurus who combined value with momentum in their stockpicking approaches: James O’Shaughnessy, and Tom and David Gardner. He also looks at a handful of stocks that get high marks from his Guru Strategies, which are based on the approaches of O’Shaughnessy, the Gardners, and other investment greats. Among them: temporary staffing firm TrueBlue Inc.
Tagged: David Gardner, James O'Shaughnessy, John P. Reese, momentum, Motley Fool, Tom Gardner, Validea
from Validea's Guru Investor Blog http://ift.tt/22eg9BS
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