It’s been a bit of a disasterous year to me, what with the likes of RTN (Restaurant Group) and IGG (IG Group) getting slaughtered. In fact, it’s probably been the worst relative year I have had.
I am experimenting with a recovery strategy: looking for shares that have had their shares significantly marked down, and then setting an alert on the shares when it is close to its 52w high. The logic behind this is that a share that is marked down may be a value trap, so you should not just jump on board. By looking for a positive momentum indicator, you have a definite sign that the recovery is valid.
Here are three such triggers that I had set long ago:
KAZ – Kaz Minerals – % vs 52w high > -3, triggered 2016-08-20
LMI – Lonmin – RS 6m > 20. triggered 2015-12-18
PAF – Pan African Resources – RS 1y>0, triggered 2016-01-27
These are all resource stocks, so admitedly they might be special cases.
How well would you have done if you had bought on the trigger?
KAZ. Then: 194p . Now: 404p. Gain: 108%
LMI: Then: 58p. Now: 145p. Gain: 150%
PAF: Then: 11.01p Now: 18.25p. Gain: 66%
Needless to say I invested in none of these, thereby missing out on very large gains. It seems that no matter what (sensible!) momentum indicator you use, the results are highly satisfactory. Stockopedia is unique, I think, in providing alerts where the shares are at 52w highs.
In the triggers I had set, at least, it shows that momentum can work. Anyone who bailed out on the trigger, figuring that they made a nice profit, or anyone who did not buy, figuring out they had missed the boat, were mistaken.
It’s a pretty simple strategy. Just look through the All-Share indices each day for the biggest faller, and set a trigger for whatever momentum indicator you like best. Then it’s a case of sitting back, and waiting. And acting, of course, which is the step I left out. You can’t spend theoretical profits.