Van Meerten's picks

Learn fron Ken Kam

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I've gotten lots of emails and comments asking for some clarification on my stock selection method so I'll make another attempt to simplify my explanation.

I've been a participant in Marketocracy for about 3 years and learned how to pick stocks like Ken Kam picks portfolio managers. I'd never say I'm doing as good a job as he does but I'm TRYING to duplicate his methodology.

Ken has given us a great competition tool and convinced us to all compete against each other. He gives us general guidelines on Compliance but as far as giving us guidance on how to pick stocks he's totally hands off and let's the best stock pickers win. Over 81,000 of us are trying to beat each other. And he just sits back and watches the fray!

Ken then takes the best 100 and makes them the M100. Occasionally some of the M100 fail to keep up their returns, need to be replaced and a few slots come open. We all think he then looks to who has all those purple stars for being in the top 100 for various time periods and then selects from those to fill his slots.

For instance - if there were a slot open now Ken might notice that in June of 2008 VMALP - Van Meerten's Alpha fund got a purple star for being #82 for the 2 year period. But Ken wants a consistent picker not just a one time flash in the pan so he notices that the same Van Meerten fund also received a December 2007 purple star for #70 for the 6 month period and another purple star in September of 2007 for #72 for the 3 month period. The fund has also accumulated 16 green stars for various periods in the last 3 years. Looks like consistent performance.

As a last test, did the fund beat the M100 fund? Why would he want to add a fund that was below the M100 average and pull down the future return of the fund. A look at the chart shows the fund's gold line beats the M100 purple line in most time periods so it should come into consideration to replace a fund that faltered.

How does that parallel my stock picking methodology? Let's see.

Value line has a box in the bottom left hand corner of the tear sheet that grades a stock's earnings and prices. They look for Price Stability, Price Growth Persistency and Earnings Predictability. I've never figured out how to get that box to work for me but since I've learned how to use stock screeners I can do that for myself. That's what I'm looking for a stock who's price has Persistent Growth, Predictability and Stability. The 3 values Ken looks for in a Portfolio Manager.

First Growth - I look for the stock that has grown in price by at least 10% during the last quarter. 10% per quarter would be 40% per year.

Second - Persistent Growth - How many times during the last quarter has this stock hit new highs? Ideally at least a new high in each week or at least 13 new highs spread across the quarter.

Third - Predictability - I look at the weekly quotes and see if the prices were all over the board or nice increases each week.

Lastly I graph each stock and compare the price to the 20, 50 & 100 day moving average. I'd like to see a price line that starts in the bottom left hand corner and climbs at a 45 degree angle to the upper right hand corner. I'd like to see the moving average line have a nice steady trends. If all 4 lines go up and down and criss cross each other like a Jackson Ploock painting this stock isn't for me.

There you have how I search for those 3 attributes I think Ken looks for: 1 Persistent Growth, 2 Predictability and Stability. Stocks that fail to keep it up are replaced.

If about a dozen of you think this is attainable and use this methodology in the next SLO3 I don't know if we'd win but we'd have a nice tight grouping.