Van Meerten's picks

As I was looking for a stock to replace my short position I was screening some long positions when my wife walked in. She saw the stock I was looking at and asked: " What does that stock do?" " It goes UP!", I replied. She looked like she wasn't convinced.

I started showing her my notes, including the 6 month price compared to it's 20/50/100 day moving averages. In the last 65 trading session it has made 27 new highs and is up 51.94% for that period. The Barchart overall average is 100 positive. That means all 13 short, medium and long term technical indicators are positive. I could tell she wasn't impressed so I continued: It is trading above its 20, 50 and 100 day moving averages, it has a 14 day relative strength indicator of 74.95%, it has had positive price increases for all periods and is presently trading only 18 bps below its all time high.

She looked at me and said: "No, what does that stock DO? Does it manufacture lawnmowers, provide services, ship products? What does it DO!"

"It goes UP! Isn't that what a stock pick is supposed to DO?"

Now Barbara is the smart one in the family. She has a BS and an MBA in Finance. She has experience as an Investment Banker and a Risk Manager. She has a staff and all sorts of computer models she's authored and follows maybe 25 companies all in the same industry. She won't make a decision until she has read every 10-K, 10-Q, S-8, every press release and listened to all the conference calls. Her staff will amass several hundreds maybe even thousands of pages of documentation.

You remember the part in Arlo Guthrie's Alice's Restaurant where Officer Obie "uses all kinds of cop equipment to take plaster tire tracks, foot prints, dog smelling prints and took twenty seven eight-by-ten color glossy photographs with circles and arrows and a paragraph on the back of each and every one of them explaining what each one was to be used for as evidence against us. Took pictures of the approach, the getaway, the northwest corner, the south west corner and that's not to mention the aerial photography."

That's what fundamental analyst do.

She asked: "What does it make? What is it's Market Share? Is that share increasing or decreasing? What is its earnings per share, book value, price/sales ratio, price to book ratio, enterprise value/EBITDA, profit margin, operating margin, return on assets and return on equity and a lot more questions.

Fundamental Analysis and Value Investing ask all those questions and more. But remember, they have tremendous computer models, and a staff and they are making multi million dollar investments. They want to know the causes behind the effects before they happen.

They want to analyze all the qualitative and quantitative data. All Macro economic, Micro economic and Nano economic data. Before you run for an Economics textbook for a definition of Nano Economics I made that term up. It's my term for all the small stuff that we aren't sure effects the outcome but someone mentioned it and it might be important so we have to put it into the model so no one can criticize us for leaving it out or ignoring it. Mister Lee my high school algebra teacher used to give us word problems with a lot of stuff we didn't need just to trick us. That's what Nano Data is.

But I am writing to the every day investor. The size of your orders mean they will always be filled. You dumping a stock won't effect it's price and you always get executions while you are still on line. You do not have the time to do all that research and sweat equity. You have a life!

I do believe the Market is efficient. All the information about a stock will eventually be assimilated and the stocks price will attain it's "true" value. The movement of the stock is a recognition that it is moving to the value all the known information says it should.

Analyst are trying to determine all the factors before they effect the price and try to predict how far it will move before it does.

I contend that I don't want to do all the work to try to be a fortune teller. If I properly use stock screeners I can detect that movement, buy the stock and try to get off the train before it stops and reverses direction. I don't not need to know why the price will move, I just have to see that it is moving and how fast and in what direction.

I look for the effect not the cause.

Just a few years ago that information was not available to the Average Joe. Now Programs like BarChart, MSN Stock Screener, Big Chart and Blocks.com make all that information available to anyone with a computer for free. They just ask you to notice the ads in the margins.

This journal won't change the practices of hedge fund, pension or mutual fund managers but maybe, just maybe it might be of use to you.

Find out how to use a stock screener to detect the momentum of stocks. Don't ask why it is moving, just detect that it is moving and get on for the ride. Online computer services let you see what is happening right now as it is happening.

This information wasn't within your reach even 10 years ago.

The you can answer the question: "What does that stock DO? It is going UP! I go LONG. It is going DOWN! I go SHORT.

I would enjoy hearing your comments at VanmeertenFund@aol.com

DISCLAIMER: The stocks selected should not be taken as buy/sell recommendations. They are the stocks that were selected by my stock screening process and then each was analyzed before adding or subtracting from the portfolio. Do not concentrate on the stocks but learn the selection process.

Jim Van Meerten
Strategy Lab Open Winner July 2008
VanMeerten The Amateur Strategy Lab 2008

Comments: View Comments |  Friday August 22, 2008