TAILIEUCHUNG - Screening For Momentum Stocks

STOCK SCREENING A LOOK AT MOMENTUM INVESTING: SCREENING FOR STOCKS ON A ROLL By Wayne A. Thorp Momentum investors purchase stocks that are rapidly rising in price in the belief that the rising price will attract other investors, who will drive up the price even more. One key is recognizing when the momentum is beginning to fade. Envision a snowball rolling down a hill: As it rolls along, it picks up more snow, which causes it to move faster, which causes it to pick up even more snow and move even faster. That’s the basic strategy behind momentum investing—purchasing stocks that are rapidly rising. | STOCK SCREENING SCREENINGFORSOCKSONAROLL By Wayne A. Thorp Momentum investors purchase stocks that are rapidly rising in price in the belief that the rising price will attract other investors who will drive up the price even more. One key is recognizing when the momentum is beginning to fade. Envision a snowball rolling down a hill As it rolls along it picks up more snow which causes it to move faster which causes it to pick up even more snow and move even faster. That s the basic strategy behind momentum investing purchasing stocks that are rapidly rising in price in the belief that the rising price will attract other investors who will drive up the price even more. Richard Driehaus is one of the champions of momentum investing favoring companies that are exhibiting strong growth in earnings and stock price. He is not a household name but his firm Driehaus Capital Management in Chicago rates as one of the top small- to mid-cap money managers and his success has landed him a spot on Barron s All-Century Team a group of 25 fund managers that includes such investment luminaries as Peter Lynch and John Templeton. This article focuses on Driehaus momentum strategy which is discussed in the book Investment Gurus by Peter J. Tanous New York Institute of Finance and serves as the basis for this article. THE MOMENTUM APPROACH Driehaus emphasizes a disciplined approach that focuses on small- to mid-cap companies with strong sustained earnings growth that have had significant earnings surprises. If a company s earnings are slipping it is eliminated. Ideally you would like to see improving earnings growth rates. Driehaus uses positive earnings surprises as a catalyst. An earnings surprise takes place when a company announces earnings different from what has been estimated by analysts for that period. When the actual earnings are above the consensus estimates this is a positive earnings surprise a negative earnings surprise occurs when announced earnings are below .

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