How I invest – The ME way
+18% pa average returns in the last 22 years compared to the Market of +9% (+beat the market 18 out of 22 years)!
‘ME’ goes against the efficient market hypothesis in a Momentum and Earnings led way.
M is for Momentum. Winners keep winning; great companies keep on growing and outperforming the market. Money is made by buying shares at high prices and selling at even higher prices.
E is for Earnings is the number one factor in the short and medium term that drives a share price forward. A PEG helps ensure that the earnings/growth is established and consistent.
THE LOGIC
ME is a Mechanical Trading strategy
- The problem with Active strategies is that they involve human judgment and humans make mistakes, such as taking profits too early and letting losses run. Emotions get involved. The problem with Tracking strategies are that you will never beat the market.
- The most famous Mechanical Trading strategy is probably Michal O’Higgins Beating the Dow. The logic is simple; markets over-react to bad news and the aim is to exploit the gap between reality and the markets distorted view.
- The ME strategy is very similar in the opposite manner; markets under-react to good news and the aim is to exploit the gap between reality and the markets distorted view.
ME METHOD
“2003 to 2024 £1000 invested in ME would be worth £26,100 compared to £5,400 invested in the Market!”
The search methodology is simple & quantitative: 5 steps
- Momentum. Strong momentum that is established with positive twelve months relative strength. Twelve months is a key driver. One month can just be a short term one-off blip. Three months provides reassurance but is still relatively short term. Twelve months the momentum is established. Winners must keep winning.
- Earnings. Highest earnings forecasts for next 12 months for growth companies (companies with a PEG).
- Comfort. Pays a dividend so not all cash is being used to generate earnings growth.
- Large companies FTSE250 only. FTSE250 over the last 10 years has outperformed the FTSE100, FTSE350, FTSE Small Cap and FTSE All-Share. FTSE250 are big companies still with decent growth in them compared to FTSE100 and being big provide less volatility and more stability than small companies.
- Portfolio of 10 shares.
Shares are selected on 31 December each year and held for 12 months to allow all earnings/growth to fully reflect in the share price. Then start again.