Research Piece: Stock Selection – A Test of Relative Stock Values Reported Over 17-1/2 Years

This month’s research piece is a paper on Relative Price (also known as Relative Strength) analysis that won the Charles Dow award (given by the Market Technicians Association and Barron’s) in 2007. The author, Charlie Kirkpatrick, has been a good friend of mine for years. The merits of Relative Price analysis have been debated since the 1960’s, and numerous studies have shown it to be one of the most effective methods of stock selection, especially on an intermediate to long-term basis. This is our second piece on Relative Strength (the first one was by Bob Robbins written in April of 2010). Bob’s piece was more trading oriented, and this piece has a more academic cant to it. For new subscribers, we recommend reading them both.

Research Piece Link: http://www.thefredreport.com/downloads/20110429/download

About the Study:
This study took several variables that had been demonstrated to have value in stock selection and in one list, beginning in July 1982, tested the results “live” each week for 17-1/2 years. The test was done through simulating the performance of a hypothetical portfolio, thus adding an element of practicality not seen in most studies of stock selection, and used a combination of technical and fundamental factors without prejudice.
Relative price strength and relative reported earnings growth, when calculated in the manner of this study, showed superior results when compared to market averages.

About Charles Kirkpatrick II, CMT:
He has been a featured speaker before such professional organizations as the New York Society of Security Analysts, Financial Analysts Federation, Market Technicians Association, the Foundation for the Study of Cycles, and numerous colleges and universities. He is a Chartered Market Technician, a past elected and current Board Member of the Market Technicians Association, Board Member of the Market Technicians Association Educational Foundation, editor of the Journal of Technical Analysis and Chairman of the MTA’s Academic Liaison Committee, responsible for the development of courses in technical analysis at major business schools.

While currently retired from the investment management, brokerage and trading businesses, he continues to publish his Market Strategist letter, calculate his award-winning stock-selection lists, write books and articles on trading and investing, and as an Adjunct Professor of Finance, teach technical analysis at Brandies University International Business School.