While the Value, Quality and Momentum StockRanks are each extremely powerful in their own right, they are best used in tandem with each other. The whole ranking system has been a hugely satisfying project for the Stockopedia team but the genius of the system lies in the crossovers which help define 3 different types of standout stocks.
The three crossover ranks are called:
- The QV Rank - which blends the Quality Rank and Value Rank
- The VM Rank - which blends the Value Rank and Momentum Rank
- The QM Rank - which blends the Quality Rank and Momentum Rank
You can find these ranks available in our data library. They can be added to tables by using the table editor, they can be used in custom screens by searching for them in the StockRanks folder, and they can be used quickly and easily in the StockRanks portal by using the sidebar menus.
Here’s a summary of their effectiveness.
For Value investors the idea of momentum investing is anathema. As bargain hunters, they are often turned off by a share price that has already doubled. Luckily, as Warren Buffett has effectively illustrated, you can get by just fine without incorporating momentum into your strategy. Buffett made his great fortune by not only buying cheap (value) stocks, but good (quality) cheap stocks.
This is blend of hunting down good quality value stocks has been a trait of reams of great investors - including Neil Woodford, Joseph Piotroski and Joel Greenblatt. The QV Rank stands on the shoulders of these giants taking the ideas published in Greenblatt's "Little Book that Beats the Market" to another level.
Our backtests show that the QV rank is, in our horse race, the most effective of all three crossovers with top decile ranking stocks (90-100) significantly outperforming bottom decile (0-10). View the top QV Ranked stocks across all caps here.
I have banged on about the benefits of strategies that blend Value and Momentum over the course of the last couple of years. Value and Momentum are the two strongest forces in almost ALL markets (including currencies & commodities) and together they make great bedfellows. The returns to Value tend to zig when the returns to Momentum zag - they are complementary forces. As a result a portfolio that combines both shows higher returns at lower risk. This value strategy is quality agnostic but incorporating the momentum score is another way to avoid so called 'value traps'. Versions of this strategy have been a core focus of Quants and Academics like those mentioned earlier above, as well as strategies promoted by blue-chip investment banks like Societe Generale. View the top VM Ranked stocks across all caps here.
Value investors will scoff, but there are many that have made their fortune in the stock market without a price discipline. This is often the domain of nimble footed Traders who have focused on only owning stock market leaders regularly at premium prices. The writings and practices of Bill O'Neill, Richard Driehaus and Mark Minervini are excellent accessible texts about this style. These are the kinds of strategies that can highlight knockout leading stocks like ASOS, Blinkx and others in uptrending markets. Our research has confirmed that focusing on Quality AND Momentum is the best way to increase odds of success in expensive stocks. Personally I use the QM Rank to highlight stocks that have a higher probability of becoming multi-year compounders. Amongst the mix you'll find quality market leaders at anything from cheap to nosebleed valuations. Treading carefully in this domain is of the essence. View the top QM Ranked stocks across all caps here.
There are those investors who like to stick ruggedly to a single style in the market. Each of the above are highly effective strategies to win in the stock market over the long term and we provide links to screens with each of the pairings from the homepage. Being more style agnostic, my own rule of thumb is to make sure that I only consider for further research stocks that are showing top quintile (80+) ranks in at least 2 out of 3 of the Value, Quality and Momentum rankings.
Buying expensive stocks that are deteriorating or cheap shares that have no other confirmatory signals is a sure road to the poor house. Value investors can often get out of trades far too early, while those trading leading stocks often never know when to let go. The trick to successful investment is understanding the payoffs to the core forces in the stock market and aligning your portfolio with them over the long term - it pays to place your bets amongst stocks with higher odds. We hope that subscribers find these crossover rankings useful starting points for portfolio building and further research.