It has been a busy time around Chez Melvin this month. We have had birthdays, holidays, end of school year stuff, a rash of favorite authors releasing new books and of course, baseball season. In the midst of all this I have been busy crunching numbers and running test of various approaches to successfully invest in the markets. I have always been a geek and love testing new ideas and concepts but continued technology makes it so much easier today. Problems that used to take me weeks and months of building huge bulky spreadsheets and caused the air in my office to turn blue and heavy and now take just days and sometimes even hours. Instead of torturing code like a Spanish Inquisitor I can now just click buttons and type simple commands and accomplish tasks much easier and faster. The office air is still turning blue but that has more to do with the fact that I do much of this while watching the Orioles who are off to a bumpy start.

As I mentioned in Tuesdays video message I have pretty much determined that there four ways for individuals to get rich in the stock market. They are:

• 1.Deep Value Investing
• 2.Conserving cash to buy a market crash
• 3.Buying community bank stocks below book value
• 4.Momentum investing

I have the first three pretty well covered but momentum is not my thing and never has been. I tested some momentum models and they worked okay but eventually I took my head out of the very dark place I had jammed it into and remembered that I am actually friends with Louis Navellier and am well aware of his free stock picking tool Portfolio Grader. As he told me when I interviewed him on Benzinga.com not too long ago this service works like this. “We have our fundamental score of those eight factors. And then we blend them together to get our overall score. And it's actually 70% quantitative, 30% fundamental. And we grade the stocks in ABCD and F basis. A's being strong buys, very scarce. B's are buys. C's are holds. D's are sell, I call a D a Dog. F's a strong sell, I call that a dog with Fleas.” It is available here: http://navelliergrowth.investorplace.com/portfolio-grader/ and its an enormous amount of fun to play around with if you are as big a geek as I am. In fact this copy is later than normal because that’s exactly what I have been doing for the past few hours.

I decided to see how we could combine value and momentum. Cliff Asness, LSV Asset Management and others have done this and there is an enormous amount of evidence that allowing value stocks to show some momentum before buying can improve performance. I ran a screen for US stocks trading under book value and dumped them all into Portfolio Grader. When I relied on Louis combined rankings it was community bank city. The fundamentals of small banks have bene steadily improving and they have growth stock characteristics in spite of still trading below book value. Several of my favorite Business Development Companies and High Yield REITs also have growth stock fundamentals and price momentum.

When I relied on just the Quantitative grade and let the fundamentals consist of just trading below book value the results didn’t change much. When I looked at the dogs with fleas that are ranked F for strong sell its all energy, shipping. Some of these F rated stocks actually had decent fundamental scores and may represent a Fuller and Thaler type reversion to the mean opportunity. A search of them for high dollar and top executive insider buying might also turn up some reversion candidates. I see countless potential opportunities for value investors involving various combinations of momentum and reversion. As Victor Niederhoffer once told me if it can be tested, it must be tested and I will probably do some of that in the weeks ahead.

I also put our deep value, income and banking portfolios into it and subscribers will get that information in tomorrow updates.

We will talk more about the four bucket approach in the weeks ahead. You can mix or match the buckets as you see fit but the evidence indicates that using all four works best. I will be testing ideas and sharing the information as find out more and discover the best ways to use all four buckets to build wealth.

Have a great weekend everybody

Tim

Song of the week- The evidence is indicating that not only can using the four bucket approach make you wealthy it can help you avoid https://www.youtube.com/watch?v=0wxAMa3Prhk