When investing, we aim for the best returns possible. When we invest in the share market, there are always a small group of names which reign supreme in each market cycle; these are known as Market Darlings. To mitigate noise and risks with limited pay-offs, we finesse our research to hone in on and invest in, these leading companies. Market Darlings come from a term strongly used about 100 years ago. They were the names that made the markets of their day; railroads, steel makers, automobile manufactures, wireless radios, aeroplanes - you get the picture; world-changing innovations for the masses. If we extend that same concept through to today, the filtering process becomes dramatically easier, and the stock can be described as having a:
1) Strong dominate trend - the chart goes from bottom left to top right. This shows that the industry has prominent tailwinds and continued support / buying;
2) Liquid market - each trader has their own liquidity requirements - a good rule of thumb is >$2m daily turnover
3) Clear runway - economic and political issues are best to be mapped out. We'll never get them all, but playing devil's advocate helps here. For example Infrastructure; a highly geared/exposed company/industry facing a rising yield curve is a simple economic concept that should be considered - will the next year or two be good or bad for infrastructure? If highly geared, that doesn’t look so good. Applying these filters culls the list down further, so the trading shortlist becomes only the cream of the crop. However, like all market cycles before, the concept of expensive is always relative. What becomes cheap often gets cheaper (Telstra?), what seems expensive gets more expensive (read the CSL or COH broker reports from 2015). Timing the trades becomes the next step. This is where the selection of momentum, stochastic etc. comes in.
A reasonably consistent approach (to the culled list above) often works - provided these two key conditions are followed:
a) Stops are used without latitude; and b) Unbiased re-entry should the buying signals indicate I have just re-done my monthly research of the Market Darlings list (below). For best perspective view these charts on a daily basis over two years. My next step is to apply the 1, 2, 3 filters listed above.
ALU COH COI CPU CSL CWY GMG IEL JIN LIC MAQ MFF MQG PNI RDH RMD SFC SM1 SVW WOR XRO