In this article, we delve into the bargain stock-picking strategy employed by a seasoned investor and the success it has yielded over the years. The Kirkpatrick Bargain approach, as outlined in the book 'Beat the Market: Invest by Knowing What Stocks to Buy and What Stocks to Sell,' emphasizes a mechanical process based on facts rather than predictions to help investors steer clear of biases that can lead to financial losses.
Over the past two decades, the AAII’s Kirkpatrick Bargain screen has demonstrated an annualized return of 8.5%, outperforming the S&P 500 index's return of 7.5% during the same period. This strategy has maintained an annualized return of 6.4% since its inception, aligning closely with the S&P 500's performance.
Amidst the S&P 500's recent gains, with a 6.9% year-to-date increase as of February 29, 2024, and a substantial rise since its low in October 2023, the quest for bargain stocks remains pertinent in a market with frothy valuations across certain sectors.
The architect of this strategy, a seasoned investor with over 45 years of experience, underscores the importance of relying on a mechanical approach to investing to counteract personal biases that can erode financial gains. He asserts that predicting market movements is futile and advocates for a reactive strategy based on a setup, trigger, and action (STRACT) technique.
By analyzing relative data elements such as the price-to-sales ratio and price strength, the investor identifies bargain stocks that have the potential to outperform the market. His research reveals an inverse relationship between relative valuation and future price performance over shorter periods, emphasizing the significance of timely reactions to market signals.
Furthermore, the investor's analysis underscores the critical role of relative price strength as a reliable short-term stock selection criterion, particularly during both advancing and declining market conditions. By employing a meticulous screening process based on triggers derived from relative value and price strength metrics, the investor aims to optimize stock selection and mitigate capital loss.
In conclusion, the Kirkpatrick Bargain strategy offers a systematic and data-driven approach to stock selection, emphasizing the importance of reacting to market signals rather than attempting to predict market movements. By adhering to a disciplined and objective investment methodology, individual investors can potentially enhance their portfolio performance and navigate the complexities of the stock market landscape.
