Hello folks, have you ever been stuck with the choice of stocks,
You don’t have to be a genius to pick stocks
like a top money manager, you just need to
know elementary math (Admittedly, that’s easier
for some than others.).
That’s perfect for Dorsey Wright & Associates
co-founder Thomas Dorsey, because it follows
his maxim of always keeping things simple. To
trade like Dorsey, who has a history of
outperforming the broader stock market, follow
these easy steps:
know elementary math (Admittedly, that’s easier
for some than others.).
That’s perfect for Dorsey Wright & Associates
co-founder Thomas Dorsey, because it follows
his maxim of always keeping things simple. To
trade like Dorsey, who has a history of
outperforming the broader stock market, follow
these easy steps:
1) Take a few minutes to learn point-and-figure
charting. As daunting as that might sound, it’s
easy enough that Dorsey was able to teach
students at Gates Elementary School in
Chesterfied, Va., how to do it in just over a half
hour ( see Dorsey’s explanation). Below, is what
your P&F chart should look like:
In a point-and-figure chart, every charted
investment is either on a buy signal or a sell
signal, which the picture above is shown with a
“B” and “S,” respectively.
charting. As daunting as that might sound, it’s
easy enough that Dorsey was able to teach
students at Gates Elementary School in
Chesterfied, Va., how to do it in just over a half
hour ( see Dorsey’s explanation). Below, is what
your P&F chart should look like:
In a point-and-figure chart, every charted
investment is either on a buy signal or a sell
signal, which the picture above is shown with a
“B” and “S,” respectively.
2) Determine your investment parameters. Keep
in mind that the greater the number of
investments within those parameters, the more
charts you will have to create.
in mind that the greater the number of
investments within those parameters, the more
charts you will have to create.
3) Rank each potential investment in against
each other. This is the hardest part, not
because of the difficulty of the calculations, but
because its time consuming stuff. For example,
if your universe is the entire S&P 500, then
you’ll have roughly 125,000 rankings:
A ) The rankings work like this: To rank A
against B, divide the price of A by the price of
B, and multiply that number by 100. Then chart
that final number using a P&F chart. If A is on a
buy signal, it gets a win. If it’s on a sell signal,
B gets the win (It’s almost like fantasy
football).
B ) Once all the potential investments in the
universe have squared off, the investment with
the most “wins” can be assigned a ranking of
No. 1, with the second most wins garnering a
No. 2 ranking, and so on. The tie breaker is a
head-to-head match up.
each other. This is the hardest part, not
because of the difficulty of the calculations, but
because its time consuming stuff. For example,
if your universe is the entire S&P 500, then
you’ll have roughly 125,000 rankings:
A ) The rankings work like this: To rank A
against B, divide the price of A by the price of
B, and multiply that number by 100. Then chart
that final number using a P&F chart. If A is on a
buy signal, it gets a win. If it’s on a sell signal,
B gets the win (It’s almost like fantasy
football).
B ) Once all the potential investments in the
universe have squared off, the investment with
the most “wins” can be assigned a ranking of
No. 1, with the second most wins garnering a
No. 2 ranking, and so on. The tie breaker is a
head-to-head match up.
4) What to buy? Own the winners, Dorsey says.
That could be just one investment, or the top 5.
The stock Dorsey Wright said it currently ranks
No. 1 in the S&P 500 is Vertex Pharmaceuticals
VRTX, -2.77% The stock isn’t the best
performing one year to date, it just has the
most wins.
That could be just one investment, or the top 5.
The stock Dorsey Wright said it currently ranks
No. 1 in the S&P 500 is Vertex Pharmaceuticals
VRTX, -2.77% The stock isn’t the best
performing one year to date, it just has the
most wins.
The First Trust Dorsey Wright Focus 5 exchange
traded fund FV, -1.47% holds the top 5 ETFs in
its universe, which is the 23 First Trust sector
and industry ETFs. It currently holds First Trust
ETFs tracking the biotechnology FBT, -1.92%
health care FXH, -1.32% Internet FDN, -1.75%
consumer staples FXG, -0.76% and consumer
discretionary FXD, -1.58% sectors.
5) Keep a close eye, because once an
investment loses its investable ranking, you
swap it for the one that takes it’s place. Don’t
think, just do it.
investment loses its investable ranking, you
swap it for the one that takes it’s place. Don’t
think, just do it.
There’s no macro- or micro-economic inputs, no
judgement calls and no diversification. Simply,
Dorsey puts all his eggs in the best baskets, and
he watches those baskets.
Rather than try to figure out what the market is
going to do, Dorsey bets on what the market
has shown to have the most demand relative to
supply, which translates into the strongest
relative price performance.
The simplicity of the matrix even has Dorsey
waxing philosophical:
“I rejoice in my humanity -- I can’t predict the
future,” he said. He also doesn’t see himself as
a technical analyst, a momentum investor or a
market strategist:
“I’m just a rules-based facilitator,” he asserts
judgement calls and no diversification. Simply,
Dorsey puts all his eggs in the best baskets, and
he watches those baskets.
Rather than try to figure out what the market is
going to do, Dorsey bets on what the market
has shown to have the most demand relative to
supply, which translates into the strongest
relative price performance.
The simplicity of the matrix even has Dorsey
waxing philosophical:
“I rejoice in my humanity -- I can’t predict the
future,” he said. He also doesn’t see himself as
a technical analyst, a momentum investor or a
market strategist:
“I’m just a rules-based facilitator,” he asserts
Source: marketwatch
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