Research Piece: Using Relative Price Trend – by Bob Robbins

author/source: Bob Robbins

Research Piece: April 2010 - by Bob Robbinsresearchpiece040110


Using Relative Price Trend: The Basic Strategy of a Top-2% Ranked Money Manager


Robert S. Robbins, CEO

Robbins Capital Management


Relative Price Trend, or the price of a stock divided by the price of the S&P 500, is one of my basic technical strategies.  It has helped my net returns of my firm exceed the S&P 500 10 percentage points average annually over the past 5 years – without using any leverage (i.e., margin) and with large-cap orientation and diversification.  As Chief Investment Strategist of Robinson Humphrey, this same strategy helped my all-cap RH portfolio rise 28% compounded annually net of a 3% wrap fee over 15 years (a 40-fold gain).

Essentially, relative price trend is technical momentum, because the trends I select are among the strongest (i.e., highest rate of price gain over time).  I’ve discovered that the most important timeframe for maximizing time-weighted returns is three months.  Hence, I search for stocks with the highest relative price gain today vs. 3 months ago.  That’s reasonable because companies report financials every three months.  Longer-term relative price trend is also helpful, but less so.  This strategy requires trading frequently to adjust to the strongest trends, although the net result for me is almost all long-term holding periods for tax purposes.

By using relative price trend, I effectively “ride the coattails” of the smartest fundamental investors in a particularly strong and early price trend.  Trends tend to persist quarters or sometimes even years, because the driving economics, whether micro (industry-specific) or macro (national and international), tend to be sustainable.  When the relative price trend of a stock weakens significantly, I sell the stock – once again riding the coattails of the smartest sellers or short sellers.

PALM is perhaps my most dramatic recent illustration of this strategy within my last 5-years’ performance.  See the attached chart of PALM: I bought about a 6% position in PALM at an average price of $9.85/share around 4/15/09, when PALM was posting not only a 3-month price and relative-price high but also a 1-year price and relative price high.  When PALM’s 3-month relative price flattened and turned down around 10/22/09, I progressively sold all of it at an average price of $14.19 – a 44% gain in only 6 months.  Today (3/22/10) PALM is still downtrending at $4.01, less than half my buy price and less than one-third my sell price.  Incidentally, when I sold PALM, I had no specific fundamental insight into PALM’s problems.  I “rode the coattails” of selling investors, who sensed trouble coming.

I recommend one add-on rule: during greater than 5% stock market declines, increasingly use price change, instead of relative price change, in order to raise cash and try to preserve capital.  For me, that has resulted in raising 25% to 95% cash an average of twice annually.

PALM illustrates another of my technical observations: trends tend to be far stronger and last far longer than most people expect – both positively and negatively.  In sum, big trends are big opportunities for investors using this technical indicator. 




Disclosures for Robbins Capital Management:  Past performance is not necessarily indicative of future results.  PALM is only one of perhaps 75 stocks that I buy annually in a portfolio averaging about 30 stocks.  Hence, PALM is not representative of my average stock performance.  Finally, I hired Mr. Meissner, the publisher of this newsletter, and worked with him at Robinson Humphrey for 10 years starting August 1989.





Fred Meissner is primarily responsible for the research in this report and certifies that: (1) all of the views expressed in this research accurately reflect his personal views about any and all of the subject securities or issuers; and (2) no part of his compensation was, is, or will be directly or indirectly related to the specific recommendations or view expressed him in this research.
This report is for your information only and is not an offer to sell, or a solicitation of an offer to buy, the securities or instruments named or described in this report.  Interested parties are advised to contact the entity with which they deal, or the entity that provided this report to them, if they desire further information.  The information in this report has been obtained or derived from sources believed by Fredco Holdings, Inc. to be reliable, but Fredco Holdings, Inc. does not represent that this information is accurate or complete.  Any opinions or estimates contained in this report represent the judgment of Fredco Holdings, Inc.  at this time and are subject to change without notice.  Fredco Holdings, Inc.  or its employees, officers, directors, principals, agents, affiliates or adviser may from time to time provide advice with respect to, acquire, short sell, hold or sell a position in, the securities or instruments named or described in this report.
Fredco Holdings, Inc. does not have investment banking relationships with any of the companies mentioned in this report and does not conduct investment banking business, in general.  Fredco Holdings, Inc.  and its employees do not receive compensation of any kind from any of the companies in this report.  Fredco Holdings, Inc. , its directors,  officers, principals, agents, advisers, affiliates and employees may maintain a financial position in the securities mentioned in this report, provided however that no buying or selling  activity will be taken with respect to a security referenced in a report by such parties within three days of such report’s publication.
The information contained herein was prepared by Fredco Holdings, Inc., which is solely responsible for the contents of this report.
Copyright 2010-2024 Fredco Holdings, Inc..  All rights reserved. This report is a publication of Fredco Holdings, Inc.  located at 4514 Chamblee-Dunwoody Rd, Suite 112, Dunwoody, GA 30338. 




Who is Fred Meissner, CMT?
Listen here:

The FRED Report is not authorized, endorsed, or affiliated with the Federal Reserve of St Louis and its FRED Economic Data.