If market conditions change to favor a different type of stock, the category weights will be changed. For the most part, we use Quadrix scores to help find likely 12-month winners. Subscribers with shorter or longer time horizons may want to tailor the system to their needs, so it helps to know the significance of each category. For each of the 16 momentum variables, each stock is compared to the universe of all stocks. To calculate the momentum score, the sum of a stock s scores for each variable is compared to the universe of stocks.
Many investors rely solely on momentum factors when picking stocks.
Over the past 12 months, such investors have fared very well. But we prefer a more balanced approach, partly because we don t think investors should throw out decades of stock-market history simply because the last 12 months have favored momentum investors. Still, partly because it has recently been the most effective indicator for picking stocks, momentum receives the biggest weighting in the Quadrix system. In fact, you should be wary of stocks with high overall Quadrix scores that do not score well for momentum. Such scores sometimes reflect a temporary slowdown, but they can also point to a former blue chip headed for trouble.