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A Quick Review of Relative Strength Investing

Here is the three-step procedure for managing your mutual fund portfolio:

  • Step 1: Secure access to data sources that will provide you with at least quarterly price data and volatility ratings of a universe of at least 500 (preferably somewhat more) mutual funds. (Suggestions have been provided.)
  • Step 2: Open an investment account with a diversified portfolio of mutual funds whose performance the previous quarter lay in the top 10% of the mutual funds in your trading universe and whose volatility is equal to or less than the Standard & Poor's 500 Index, or, at the most, no greater than the average fund in your total universe.
  • Step 3: At the start of each new quarter, eliminate those funds in your portfolio that have fallen from the first performance decile, replacing them with funds that are currently in the top performance decile.

This account is probably best carried forth at a brokerage house that provides a broad platform of mutual funds into which investments may be placed. Schwab and T. D. Waterhouse, for example, provide both the requisite service and the requisite mutual fund platform. Other brokerage firms might do so as well.

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