Relative Strength

The small panel headed RELATIVE % gives details of the relative strength of a share against the FTSE All-Share Index. High one-year relative strength is a very important criterion for selecting growth shares. It shows that the market is already beginning to appreciate the share's virtues. If one is investing hoping for an upward status change in the PER, high relative
strength indicates that the wait should not be overlong.

High one-and three-month relative strength is also reassuring. Conversely, if it is poor, it might indicate that a few people out there know something is going wrong. However, great growth shares often pause for breath, although prolonged lack of relative strength can be an indication of something more serious.

O'Shaughnessy, in his book What Works On Wall Street, found that during the period 1954-1994, high one-year relative strength was the most important single criterion with an annual return of 18.14% compound compared with the market average of 12.45%. Conversely, low one-year
relative strength showed the poorest return of all, only 1.78%.