The AOI - Our market indicator
It’s what you’d use to determine the current market mood towards these companies, and is what you use to screen and pick companies for your portfolio.
There are two ways of viewing the indicator. Either as what we call an “absolute view”, or a “relative view”.
With absolute view mode, you see the indicator value as a white line, together with a blue and gray (if they are selected) top and bottom range bands. By default only the top 11-20 (or next 10) range band is selected, and this blue band will show the indicator value range for the next 10 companies.
This makes it very easy to compare the current company against this range, thereby allowing you to determine if the market view the current company as “too hot” (above the blue band), “just right” (within the blue band), or below it. In a similar fashion you can view the bottom range band by selecting this.
To recap the methodology here: We assume companies with an indicator value above the next 10 range as too risky, and we do not assume these will be able to continue to outperform. There’s a high chance that investors are having unrealistic expectations about future growth, which might lead to disappointments in the near future.
It’s those companies within the next 10 range we expect to perform well going forward.
Should you just care about the next 10?
You might be looking into a company which is not part of the next 10, but is instead having an indicator value below the next 10. While we’ll certainly dive into these in more detail in future blog posts, what’s key to consider is the indicator trend.
Could this company become part of the next 10 in the near future? While we certainly think this is more of a gamble than sticking to the next 10, it might allow you to get in earlier.
What you want to look at when figuring this out is if the distance between the indicator value is reducing relative to the next 10 band values. This might be difficult to spot in absolute view, which is why we also have the relative view.
The relative view mode allow you to see what the relationship is between the indicator and the range bands. A relative value of 100 means the indicator is at the very top of the upper range band. If the indicator is above 100, we consider the company too hot when viewed against the top 11-20 (next 10) band.
It’s easier to see if the indicator value is on the way up when viewed with the relative view mode.