Robbins Capital Management’s (RCM) stock selection approach:

Invest in the best subgroups, groups, and sectors
About 2.5 times as important as the unique characteristics of a stock (William O’Neal study).  Adding market dynamics, shared characteristics are 80% of a stock’s price performance; only 20% is unique. RCM continuously charts about 500 subgroups, groups, and sectors.

Invest in trends
usually lasting for quarters or years – both up and down. Trends are driven by the micro and macroeconomics of subgroups, groups, sectors, and the overall stock market.

Invest with leading investors
Who must “tip their hands” by pushing the stock price from a downtrend or trading range into a new uptrend. Basic laws of supply and demand dictate that only a very small percentage of leading investors can buy an emerging trend. All others must buy a well-established trend. With each stock, there’s a different set of leading investors. Chart breakouts reveal their enthusiasm (i.e., they tip their hands”), regardless of who they are and what they know. Alternatively, chart breakdowns usually reveal their disappointing expectations before they become widely known. Well-established uptrends tend to last far longer and go far higher than most people expect, e.g. energy during 1970’s, technology during the 1990’s.

Cut losses short
Bob has a strict sell discipline demonstrated over two decades.  Bob's first 13-years' track record of 2.3% average annual outperformance, without margin, was managed with long-term sell rules, mainly to sell when either the stock underperformed the market during the latest 12 months or the fundamentals deteriorated.  Since 4/14/04, he shifted from this 12-month rule to a 3-month rule, which was used for 15 years in Bob's published real-time model portfolio of Robinson Humphrey stocks to produce an average compound annual return of 28% -- a 40-fold gain before costs, verified independently by his supervisor.  Thus, since 4/14/04, trading has been more active, resulting in an average of 2.8 trades per day, in an effort to reduce risk and increase return by adjusting quicker to weakening or strengthening trends.  Hence, excess performance has accelerated to 10% average annually during the past 5 years.  During this timeframe, the S&P 500 rose about 1 average annually including dividends.  Again, past performance is not necessarily indicative of future results, and there are no guarantees against losses. 

Cash levels
During the past 5 years, 25 to 95% cash has been raised an average of twice annually.  Cash levels vary with the market’s apparent trend and whether the account is taxable or nontaxable.  Attempts are made to reduce the sensitivity of new accounts to a market decline by investing gradually, especially if the recent several weeks' market trend is sideways or down.  During market declines, cash levels for tax-exempt accounts may substantially exceed cash levels of taxable accounts for tax reasons.  In taxable accounts covered call writing may be used for positions with sizable unrealized gains.  Bob is focused on maximizing returns for each type of account.

Flexibility
of stock size, fundamental characteristics, etc. In other words, RCM is neither biased toward growth stocks, nor value stocks, nor big caps, nor small caps, nor high P/E’s, nor low P/E’s, nor high dividends, nor low dividends, etc.  RCM is focused on what is working now – the strongest current trends.  Large- cap stocks (more than $7 billion market cap) plus cash will generally  range from 50% to 100% of account values.  Large-cap and Mid-cap stocks ($1 billion to $7 billion) plus cash will generally range from 70 to 100%.  Large, Mid and Small-cap ($100 million to $1 billion) plus cash will generally range from 80 to 100% of account values.  Furthermore, during 2005 the "blend" (synonymous with "core")  mix was 28% value, 16% core, and 57% growth.  (Source: Morningstar via Smith Barney).  RCM routinely screens the largest 1000 cap stocks traded in the U.S., of which almost 100 are headquartered outside the US, resulting in flexible exposure to major foreign stocks meet RCM's stock selection criteria.  Hence, for the leading industry consultant Informa,  the RCM product is named "Large Cap Core Flex."

Reward is compared with risk
especially in terms of size and track record. After selecting an attractive subgroup (and after considering its group, sector, and the stock market segment), stocks generally above $100 million market cap are considered.  High-risk stocks – generally smaller capitalizations with shorter track records -- must seem to offer far bigger rewards than low-risk stocks -- generally bigger caps with longer track records.  RCM accounts are generally S&P 500 risk primarily and the next level risk, often called aggressive, secondarily.  If a client wishes to tolerate higher risk to try to achieve higher reward, RCM also manages speculative accounts, which can concentrate in about half as many stocks (perhaps 15 to 20 instead of 25 to 40 for regular accounts), including larger stock positions generally averaging a few percentage points higher on the most attractive stocks -- seldomly reaching 10% at cost. 

Bull market versus bear market performance.  During the past 5 years, almost all performance exceeding the S&P 500 was achieved in bull markets.  During the 54.1%% decline of the S&P 500 Total Return, RCM's bellwether accounts  declined 41.5%, or 12.6 percentage points less than the S&P.  This superior performance is quite unusual among strongly ranked money managers, who have a strong tendency to underperform during bear market declines.  For example, Peter Lynch, during his 11-management of Fidelity Magellan, underperformed every one of the 9 S&P 500 declines over 10%.