Gary Pilgrim

Gary Pilgrim is the manager of PBHG Growth, one of the top performing mutual funds. In similarity with O'Neil, he is a dynamic growth investor who puts lots of emphasis on earning momentum.
In order to avoid emotion affecting his buy/sell decision, he automates the process via using computer ranking system. First, system looks for the stocks that have increased their earnings by 20 % or more for two consecutive quarters. And then the system analyze if a stock has an upward earning estimate and positive earning surprise. Pilgrim is a number cruncher and barely visit his holding companies or have a meeting with the management team. His objective is to know how the companies are doing as opposed to what they are doing.

Pilgrim looks for high earning expectations and positive earning surprises. In other words, he likes company that analyst expect its earning to increase and have performed ever better than the expectation in past. Also, earning itself is not as meaning unless it has been growing over a period of time. Pilgrim looks at the rate of acceleration to figure out how rapidly company's earning has been growing. He wants to see a company's quarter earning greater than the earning from same quarter from a previous year.
In addition, Pilgrim pays a close attention to company balance sheet. In order to evaluate how company is managing its money, Pilgrim uses the BS as a reference and see if a company has what % of profit margin and $ value of debts.

Surprisingly, valuation models have no roles in Pilgrim's investment. Pilgrim mentions that P/E of 40 does not mean anything unless you look at the underlying growth characteristic of the stock. For instance, if a company has P/E of 20 but its earning growth rate is 25% then the stock is trading at a discount. He focuses entirely on growth factors when buying/selling stocks. Here, Pilgrim's view point of stock value equals to the expected value of net income. So it would something like S = E(NI). In contrary with O'Neil who stops loss at 8%, Pilgrim actually buys more of its stocks if its price decline but earning factors remain same. Ironically, that side of Pilgrim is somewhat similar to value investors because he withstand market volatility if he believes that stock is fundamentally undervalued.

Pilgrim once mentioned that growth investing may not be a good option for individual investors. That is, market fluctuate every second and so does the expected earning growth rates of companies. Professional analysts have thousands of $ worth access to information and they can keep the track of price movement and earning related news instantaneously. Whereas, individual investors have limited sources and it is a very time+effort consuming job. Pilgrim believes that investment success or failure submits to your own personal conviction and work habits. Because one method works for Pilgrim, it does not mean that very method will work for you. On the other had, there are a plenty of value investors who made successful investments while Pilgrim insists on growth investing. Hence, you must develop an investment strategies that best fit your objective and styles, which will reflect your believe and value system.