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 For value investors, it's the same sad story time and time again. You buy a stock when everyone else hates it, and you hold on for what seems like an eternity until the stock justifies your faith. But then, when you feel the company has reached full value, you sell your shares, only to watch the stock race up another 30 percent. Growth investors who bought while you were selling end up with the same 30 percent gain, but what took you three years to earn, they get in three months. What to do about it? One way is to steal a page from the momentum school. These gunslingers care less about company fundamentals -- what its valuations are or even what it makes -- and more about the supply of and demand for its shares. As long as a stock is climbing, they reason, pile on; at the first whiff of trouble, sell like crazy. It sounds like a whacked-out strategy, and in its most extreme form, momentum investing is really nothing more than the Greater Fool theory (buy high and sell even higher to some bigger fool). But even some crotchety value investors have come to respect the power of the market, and have given up fighting the tape. Moreover, there is some credible academic research showing that stock prices that have risen in the recent past have a tendency to continue in that direction, if only for a short -- but still exploitable -- period of time. Strict value investors with rigid criteria obviously bristle at the idea of owning an overvalued stock. Trouble is, in a market such as this one, strict value devotees can be priced out altogether. They end up sitting on the sidelines grousing while everyone else reels in the profits. But there is a camp of value investors who are relativists. Sure, they will invest only in undervalued companies. But they are willing to hold on to a stock even though it has risen to the point where they would scoff at anyone willing to buy it. Nick Whitridge, manager of the Babson Value fund, belongs to this camp. He has come up with a simple system for adding a touch of momentum to his value style, and his heretical strategy has helped push his fund to an average gain of 23.8 percent a year over the past five years, beating the Standard & Poor's 500-stock index by three percentage points, but with lower volatility . Unlike other value investors, Whitridge, who runs the fund with Catherine Ryan, will hold a stock as it surges past what some might call fair value -- as long as that stock keeps going up. "The idea," says Ryan, "is to stay with the stock once it hits the limelight."
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