Article: Fund manager performance

Abstract: In this notebook, we seek to address the problem: does an FM (Fund Manager) or investor beat the index? The problem is looked at from two angles: a frequentist hypothesis test using the binomial distribution, and a Bayesian statistician using a Beta prior.


This has been an interesting experiment for me. I was interested in writing about testing whether a fund manager could outperform an index. I would normally have written in LaTex, but I decided to experiment with iPython3. iPython3 is a great little bolt-on for Python that all the brainy boys are using these days. iPython3 is often combined with scipy for scientific computing. You end up with a cross between Mathematica, where you can do exploratory computing; and Knuth’s Literate Programming, where you intersperse code with text. It means that you don’t just throw code at the reader, but walk them through an argument in a discursive style.

The way everything is set up might seem a little strange. The file is in the form of a python notebook (.ipynb), that can actually be downloaded from my website:
That wont necessarily do you any good, because it is actually a JSON file used by iPython3. If you have iPython3 set up, then you can experiment with it yourself. Otherwise, there is a site called that actually renders the notebook for you, so that you can view it as an html page. It gives you very nice rendering, and you can even see the graphical output. I’m quite impressed. I dare say it is straighforward to render the notebook to html itself, but I haven’t gone down that route yet.

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A directory quick-change script in bash

It is convenient to have mnenomic names for favourite directories so that you can change to them quickly. ‘cdargs’ is a directory bookmarking utility that I use quite often, but I find that it can become cluttered, and difficult to determine which bookmark to select. There is a github project called ‘bashmarks’, which I tried a few times, but new stuck with. Perhaps you will have better luck with. I present my own solution below.

The problem with ‘bash’/UNIX is that it seems to throw every obstacle in your way to obtaining a solution. You can’t just write a script, because that will be executed in a separate process, so the new directory wont stick. You can’t just write an alias either, because aliases don’t accept command arguments. Very frustrating. Below, I show how it can be done.

You need 3 things: a script, an auxilliary function, and an alias.

Firstly, you need to write the script that actually does the work. Its job is to print a directory name given an argument. I call mine ‘chdir’, and it should be placed somewhere where $PATH can find it. Here it is:

#!/usr/bin/env bash
# to be used by alias "c" to change directory

>&2 echo "chdir called $1. Use h for help" 

>&2 echo "Quick-change directory.
b bookish
h help

case $1 in
 b) echo "/projects/repos/bookish" ;;
 h) print_help ; echo . ;;
 "repos") echo "/projects/repos" ;;
 *) echo . ;;

You will, of course, have to completely adapt it to suit your own preferences. So, if I want to change to my ‘bookish’ directory, I pass in the argument ‘b’. In the ‘case’ statement, the default is to echo . to stdout. I have also illustrated a case “repos” to demonstrate that the arguments you pass in do not have to be single letters. Finally, if you pass in ‘h’, it will print a helpful message to stderr. This is achieved by prefixing the echo command with ‘>&2′. Note that we don’t print the message to stdout, because stdout is used to print the directory we want to change to. ‘echo .’ will tell cd to change to the current directory.

Next, add the lines in .bashrc:

cdfunc() { cd `chdir $1` ; }
alias c=cdfunc

The first line is an auxilliary function, and the second line is an alias. I have chose to call my command ‘c’. Nice and simple. You might choose another name, but make sure it does not clash with a current or potentially useful program. Maybe ‘bm’, for ‘bookmark’, is a good idea.

The alias ‘c’ is an alias for the function ‘cdfunc’, which takes a argument and passes it to ‘chdir’. ‘chdir takes this argument, and prints the results of a lookup. cdfunc then does a command line substitution to change to that directory. So if I type

c b

I will change to directory /projects/repos/bookish .

Job done.

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Bayesian simulation of a biased coin (PDF)

This article provides an introduction to the Bayesian updating process using the example of a biased coin. It shows how the distribution narrows, and likelihood increases as more data is gathered. It is intended to sharpen your understanding of how to interpret the PDF (probability density function). A Python 3 example is given, which should help readers gain intuitions into the mechanics of the process.

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$RGS.L – Regenersis – what gives?

Business support services company RGS (Regenersis) “specializes in a range of after-sales services, which include product repair enabling its clients to deliver service to their customers. Its depot services consist of same day warranty, non warranty repair and refurbishment, together with returns management and warranty claim management”. So if your smartphone packs up under warranty, RGS will carry out the repairs.

RGS has been a great little earner for me. I first heard about it in October 2012 from an investor I admired. I bought in at around 120p, and sold at around 200p in July 2013. RGS share price had stalled at that point, and I decided to tidy up my portfolio. In very early September, I was reminded about it again by John Rosier (, who is a far better invester than me. Results weren’t far away, and consensus was bullish. I decided to buy in again, at 208p. This decision turned out better than I expected, and the share price, as it began to rocket immediately after purchase. If only all investments would all work out like that.

Come March 2014, I decided to bail out at 339p. The company had just released some results, but there was a bad market reaction to the news. John was bullish, but Paul Scott expressed concerns about their margins, balance sheet and “exotic accounting measures”. Dividends were up, and the outlook seemed generally bullish. Sometimes shares can offer you a dilemma, where any act, or its ommission, could be the wrong one. I decided that car dealer LOOK (Lookers) was a much easier call to make, so I decided to do a swap.

In late September, RGS issued its finals. Revenues increased by 10%, but adjusted EPS (where you ignore all the bad news) decreased by 4%. This sent the shares into tailspin, causing their shares to drop 320p to 240p. The shares haven’t recovered, and currently stand on 200p.

Shares are a funny old game. Quite often the obvious is wrong, and all sorts of things happen that you never expect. Also, standard stock market lore says that you shouldn’t make investing decisions hastily. I’m not sure I agree with that. I have made some pretty good decisions under time pressure.

So where are we now, and is RGS a good investment at 203p. The truthful answer is I have no idea. The outlook statement is very bullish, as the group continues to target double digit growth in revenue and profitability, and opportunites for organic and acquisitional growth remain strong. The shares are on a PE of 10, and analysts are expecting double’digit EPS growth.

Yet, at the back of my mind, I have hesitancy. Maybe I´m being phased by the dreadful performance of AIM this year. Maybe that makes it a buying opportunity. Maybe the AIM market is just experiencing “The Quindell Effect”. I simply don´t know. Maybe I don´t like the way the market reacted to their finals. The M’Score also suggests it is an earnings manipulator, having problems with the depreciation rate, control of expenses, and accruals. Average ROCE over the last 6 years has also been poor, at 7.2%.

And talking of The Quindell Effect, there were some interesting tweets by MrContrarian on the subject of AIM. He originally tweeted

Head of AIM “[problems] around a small number of companies does not indicate a problem with the wider model” … Super!

I repsonded

@MrContrarian Over 10y, All-Share up 50%, AIM All-Share down 27%. Seems very much a case of a “problem with the wider model”.

His subsequent response was very interesting

@mcturra2000 It was clear from Mark Fahy’s response at #Mello2014 that LSE measure AIM success by no. of firms listed, not investor safety.

So basically, there we have it. AIM is all about the Benjamins, probity be dammed.

Notwithstanding the foregoing, I wish you the best of luck with your investment in RGS, whichever way you decide to go. I´m not tempted, at least at the moment. I admit upfront that I could be entirely wrong, though.


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$CNKS.L – investing is never easy

Investing, it’s never easy, is it? CNKS (Cenkos Securities) is down nearly 20% over the last week, because it is nomad to the disgraced insurance/computer services company QPP (Quindell). Investors now have to work out if and how much the reputational damage CNKS has suffered.

Things looked so different back in March, when the company reported its finals. Revenues were up 19%, operating profit (from contuing operations) were up 62%, and the dividend was up 113%. In their outlook statement, the directors said: “We have made a very encouraging start to the new year with 2014 revenues to date being materially ahead of the same period in 2013 and the current pipeline is strong.”

Just when everybody thinks they have things figured out, someone comes along and changes the game.

RSI is 36%, so if you are thinking of having a flutter, you should probably wait until it gets into proper oversold territory.

I have no idea how this will all pan out.


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$HYNS.L – Haynes – makes me yawn

Virtually everybody in the UK has heard of HYNS (Haynes); they publish car and motorcycle repair manuals. It is the kind of share that value investors tend to like. I noticed that Richard Beddard wrote an article about them last month (, which was far more insightful than I would be able to produce. He hadn’t put a value on them, though. Paul Scott also wrote about them last month on Stockopedia ( He expressed no opinion on its value credentials, but he was downbeat:

The company blames currency translation, and de-stocking by customers, but 18% down seems to me far more serious than that. Hence I wouldn’t be at all surprised for them to issue a profit warning in a few months’ time.

Over the last decade, shares in HYNS have halved in value, whilst the Footise has risen 42%. Its revenues have declined from £36.3 to £29.3m over a decade, and its operating profit has declined from £9.0m to £4.8m. So it’s not surprising that the share price performance has been abysmal.

What is really disturbing is that in 7 of the last 10 years, earnings have actually declined. The number of shares in issue has also doubled. Looking at the numbers quantitavely, it appears that the company is in secular decline. Qualitatively, I don’t know of anyone who is upbeat on the prospects of their products. The median PE of the company over the last 10 years was 9.4, very close to its current valuation. Look at the ROCE figures on Stockopedia: in 2009 they were 15.2%, in 2010 13.8%, then 13.9%, 9.5%, 6.5%, 5.0%.

The trend is down. This is very worrying. You have to ask yourself this: do you think it cyclical, or secular? If you argue the former, then you can make a case for reversion to a mean. If you believe it is secular, then it’s a value trap. Its consistently poor showing over the 10 years suggests, in my mind, that the decline is secular. Without wishing to appear alarmist, the declining ROCE and the whole business about “de-stocking” could suddenly see a sharp drop-off in profits. Gearing levels are low, so I don’t anticipate it having imminent liquidity problems.

But what do I know? The company might accidentally make a profit, or discover a new business line away from car manuals. The dividend is generous, but I’m worried that this will just sucker people into a boring old plodder of a share whose earnings power will bleed away inexerably.

HYNS is the kind of company that I tend not to invest in these days: “the vanilla boring value company”. If it were on a PE of 3, then it might be a different matter. But to my mind, its current valuation is likely to be just the market’s fair appraisal of its low growth prospects (and I would argue negative growth prospects) and business risk.

It’s not a company that interests me. BWTFDIK?

171.5p ASX 3581

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Rules on Nomads

AIM rules for companies – February 2010 ( – PDF, LSE), states, page 3:

If an AIM company ceases to have a nominated adviser the Exchange will suspend trading in its AIM securities . If within one month of that suspension the AIM company has failed to appoint a replacement nominated adviser , the admission of its AIM securities will be cancelled .

Section 17:

An AIM company must issue notification without delay of: … the resignation, dismissal or appointment of its
nominated adviser or broker

QPP were remiss in this.

I hope there is an appropriate response by the LSE and the FCA.

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