Shares for 2014

Time for a review of my “5 shares for 2013”, that I chose slightly over a year ago. http://is.gd/iL4C3a

The ASXX (All-Share exc. Inv Companies) is up 17% over 1 year. A very happy performance. The performance of my 5 shares was not so happy, however. Here’s how they did:
* IDOX -39% . IDOX. The shares caught a cold on the May trading update, and confidence throughout the rest of the year. Despite bullish prospects last year, it was not to be. I had selected it from Stockopedia’s CAN-SLIM strategy. It is a strategy that usually performs well. Just not this time
* LAM +50%. Lamprell. Good performance from this turnaround, and I am anticipating good things from it next year
* EMG +3%. Man Group. This is a straight-forward value share. Unfortunately, the fortunes of the company are tied heavily to its AHL fund, which seems to have the nasty habit of wiping out months of profits accumulated carefully with sudden downturns.
* ABM -91%. Albermarle & Bond. A disasterous pick by me, which had the company melting gold to make ends meet. My comment that the “dividend looks safe” proved to be particularly laughable. ABM passed Stockopedia’s “Geraldine Weiss Lite Dividend Screen”
* AVON +57%. Avon Rubber. This was a momentum share that kept going, and was selected from Stockopedia’s Richard Driehaus screen.

So, if you had chosen these shares for your 2013 portfolio, you’d be up 3% – well short of the index, and a very disappointing result.

If I had to offer a general observation, I’d say that I don’t like dividend shares. The upside tends to be limited, and the downside can be affected by too many “black swans”. We saw that in ABM’s case. going back, we can see this in companies like TSCO (Tesco), which dropped 20% in January 2012. Over 5 years, the shares are down 6%, compared with the Footsie up 60%.

Another observation I would make is to beware of “general” value shares. They’re a bit like dividend shares. Your upside is usually limited because the low PE ratio tends to reflect low growth expectations, and if something goes wrong, your shares will likely still get clobbered. I think you need to buy value when the company is absurdly cheap.

Instead of cobbling together a portfolio of shares for 2014 (and let’s face it, after 2013’s performance, would you want to see it anyway?), I thought it would be interesting to put together a list of sites that I follow that have their own portfolios. I have restricted my list to those who invest in UK shares only. Here’s the list in alphabetical order:

* Johns investment chronicle http://www.johnsinvestmentchronicle.com/ His top 10 selection can be found on Stockopedia:
http://www.stockopedia.com/fantasy-funds/jic-top-10-4459/

* Paul Scott’s Small Caps – Google spreadsheet http://is.gd/Jod4Mi

* Richard Beddard:
http://www.iii.co.uk/news-opinion/blogs/share-sleuth/portfolio

* the red corner http://quinzedix.blogspot.co.uk/

There are other great sources for portfolios:

* UK StockChallenge http://www.stockchallenge.co.uk/ which will kick off soon

* NSFC Nicky Fraser Share Competition
http://boards.fool.co.uk/nfsc-2014-competition-now-open-12940775.aspx I have added my own entry for the year: LMI
http://boards.fool.co.uk/nfsc-2014-lmi-lonmin-12941290.aspx

* Stockopedia: http://www.stockopedia.com/ It offers a great selection of styles to choose from. I like the growth portfolios best of all, and I’m keen on tracking the progress on the CAN-SLIM strategy (the selection of IDOX notwitstanding). Over on the AAII site, the CAN-SLIM strategy has done very well, and it will be interesting to see if Stockopedia can replicate its performance over a decade. O’Neill’s actual strategy is very to replicate, I think, either by a computer or a human. It relies on chart patterns and qualitative information, which is nigh on impossible for a computer to capture. However, AAII’s interpretation has done very well.

Starting next year, I will be continuing my portfolio cleanout that I started this month. There are so many good sources for share ideas on the web, that it makes sense to scan through them and pick what you think are the best ideas.

My Stockopedia fund has been renamed from “Blippy Defensive” to “Magic Blippy”. Originally, I set out to prove that a portfolio of defensive shares can beat the general market. Did it? Well, sorta. The 2-year performance is about in line with the FTSE350. However, what isn’t shown in that is that near the beginning of the portfolio’s life the market took a beating, whilst the portfolio held up well. It’s this resilience that has pulled the portfolio significantly ahead of the index.

Having said that, I’m going to see if I can do better. Defensive shares are OK, but I don’t expect that I will be able to shoot the lights out with them. I now want to see if Stockopedia’s Magic Formula can be used to outperform the market if a subset is selected. My plan is, every month, to select a share from the Greenblatt portfolio to put into the fund. It will take a year to transition the portfolio, and it will be interesting to see self-selection improves or worsens the result.

Wish me luck.

Have a happy, healthy, and wealthy 2014.

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About mcturra2000

Computer programmer living in Scotland.
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3 Responses to Shares for 2014

  1. Can Esenbel says:

    I think you should carry on throwing out the ideas as they are interesting and useful reading.

    The whole yearly picks thing is a bit silly as by committing to a one year holding period you remove the quite powerful tool of being able to sell … in a case like ABM you’d probably have got out at significantly higher prices.

    As for not venturing new picks on the basis of poor recent history, I’m a big believer in mean reversion (which also for my sins is why I hold EMG).

    All the best in 2014 and thanks for sharing your thoughts over the year

    • mcturra2000 says:

      ” in a case like ABM you’d probably have got out at significantly higher prices. ”

      Yes, and in fact, that’s exactly what I did do, as you can see in the “Blippy Portfolio” on Stockopedia. http://www.stockopedia.com/fantasy-funds/magic-blippy-463/ Although not universally true, I have generally found that if you think you’ve made a mistake, then it is best to take the hit, and move on. You can see in the fantasy fund that I bailed out on the 29 April at 131p. The share price is now 17.75p. Yikes. Over many months the share price did rise to about 146p – so the timing of my exit wasn’t optimal – it was pretty good in waiting for a dead cat bounce. I think that this is another feature of exiting on mistakes: I am unlikely to time an optimal exit, but boy, am I glad I exited.

      The fact that ABM’s largest shareholder failed to support it earlier boded ill. Furthermore, on christmas eve, it was announced that Better Capital withdrew its interest in the company’s sales process. I’m now really taking that as a sign that the company is toast.

      “I’m a big believer in mean reversion (which also for my sins is why I hold EMG).”

      I think EMG was a sensible choice, and it did meet with Whitman’s criteria for buying an asset manager. So maybe it was a good idea that just had bad luck. I haven’t been following EMG lately, but whenever I’ve taken a peak at it, their wretched AHL fund still has its weaknesses. The problem is, the recently reported FUM was £52.5b. A year ago, it was £60.0b. Investors are obviously getting peeved with EMG’s performance, and voting with their feet. AHL really needs to generate some return, and if the stock market “does the wrong thing” in 2014, all asset managers could take a caning. Unfortunately, since 2009, AHL has been unable to make sustained gains in either down markets or up markets, so it gives investors a real dilema. Whitman suggests that a buying price for asset managers is tangible book plus 2% of AUM. For EMG, that would imply a market cap of £1700m (wealth warning: that’s my calculation) or less would make it a “buy”. Its current market cap is £1550m, which puts it in the buy range.

  2. Can Esenbel says:

    Agreed. The rule I use is that if there is new information that introduces elements that change the investment hypothesis then it is best to get out and re-assess. Another heuristic I use is to ask myself if I would buy it now assuming I didn’t already hold a position. If I’m ambivalent then I shouldn’t be in that position. Can always get back in.

    EMG seems a pretty binary proposition: fade to obscurity or pick up – need some decent trends to put some credibility back into AHL. A sniff of recovery last year and shares nearly doubled. Trend-following systems have had a poor time of late but they are mean reverting (although they are taking their time). Tapering should help. We’ll see, it’ll be one of those that seemed obvious either way post-hoc.

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