Magic Hat portfolio: WIN stays in

My Magic Hat fantasy fund is on Stockopedia:
http://www.stockopedia.com/fantasy-funds/magic-hat-463/

The portfolio is underperforming on a 1- and 3- year basis, and is outperforming slightly on a 2-year basis. I had hoped for a better showing. It is outperforming the Greenblatt screen convincingly, though. The Greenblatt screen has been making something of a comeback of late. When a screen drastically underperforms over a fairly recent period, it is perhaps time to think about investing in it again with the prospect of mean reversion.

About this time of the month I usually shuffle the Magic Hat portfolio around. WIN is due for the chop. However, it still passes the Greenblatt Screen, and it has a Stockopedia Stock Rank of 96. So I am not going to make any changes to the portfolio this month.

I came across some notes I made on “valueprax”‘s review of Quantitative Value, which tries to improve on the Magic Formula:

  • Any sample of high-return stocks will contain a few stocks with genuine franchises but consist mostly of stocks at the peak of their business cycle… mean reversion is faster when it is further from its mean
  • the simplest form of the enterprise multiple (the EBIT variation) is superior to alternative price ratios
  • trading on opportunistic insider buys and sells generates around 8 percent market-beating return per year. Trading on routine insider buys and sells generates no additional return
  • short money is smart money… short sellers are able to identify overvalued stocks to sell and also seem adept at avoiding undervalued stocks
  • Collecting more and more information about a stock will not improve the accuracy of our decision to buy or not as much as it will increase our confidence about the decision… keep the strategy austere
  • the Magic Formula underperformed its price metric, the EBIT enterprise multiple… ROC actually detracts from the Magic Formula’s performance. the quality measures don’t warrant as much weight as the price ratio because they are ephemeral. Why pay up for something that’s just about to evaporate back to the mean?
  • the QV strategy compared favorably in a number of important metrics and was superior in terms of CAGR with vaunted value funds such as Sequoia, Legg Mason and Third Avenue.

The full post is at John Chew’s website (here: http://is.gd/qNtEaJ)

I hope you all enjoyed your long weekend, and I wish you much success with your investing.

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About mcturra2000

Computer programmer living in Scotland.
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