Magic Hat Portfolio: AIR in, NPT out

My Magic Hat fantasy fund, which is mostly mechanical, is on Stockopedia: http://www.stockopedia.com/fantasy-funds/magic-hat-463/ Its goal is too achieve above capital returns greater than the FTSE350 and Magic Formula screen using a portfolio of about 12 shares selected from Stockopedia’s Greenblatt Screen. It relies on “strategic ignorance”, which means that I do not put much thought into company fundamentals.

Over 3 years, the fund has returned 33.7%, compared to 20.9% for the FTSE 350. That is ca 4% pa out-performance, which is not bad, but not great. Over the lifespan of the fund, the FTSE 350 has returned about 15.0%, whilst the fund has returned 51.8%, which I think many would find a gratifying result. Over two years, the fund has returned 17.4%, the Greenblatt screen has returned 17.1%, and the FTSE 350 has returned just 2.7%. So my fund has achieved a similar result to Greenblatt. I am a little disappointed in this, because I had hoped to improve on the results. The robot seems to be the equal of me. My fund looks to be more volatile than the underlying index, but it does seem to perform better. Compared to the Greenblatt screen, however, my fund invests in far few companies, and has far lower volatility. The Greenblatt screen has shown huge swings, whilst my fund has been rather more consistent in chugging out performance.

NPT (NetPlay TV) is kicked out of the portfolio today, having been sold at a loss of 15.9%. It now has an MFI score of C-. Good riddance! NPT tanked shortly after being added to the portfolio, so I was, understandably, annoyed. No more gaming companies for me, unless it’s something like Ladbrokes or William Hill. I have been burnt enough on gaming companies. Everything always proceeds along normally until one day you wake up with a disaster on your hand.

AIR (Air Partner) enters the portfolio. The Company provides aircraft charter brokering and other private aviation services. I am a little nervous about including it, as I have already have Dart and Flybe in the portfolio. That makes it rather too concentrated in one sector, and a potential recipe for disaster. It is fully listed, and pays a generous dividend. It has a Stock Rank of 100. So I will put it in.

There are companies in the Greenblatt screen that I do not fancy at all. I think investors will do better if they stick to dividend-paying stocks. If a stock really is of high quality, then why doesn’t it pay a dividend? AIM-listed companies also need more caution. AIM is littered with frauds and companies of incredibly poor quality. I would not necessarily say that all AIM companies should be avoided, but you should be aware that you are stacking the odds against yourself.

An example of one company that I would not touch with a bargepole is MAIL (Mail.ru), which is “a Russia-based Internet company”. Stockopedia flags the company as a potential earnings manipulator (the M-score), with one of the risks being that accruals are high as a proportion of total assets. Its net income has exploded over tenfold over the last five years – which seems too good to be true. Cash from operating activities is significantly, and consistently, below the net income figure. This is a huge red flag (no pun intended). It is also not paying any dividends. It all seems like a disaster waiting to happen.

May you be well.

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About mcturra2000

Computer programmer living in Scotland.
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