Magic Hat portfolio: CCT in, LRM out

The MHP (Magic Hat Portfolio) on Stockopedia (http://www.stockopedia.com/fantasy-funds/magic-hat-463/) is an experiment by me to see if a human can improve on a mechanical Greeblatt Magic Formula screen. I am trying to weed out “mistakes” that I feel the screening commits: unseasoned companies, scams, foreign companies (particularly Chinese), fishy accounting, and statistical quirks. Apart from that, I am agnostic as to the sector the company operates in, although I will try to avoid heavy concentration in any one sector. I will mostly apply “Strategic Ignorance”, by which I mean that I wont try to be clever in my stockpicking. My picking will be mostly mechanical. A summary of most of my Magic Hat articles can be found on the web page http://www.markcarter.me.uk/money/greenblatt.htm This will allow you to see, at a glance, what shares have been bought and sold in the past, as well as what shares have been rejected from consideration and why.

The Magic Hat portfolio is beating the FTSE 350 over a 1-, 2- and 3- year period. It has also beaten it over its entire duration. Stockopedia’s Greenblatt’s screen is ahead of the MHP over a year, but not over 2 years. Greenblatt’s screen is also ahead slightly over a 3-year period: up 25.8%, as opposed to 25.0% for MHP. So it appears, so far, that the machine is equal to a man; at least this man.

LRM (Lombard Risk Management) is booted out of the portfolio, having been held for a year. If I had continued to hold SMWH (WH Smith) instead of substituting in LRM, I would have done a lot better. LRM is down 7.8% over 1 year, whilst SMWH is up 48.8%. The All-Share is down 1.5% over 1 year.

CCT (Character) moved into the portfolio, having a Stock Rank of 97. Its cashflow statement looks OK. It looks as though the company has been repurchasing stock, too. CCT has a quality score of 98, suggesting that its inclusion in the Greenblatt screen was not just a fluke. If investors are interested in the Greenblatt portfolio method, then I recommend that looking at Stockopedia’s Quality score will provide a good sanity check. In fact, you could probably roll-you-own Greenblatt screen and look for Value and Quality scores of at least 80 apiece. The Stockopedia scores work on a broad range of statistics, so I expect that they will be more reliable.

CCT is “engaged in the design, development and international distribution of toys, games and gifts. Its operates in the United Kingdom and the Far East.”

I notice that the share price has flatlined since the beginning of September. Its Momentum score is 90 – a good sign – and it RS6m is 61%. So there seems to be quite a good bit of momentum behind this company, but with some plateauing recently. If I put on my Technical Analyst hat, I would say that we have had a nice period of consolidation, and it may have built up a good bit of energy for another move upwards. BWTFDIK.

Anyway, it goes in, and we shall see.

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About mcturra2000

Computer programmer living in Scotland.
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