Magic Hat – DFS in, IHG 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.

IHG is ejected from the portfolio by rotation. DFS enters. SPO was higher on the list, but it is the subject of a special situation, which is best avoided in an automated portfolio. It is not clear that the fund will correctly account for the changes.

I now have an even lazier way of selecting candidates to enter the portfolio: I look for Stock Ranks of at least 90. I still give preference to companies outside AIM, and avoid foreign ones.

IHG made an 18% gain for the portfolio, which I am pleased with.

MHP has been on a tear since November, outstripping the wider indices by a significant margin. It would not surprise me if much of the gains reversed over the next 6 months. What I notice about the MHP is that it steadily eaks out gains over the indices, and seems to hold onto them better in a downturn. The portfolio has not made Buffett-esque gains, but it has handily beaten the market. I dare say that compared to professional fund managers, it would be in the top quartile.

The indices have gained quite a boost from the recovery in commodities over the last year. The portfolio has not invested in them, so it is pleasing to see that the portfolio has outperformed despite this fact. Two stocks in the portfolio have doubled, and one nearly so. The fact that three out of the twelve stocks have more or less doubled is gratifying.

I have noticed that some stocks that I have sold from the portfolio have since gone on to perform well. That is why I emphasise that MHP is largely a robotic portfolio, so shares sold do not necessarily mean that you should sell. My suspicion is that you could hold shares for two years, rather than just a year, and expect to perform at least as well.

Stay safe out there.

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About mcturra2000

Computer programmer living in Scotland.
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