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.
Happy new year to you all. Mr Market has been generous in 2017. The MHP has had a grand performance, returning 33%, as opposed to the market of 8%. Throughout its existence, the MHP has been chugging away outperforming the indices in a slow and steady manner. 2017 was an exceptional year for the portfolio, and I am inclined to put it down to a fluke. The outperformance for the bulk of the rest of its existence was far more modest.
According to StarCapital, the CAPE of UK at the end of September 2017 was 15.7. That is “about average”, maybe a little under. So we can be sanguine about the possible direction of the market. Unpredictable events may well determine the overall course of the market. We will only know these things with the benefit of hindsight.
The CAPE of the US markets is at an eye-watering 29. I see plenty of risk there. Russia, on the other hand, has a CAPE of 5.6. This valuation is absurdly low. I have been invested in JRS (JPM Russian Securities) for two years now, up 59% since I bought it. It has a dividend yield of 2.6%. Given the current valuations, I will continue to hold.
Emerging Europe as a sector is on a CAPE of 8.9, which looks good value to me. I have some shares in a couple of trusts that invest in this area.
Singapore, as a developed market, looks to be on safe valuations, with a CAPE of 12.9 and a PE of 11.0. It’s a pity that there aren’t any trusts that specialise in that country.
But back to the MHP …
XLM is kicked out by rotation, having returned 99%. Excellent. It has a Stockopedia StockRank of 90, so there would be no reason to sell in a panic. It has a pretty good chart, although its price is arguably overextended on its 50dMA, so a pull-back may be in order at this juncture.
Pool betting operator SPO (Sportech) enters the portfolio. It has a StockRank of 96. So let’s see how that pans out.
That’s all for this month. Stay safe out there.