Mechanical Bull Portfolio Update - Up 67% In 2 Years

2nd Jun '15 by Mechanical Bull

13 comments 12957 reads

Its been around seven months since my last post. I have found it difficult to find time to maintain this blog and come up with inspiration. Also, I am not a natural-born writer, and so even when I have a good idea, it sometimes takes a while to find the right words to express it.

Anyway, enough with the excuses, It is exactly two years since my investing experiment began, so I thought I should give an update.

Changes to the portfolio:

First, just a quick word about changes to the portfolio:

30 October 2014: Sold Matchtech and bought Barratt
18 November 2014: Sold Renew and bought Bellway
10 December 2014: Sold Amec and bought Berkeley

The first thing to note is that there have not been any changes in the last five months. I am afraid that this is down to pure neglect on my part. Despite this, nothing in the current portfolio is below the sell limits. This may sound like an excuse, but I am coming to the view that a quarterly review strategy might work better than one that is constantly monitoring buy and sell signals.

An Overly Concentrated Portfoilo?

The second point to note is that these new purchases are all in the construction/property sector and so the portfolio has become rather concentrated (and it already held Persimmon). I don't have rules to manage sector diversity, so this is simply the way the cookie crumbled. I admit to being a little concerned about this, but not overly so.

When stocks across a sector are generating both high Stockranks and appearances across multiple screens, then I think it makes sense to view this as a high "StockRank Sector" and I am quite happy being overweight in it. This certainly seems to have paid off.

The construction/property stocks over the past 6-12 months have been the main engine of capital growth for the MB portfolio. Similarly, earlier in this experiment, the portfolio held a number of employment agencies which all played out well to varying degrees, with Staffline more that doubling in value.

The general consensus on Stockopedia seems to advocate sector weighting to ensure broad exposure to different types of stocks. I don't really see the point in this. What would have been the point of having equal sector weighting in energy stocks 6 months ago when the the sector was tanking? I would…

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Mark Carter

2nd Jun '15

I'm impressed!

Rusty2

"The general consensus on Stockopedia seems to advocate sector weighting to ensure broad exposure to different types of stocks. I don't really see the point in this."

The point is if say interest rates went up, not all your shares would fall, its about spreading the risk. Yes oil did go down but its recovered somewhat recently. Re shares v cash, why not invest in gilts or gold instaed of cash. Its one thing that concerns me if there is a recession, where to invest. Next crash well USA and China ecomonies are slowing, interest rates are very low, borrowing in UK and USA are very high. Some predict a very bad worldwide recession.

Yes its a very good performance, how do you calculate the MB score?

Mechanical Bull

herbie,

Here is a link the relevant blogpost:

http://bullmechanic.blogspot.co.uk/2013/12/the-mechanical-bull-method.html

What I should have said is EQUAL sector weighting. Some level of diversification is important obviously but I don't subscribe to the idea of necessarily being exposed across all sectors.

PhilHofGrowYourDough

Hi MB,

I use PEGR (the risk adjusted version of PEG) in my screening criteria and this fits in well with my EPS momentum too (another aspect of my screening). As a result I produce high quality stocks with good momentum (EPS & price) that are cheap in terms of growth (but might not appear that attractive in terms of ValueRank.

I've also found that I have been drawn to particular sectors, e.g. 18 months ago I had several salmon farmers and at present I have several European construction firms. Given that I'm currently holding 22 stocks from a variety of sectors I don't see it as a problem.

Best of luck
Phil

sealeyd

Where can we get the current CAPE value of the FTSE 100?

I've Googled around but can't find the raw data.

Kind regards

David

paulr18827

Looking at the portfolio I made similar focussed choices choices over the past few years and my current portfolio is overweight in respect of builders, and I am uncomfortable with the weighting. Stockopaedia will assist in diversification as I look at different sectors. Nevertheless, the economy is reflecting a demand for increased building of residential homes as well as increased activity in the commercial sector.
Paul

pka

MB, well done!

You wrote: "However, I concede that four construction/property sector stocks in a portfolio of 15 is taking things a bit far and I should have a means of limiting this, to say, three. So one method would apply a strict limit. Another approach might be have a wider pool of possible stocks (e.g. all those with a StockRank greater than 90) and select a portfolio of stocks at random."

Selecting at random from stocks with StockRank greater than 90 would still leave the possibility of selecting too many stocks in one particular sector for your portfolio. Therefore I think that having an upper limit for any one sector would be a better way of ensuring sufficient diversification.

I set up a portfolio 9 months ago of 20 stocks selected from the FTSE 100 and FTSE 250 indices, using high StockRank and some other selection criteria. In order to create a reasonably diversified portfolio, one of my criteria was not to select more than 1 stock in each 'industry group'. In the Stockopedia data, each sector contains several industry groups, and, as there are more than 35 industry groups in total, my portfolio did not contain any stocks in certain industry groups. To be honest, the reason I used industry group rather than sector was because (when I set up the portfolio) I did not realise that there is a difference between them! However, with hindsight, I think using industry groups should provide better diversification than using sectors. For example, at the top of your screen at present there are two stocks (Epwin and Persimmon) in the same industry group (Homebuilding and Construction Supplies), and one stock (Berkeley) in another industry group (Real Estate Operations), although all three are in the construction/property sector. If you had an upper limit of two stocks on the construction/property sector, you might still select Epwin and Persimmon, which I suspect are likely to be more highly correlated with each other than Epwin and Berkeley would be. My portfolio has significantly out-performed the FTSE All Share index over the past 9 months, with an increase in value of 22% including dividends. I have the impression (but no proof, because I did not keep daily records) that the volatility of the total value of my portfolio has been similar to that of the FTSE All Share index, which is not bad for a portfolio of just 20 stocks, so that suggests to me that my diversification approach has worked reasonably well over that period.

Yes good point about sectors and groups. I think Berkeley is in the wrong sector, its under Financial and so are some other housebuilders. I had this discussion with Edward on his Naps and I think some are going to be reallocated? Epwin is a supplier of doors, windows and upvc products so its different from Persimmon.

David,

That's a very good question. Here is a link which show the data in chart form (about half way the page):

http://www.retirementinvestingtoday.com/2015/05/valuing-uk-equities-market-ftse-100-may.html

However, I don't know where one can get the raw data. If anyone else has any ideas, please let us know!

UK Value Investor

5th Jun '15

Hi MB,

I have some fairly "lumpy" FTSE 100 earnings data (i.e. annual) for the last decade in my "company analysis spreadsheet" which you can download here (apologies in advance to Stockopedia for all the links):

http://www.ukvalueinvestor.com/free-resources/

Also, the blogger at Retirement Investing Today might give you his more detailed (monthly I think) data if you ask nicely.

The data is indeed hard to get hold of. Mine is a mixture of official data, calculated from the index's PE at:

http://markets.ft.com/research/Markets/Data-Archive

In particular, the 'world markets' report, e.g.:

http://markets.ft.com/Research/Markets/DataArchiveFetchReport?Category=&Type=GWSM&Date=02/14/2015 (adjust the date as required)

And for pre-2015, the old FTSE Actuaries Share Indices, available on the same page:

http://markets.ft.com/Research/markets/DataArchiveFetchReport?Category=EQ&Type=FTUK&Date=12/15/2014 (again, adjust the date...)

And for data before 2008 you really have to dig around and use whatever you can find. I got mine from a forum posting on the Motley Fool website many years ago! However, it seems to look reasonable and there are no obvious official alternatives.

And I'm glad to see my old tactical asset allocation strategy article is still being read 5 years later! I don't use the approach myself as I'm a pure stock picker now, but it would be good to revisit it and run an updated back test.

John

Thanks John. The first spreadsheet is very useful. I've never been 100 per cent clear how PE10 is calculated so it very helpful to see it clearly explained.

Mechanical Bull Portfolio Update - up 67% in 2 years

An Overly Concentrated Portfoilo?

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Mechanical Bull

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