What a quarter it's been in the markets. The FTSE has had a good run gaining 7.1% and equity investors everywhere have started licking their lips over the gathering momentum in the wake of further lashings of quantitative easing around the world. When stock markets go up, there are stocks, sectors and strategies within them that do even better. As it's our mission to highlight what works when in the markets, let's take a look at how effective Stockopedia's model portfolios of the Investing Masters have been performing.
We keep hammering home at how important it is to use quantitative investing tools in your investing process. Instead of listening to brokers, tipsters and rumours and being swayed by the Siren song of the stories they sell, using a dispassioned common sense stock screening process can help impove the gullible, emotional and easily influenced human decision maker at most of our cores. Learning to defer (or at least listen) to the 'quant' can often help to improve profits in tough markets such as those we are seeing today.
Stockopedia beats the market again
Our 3 month performance can continually be tracked at this link, and as of the time of writing we can see the continued strong outperformance of some classic investing strategies. 72% (43/60) of our long only strategies have beaten the FTSE 100 with gains of between 7.1% and 23.4%, while all 5 of our short selling strategies have beaten it on the downside - again indicating how important it is to avoid fundamentally weak, near bankrupt stocks with potentially dodgy earnings - no surprises there!
At the top of the tables it's been a story of quality, dividends and contrarianism trumping growth and momentum but for how long that remains to be seen. We have just rebalanced our model portfolios which we do every quarter, so lets take a closer look at how they've done.
Contrarianism and Dividends pay
One of the best books on my investing table is David Dreman's Contrarian Investment Strategies - it's a massive font of evidence that shows that buying cheap, out of favour stocks just works so incredibly effectively. Is it such a surprise that two of his very unfashionable strategies have been the top performers over the summer with gains of over 21% in 3 months?
Strong fundamental health goes rewarded
The top performers include almost all of our high 'fundamental momentum' strategies - based on the F-Score indicator developed by Professor Joseph Piotroski. Not only are three Piotroski strategies near the top of the list (returns of +17, +19% and +20% respectively), but also two that use the score as a key component - Richard Beddard's blend of Piotroski with the Magic Formula (+18%), and our SocGen-esque 'Quality Income' strategy (+13%) which highlights high F-Score dividend paying stocks. Just to cap off what a tremendous 3 months it's been for the F-Score, near the bottom of the performance list lies one of our James Montier Short Screens (-3%) which uses Piotroski in reverse to highlight the stocks with terrible fundamental momentum.
Dividend Dogs continue to rock 2012
Anyone who's been around the market for some time will have heard of the Dogs of the Dow strategy, which picks the 10 highest yielders in the index and holds them for a year. We publish a variant for the FTSE 100 that's up almost 30% year to date and an impressive 12.5% for the quarter. But it's not the only one - every single one of our high Dividend strategies beat the FTSE 100 over the quarter, and that's based on capital gains alone, not total return!
And what of the legends of finance?
While many of the 'greats' of investing finance used a very qualitative approach to investing that is harder to model we can still build portfolios that display some of the financial characteristics of their preferred stocks. For example, three of our portfolios inspired by Warren Buffett and his 'tutors' Philip Fisher and Benjamin Graham have shown quarterly returns averaging around 15% - and that's without adding in dividends. These investors span classic value, growth and bargain stock perspectives, going to show that there's more than one route to lasting investment success.
Momentum didn't pay…
The more moderate performers in the last 3 months have tended to be the momentum strategies (recently discussed here). This may be a surprise considering we've seen a bit of a surge in the market, but as of the last rebalancing date in July the markets had just taken a bit of a swoon. It seems that a fresh wave of leaders has taken charge of the market - new leadership is always a good sign for a new bull phase. We are hoping for a better performance from them in coming months as long as the market rally continues.
Capitalise on strength for Q4
So how to select the best stocks for Q4 2012? While no-one knows what the future holds, markets do trend and focusing on recent winning strategies in the stock market has been shown to be effective. In an environment such as this, we fully expect financially strong, dividend paying stocks to hold up well even if the market environment continues to be volatile. The strategies described here are based on some of the finest literature ever published on and about stock picking, and using some of these screens as starting points for stock selection can not only rapidly reduce the time spent stock picking but also we hope will help you to produce market beating returns in your portfolio. Of course, it's always important to do your own research, and you can easily modify or "fork" these expert strategies to build in your own interpretations or new screening elements by using our library of over 300 screenable ratios.
PS - we are currently offering a free trial of our investing software - click here to take a trial.