Timing sales in a StockRank portfolio

4th Sep '15 by John

10 comments 9730 reads

I should like to discuss timing the sell in a StockRank Portfolio environment. I recently read a good article on timing here
http://www.stockopedia.com/content/when-to-sell-81351/

However, since last October (2014) I have been building up a StockRank portfolio with (for me) a huge degree of success.
I have established screens based on SR>90, Quality >70, and no (or fast decreasing) debt.

If any of the above conditions are breached I automatically sell and buy anew from my screen. Over the months some shares have dropped below my criteria for varying reasons – some because of large increases in the share price and others because news has changed for the worse. In a few cases where there has been a large increase I have reduced my holding without selling out completely. In other cases I have chosen to “run my profit”. Both “reducing my holdings” and “running my profit” feel like I’m going against the criteria which I have established.

Some good advice contained in the discussions above has been not to sell a share if there is not another which I would rather have. This however doesn’t really apply in the case of buying StockRank shares as there is always a share in the screen which has higher rankings. So “running the profit” does not really apply.

The problem of using stop losses so far has not applied to my holdings as I luckily to have not come across stocks chosen by my screens which would have merited such action.

Any thoughts out there?

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pka

4th Sep '15

I suggest that you consider selling a stock in your portfolio if its StockRank or Quality Rank falls significantly below your purchase criteria of StockRank > 90 and Quality Rank > 70. For example, you might consider selling a stock if its StockRank falls below 70 or if its Quality Rank falls below 50, and reinvesting the proceeds in another stock that then satisfies your purchase criteria.

I think it's best not to set the selling threshold too close to the purchasing one, otherwise you would incur a lot of transaction costs without much benefit from improved performance.

John

So on the upside would you never take profits at all? E.g. if 3 shares make 33% profit, sell 1/3 of each holding to create funds for a new qualifying holding, even if the original 3 still qualify?
SR < 70 and QR < 50 seem to me a bit extreme but I suppose it's a matter for the individual and experience will tell.

"So on the upside would you never take profits at all? E.g. if 3 shares make 33% profit, sell 1/3 of each holding to create funds for a new qualifying holding, even if the original 3 still qualify?"

You can certainly do that if you want to. You might also want to rebalance your portfolio every so often, e.g. once a year, if some holdings have become much larger than others.

But I think it's important not to over-trade, because excessive transaction costs reduce profits.

5th Sep '15

I remember reading a table of transaction costs relative to holding sizes but have been unable to retrace it. Can anyone point me to the article?

Rusty2

I would look at momentum, when that starts to fade then could be a good time to sell. I did study some shares and quite a few even though the QR and VR had fallen the share price did continue for a while to go up. Depends on the shares some go up quickly and fall back others and more gradual and then level off. If you could give some of the shares you hold it maybe easier for us to see. Transaction costs I think are worried about too much. Lets take an example, you don't sell A because it will cost say £10, your holding is £2,000, share A goes up 10% in the next year. But if you had sold A and bought B and it went up 30% then how much have you lost. If you have holdings of less than £1,000 then transaction costs will be more significant, if you have larger holdings then proportional less. If you trade outside an ISA you can trade for about £2 now. Quite a number shares I have sold recently have fallen over 20%, the only ones I have sold and have gone up are some housebuilders but that was because of the election result which was unexpected, I suspect if Labour/SNP had got in it would have been rather different. So I would not be afraid to sell, at the moment cash is quite a good thing to have for picking up new investments.

PhilHofGrowYourDough

With respect to selling High Stock Rank portfolios ... it seems an assumption is being made that the gains associated with high stock rank shares come from the period when a stock is, for arguments sake >90, whereas it could be that the gains could well be occurring after a stock fades below 90 but before the rebalancing period. Maybe Ed can mine some data to answer this question?

Personally I use price momentum as my primary selling mechanism as I like to run my winners. If a stock is performing well price wise then value rank will be eroded until the next set of interims is crunched by the Stockopedia system and so the risk might be that you dump a stock too early as it will appear to be either reasonably valued or expensive.

I use notional stop losses where I don't have actual stop losses in place with my broker but rather I monitor stock at close of play and if the share is turning below my notional stop loss I'll look to sell. I also use Ichimoku charts (which at first can appear confusing) to analyse price trends, support and resistance and they help me decide where to place my notional stop losses.

The exception to this process is where the market goes a bit wobbly and the whole portfolio takes a tumble. This has happened recently due to the China Crisis and back in October as the Greece situation worsened (my portfolio is heavily biased towards European stocks). During these periods I sit tight and wait. Most stocks recover quickly and I sell the ones that don't.

You can see the performance of this sort of approach in my fantasy fund which is closely aligned to my personal holdings (sadly though I don't have £1m) ... http://www.stockopedia.com/fantasy-funds/philhs-fund-4060/

Hope that helps
Phil

Thanks Herbie. Current major profits are Alliance Pharma 41%, Animalcare 49%, Barratt 51%, Berkeley 47%, Empresaria 40%, Greggs 78% (but I banked some profits on Greggs,thus reducing my net cost), Jas Latham 33%, Rank 37%. Major losses are 3i 10%, Indivior 17%, Record 10%, Royal Mail 12%.
I have concluded that transaction costs are insignificant on the levels I am buying. All my trades are inside ISAs.
Good point about momentum - must admit I hadn't considered that in selling situations.

Thanks Phil,
Again a good point about momentum. Also good point about Ichimoku which I had looked at when you mentioned it previously and forgotten about (old age I'm afraid) - I'll start using it again as I was impressed. Reference the Greek and China crises i ignored them, assuming a) things would recover and b) My Stock Rank stocks would still be performing better than the rest of the market (I have no concrete proof of this!)
Best
Joe

"I have concluded that transaction costs are insignificant on the levels I am buying."

Transaction costs are not just the stockbroker's commission. There is also 0.5% stamp duty to pay on each purchase, plus whatever the bid-offer spread is on the particular stocks you have in your portfolio. The bid-offer spread can be significant for small companies.

Plus foreign exchange charges on purchases and sales if you are buying foreign stocks. My forex charge is 1% per transaction.

Timing sales in a StockRank portfolio

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John

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