What Works?

In this week's Stockopedia Strategy Map article, Ed introduced the concept of Momentum. Momentum is the tendency for medium-term winners to keep doing well. A typical Momentum strategy looks at the share price performance from 12 months to one month ago. (In the very short term, share prices tend to mean revert rather than trend, so the last month…

In a bull market, when valuations are expanding and the market is pricing in a better future, there’s no faster road to profit than buying momentum stocks. When a stock is on the move, there’s a good chance it will continue in the same direction, especially if the power of institutional buying is behind it.

"An object at rest…

In investing, as in life, there are two types of bargain hunters.

In one camp are the bargain hunters who simply like to buy things as cheap as possible. A package holiday with all inclusive food and drink, for example. A shopping spree in Primark or a trip down the middle aisle at Aldi. In investing, we like to call…

Imagine you're offered $1 for 50¢ - would you take it? Welcome to the world of deep value investing: where you try to buy stocks at a significant discount to their intrinsic value.

It sounds simple, but nothing ever is. The $1 note might be torn, and a bit inky. Your friends may warn you it's not even legal tender.…

Investing in quality stocks is all about earning big returns over long periods – without much trading.

Fundsmith founder Terry Smith uses the tagline "Buy good companies, Don’t overpay, Do nothing" on his fund’s annual reports.

Legendary investor Warren Buffett has said that when he finds a great business, his favourite holding period is "forever".

Earlier this week, Megan…

A few weeks ago, my 14-year-old brother who has just started studying for his GCSE maths exams asked me to help with with a question on compound interest. As a passionate advocate for the importance of teaching investment concepts in schools, I was delighted. Compounding is one of the most valuable lessons a novice investor can learn and (for those…

The Winners

Stock market investors in developed countries have long been winners. They have enjoyed higher returns in exchange for higher volatility than any other asset class. These excess returns have allowed them to retire earlier, more comfortably and pass greater wealth onto their children. In their long-term study of asset returns, Dimson, Marsh, and  Staunton found that…

Some investors may have never bothered to use their ISA allowance. The current Capital Gains Tax allowance of £12,300 may have seemed generous enough to cover any gains, while a tax-free dividend amount of £2,000 may have covered most of the portfolio income. But, unfortunately, this relatively generous allowance is coming to an end, as the following table shows:

The collapse of US tech lender Silicon Valley Bank -- SVB Financial (NSQ:SIVB) -- has triggered a sell-off in banking shares across the market. Despite this unfortunate event, an evenly-weighted basket of FTSE 100 bank shares would still have beaten the index by almost 10% over the last year.

Indeed, until recently, rising interest rates seemed…

The Stockopedia Stock Screens are an invaluable resource for the intelligent investor. They enable investors to search for stocks that meet their own unique investment criteria without relying on others for ideas. Screens are particularly beneficial to me as a value investor since I am always searching for the most unloved investment ideas. These types of stock rarely appear…

Warren Buffett’s 2022 letter to Berkshire Hathaway shareholders is due to hit the wires very shortly. The Oracle of Omaha always has something worthwhile to say, and his letters usually make for a compelling read.

This year, I think it will be interesting to see what Buffett has to say about the potential impact of higher…

In this piece:

• Why recent performance and near-term forecasts aren’t driving share prices higher

• Why the hydrocarbon decline could now be quicker than expected

• Do valuation metrics support a tobacco-style investment in oil and gas producers?

I have to admit that I’ve always had a somewhat guilty fascination with oil and gas stocks.…

Terry Smith’s annual letter to investors in his Fundsmith Equity Fund has become something of an event. He’s opinionated, informed, and usually has something spicy to say.

This year’s letter came with an extra dose of anticipation, as we knew Smith would have to discuss why the Fundsmith Equity Fund fell in value and underperformed global…

Financial Charlatan of the Year

Every year, Twitter user fed_speak runs a popular competition called "Financial Charlatan of The Year". This tongue-in-cheek poll asks followers to nominate who they think has been the biggest charlatan in finance over the previous year. Naturally, the nominees tend to be people investors will have heard of, and past winners include…

In my last article, I described how value investors tend to be fairly agnostic to market conditions. Instead of spending a lot of time predicting inflation, interest rates, or when the market will bottom, they focus on buying businesses when they appear cheap during periods of worry and selling them during periods of exuberance.

Many investors will have…

Let’s suppose there are two types of economists. The first type thinks stocks behave in a predictable, orderly way. They treat stock selection as a ‘science’, rather than an ‘art’, and try to identify factors that drive stocks up or down according to a clearly defined formula. The second type thinks price trends are chaotic, even random, while stock picking…

Timing market cycles is notoriously difficult for investors. But the potential rewards are significant. Even large, well-established cyclical businesses can see huge share price swings over the course of a cycle – falling by 50% and then doubling (or more) is not unusual.

Right now, I think it’s fair to say that the real-world economy is still in the early…

We have been running the StockRanks since 2013. That is quite a long time, but arguably not long enough to explore how StockRanks perform when the market crashes. Investors have seen difficult times in recent years, but the StockRanks haven’t been through anything comparable to the crash of 2008-09. The market panicked in March 2020. However, the fall was nowhere…

Three decades of bumper house price and population growth have made for a comfortable foundation for the UK’s housebuilders and construction companies. Their share price trajectory reflects that.

And in 2020, after the lowest decade of house market growth for 30 years, when everyone thought the fun was coming to an end,…

And so the bear rolls on. At times like this it can seem that every stock in your portfolio is getting hammered, especially if you skew your portfolio towards sectors & styles that become out of favour. But there's rarely a bear market everywhere all the time.

As Ed Shing noted last week, the energy sector is a strong…

One of the most common requests for a Screening for Value article is for an income screen. It is not a surprise that income strategies are some of the most popular amongst value investors. The idea is that, by investing in companies that pay above-average dividends, investors can capture both the value premium from owning cheaply-rated stocks and generate a…

Over the past few weeks, I have been looking at companies highlighted by my earnings-based stock screen. So far, I've found eight non-resource companies that made it firmly onto my watchlist: James Latham (LON:LTHM) Quarto (LON:QRT) Zytronic (LON:ZYT) MJ GLEESON (LON:GLE) Sanderson Design (LON:SDG) Renold (LON:RNO)

It's been a pretty brutal twelve months for everyone investing in stock markets - not only here, but all around the world. But one area of optimism has been the performance of the UK broader benchmark - the FTSE All Share.

According to my measurement, the FTSE All Share has fallen by 6.2% over the last 12 months since…

I had a fascinating conversation with one of our subscribers back in March 2020. We speculated whether the economic climate of the 2020s would resemble the 1970s. Unfortunately, the comparison has become something of a cliche. Newspapers say the coming months will be like the Winter of Discontent (1978-79), when widespread strikes and industrial action resulted in rubbish piling up…

Over the past few weeks, I have generated value investing ideas using the Stockopedia screening tools. This week that quest continues with an earnings-based screen.

Most of the mainstream academic finance research has focused on the Price-to-Book metric, which was the focus of my last screen. However, it has been known for some time that using earnings-based metrics may overcome…

In my last article, I introduced another classic value metric: Price-to-Tangible-Book, and explained why buying stocks at a discount to this may indicate undervaluation. As usual, I used the Stockopedia screening facility to search for potentially undervalued UK stocks. As many value investors do, I demanded a margin of safety by looking for PTBV < 0.7, with a check…

In my first few Screening for Value articles, I looked at results from one of the most straightforward value screens, 52-week lows. In this article, I introduce another classic: Low Price-to-Book.

Book Value is calculated by taking the total assets on a company's balance sheet and subtracting the total liabilities. It is also known as Shareholders' Equity, the term…

"I understand that I should buy quality, value, momentum shares and the StockRanks are a good guide to this... but I've still got a major problem when should I sell?"

It's a very good question. It's all very well thinking "90+ StockRank shares tend to beat the market" and buying 90+ ranked shares accordingly - but managing a portfolio of…

This year has been a humbling reminder of the cyclical nature of stock markets. In the UK, small and mid-cap shares have felt the pain of the sell-off more than most. But generally speaking, markets everywhere have come under pressure.

You don’t have to look too far to find the last major decline like this. In early 2020, stocks fell…

We’ve all been there… it’s the morning of a company’s financial results and the pressure’s on to get the gist of the update. It could be a personal holding already, or a stock you’ve been stalking for a while. Either way, it’s important to find the good news (and any bad news) to anticipate how the share price might respond.…

Tales of woe in the global stock markets have made me increasingly nervous about checking my portfolio performance as 2022 chugs on. It’s never nice to open your platform and see a sea of red, and it’s especially painful to witness the collapse when there is no obvious remedy. Sentiment is changing and it is hard to know how a…

On the scale of disasters that can befall investors, being left holding shares in a company that goes bankrupt is one of the most gut wrenching.

Regulators and market operators generally hold quoted companies to high standards. They have to abide by well-documented codes of financial reporting and governance. But there’s no escaping the fact that some do occasionally…

Companies with the potential to grow quickly are like a magnet to investors in the stock market. And while they can suffer in volatile conditions, they’re still the source of some of the most inspiring investment success stories you’ll ever hear. At their best, they can have a transforming impact not just on their shareholders but also their staff, customers…

There’s a saying in investing that “time in the market beats timing the market”. In other words, long-term trends in stock markets are overwhelmingly positive. The longer you stay invested, the more you can take advantage of the compounding effects of being exposed to them.

On the other side of that argument however, is the idea that selling up when…

Stock market investors don’t usually have to concern themselves with inflation. For the first two decades of the 21st century, central banks kept the rate of increase in prices well within their target ranges. And even in an environment where inflation is rising, the stock market tends to be seen as a good place to be. But is that really…

Periodic sell-offs are an undeniable fact in the stock market, and they range in severity from occasional-but-savage bear phases to much more common one-day setbacks.

Not only are these events hard to predict but they can also have miserable consequences. Even a brief pullback of just a few percent can be enough to cause panic if you’re unprepared. In…

When it comes to different approaches to the stock market, fundamental analysis and technical analysis are often seen as two completely separate disciplines.

With fundamentals, the focus is on stock selection and using data to uncover a company’s strengths and weaknesses. From there you can take a view about valuation and make predictions about the future.

With technicals, the…

Of all the metrics used by investors to understand the trajectory a company might be on, growth in both sales and earnings-per-share are among the most important.

These measures are a natural starting point when it comes to studying company growth. But they’re also useful in other areas, such as stock valuation. For that reason, you find them in…

The Alternative Investment Market (AIM) is popular with investors looking for fast-growing companies that have the potential to deliver exceptional returns. But the challenge is that there are literally hundreds of stocks to choose from, many of which are very risky and highly speculative.

In this article we’re going to look at why AIM is so popular and how…

One of the most important measures of a healthy stock market is the number of companies that choose to float and raise new money from investors. Company IPOs - or initial public offerings - are vital to maintaining the depth, diversity and efficiency of the market. But are they really worth investing in?

This summer, Stockopedia sets out to answer…

The S&P 500 index of America's leading shares has risen by 25 percent in 2019, marking another impressive year for an index that’s been on a blistering 10-year bull run. US shares and markets have mesmerised investors over the past decade - and they still dominate financial headlines around the world.

But while markets across the Atlantic have performed well,…

Burford is one of the largest (if not the largest) firms in litigation funding - a relatively new multibillion industry whose historically strong returns have begun to attract significant investments from pension funds, endowment trusts and the like. 

The company is popular with investors. Those looking to get a feel for the company as an investment over the…

I once observed two people facing the wrong way in one of those wave pools - it didn’t end well for them. 

What looked like a pleasant chat was interrupted by an artificial tsunami. They resurfaced after a second or two, coughing and spluttering, alive but very wet.

Looking at the year-to-date performance of Stockopedia’s 60 or so…

Back in April 2009 -- a little over 10 years ago -- world stock markets reached an inflection point. No-one knew it at the time (though some later claimed they did) but it was the moment when negative momentum triggered by the financial crisis stopped and equity prices started rising. These were the very early days of a new bull…

For many investors, the perennial appeal of fast growing stocks is their ability to deliver outsize capital returns. Forget value, forget dividend income… growth in its purest form is all about fast-paced earnings expansion lighting a fire under share prices. It’s about going big or going home. It’s the classic territory of popular traders like Mark Minervini and William O’Neil…

Not all profits are made equal.

For most investors and analysts, the Income Statement is the first port of call. That’s why it is home to all manner of financial shenanigans and accounting trickery.

Yes, company A and company B both generated net income of £100, but how did they generate that net income figure? The importance of this question…

One time I accompanied a senior analyst to meet the chairman of a company that was rolling out new units at pace. I was just out of university and what little knowledge I had of business came straight from the textbook. This was maybe my first chance to listen to actual professionals talk about the reality of running companies.

For a good chunk of 2018, the UK’s equity markets were under the cosh and index prices fell across the board. But since the start of this year, there’s been a sense of optimism around. Political and economic uncertainties aside, the FTSE All-Share has managed a 6.8 percent gain in recent weeks. It’s a modest result, but one I reckon…

Sixteen companies were forced off the Alternative Investment Market last year because of financial stress or insolvency. That was up from nine companies that suffered the same fate in 2017. When you add them to those that hit problems but somehow managed to cling on (albeit with broken reputations and battered share prices), it’s a reminder of just how perilous…

There’s just no getting around it - British stock markets have performed dismally in 2018. The black clouds of Brexit and political incompetence have hammered the indices with the FTSE All Share down more than 12% year to date at the time of writing. But there is one bright note. Savvy private investors have been beating the market handsomely.

Last…

Building the world brain

Global investment opportunities abound and yet investors rarely leave their home market. Is it possible to conquer home bias and invest profitably in overseas companies?

Pooling our experiences can be a great time (and pain)-saver in terms of learning lessons. A lot can be gained from reading the conversations in the comments section of this recent…

Informational edge or home bias?

• Many investors diversify across different stocks, industries, and asset classes

• Not so many investors diversify across different stock markets

• Home bias can increase risk and cost money in terms of missed opportunities

Do you only invest in the UK-listed stocks? I do, even though UK indices make up just 6% of the world stock market. Adding the…

Readers of the Stock Market Almanac may know that October is historically one of the most volatile months of the year for shares. The reason - if you believe in seasonal trends - is that many buyers return to the market in October (after selling up in May). And while that can send prices rising, the downside is…

In 2013, a year after we launched the subscription service on the Stockopedia website we had an idea. Having read through hundreds of academic papers, quantitative research notes and books on the subject of stock selection we realised there were some common threads. Why not bring those threads together into a simple, intuitive and effective rating system for stocks?

After a couple of minor roles in the City, I wound up at Goldman Sachs in their ultra high net wealth private client division. As is usually the case as a junior you are keen to make a good impression and find promising investments to pitch. The problem was I was rather independent minded and preferred to come up with…

Regardless of what the marketing departments at some major fund management firms might like you to think, the concept of ‘factor’ investing has been around for decades. The characteristics of Quality, Value and Momentum have long been credited as a source of some of the strongest returns in the stock market - it’s an open secret. But despite validatory evidence…

Back in 2012, shares in the media company Trinity Mirror looked surprisingly cheap given the amount of cash the business was throwing off. Despite its outdated business model, the newspaper publisher was still managing to juggle a high level of debt and a troublesome pension deficit. But what was more concerning was its seeming inability to adapt to…

In the aftermath of England’s early exit from this year’s Rugby World Cup came an intriguing but sadly familiar tale of misadventure in the stock market. During the tournament preparations it’s alleged that the team’s kit manager shared a tip about the ‘exciting prospects’ of a micro-cap oil exploration company. This apparently lulled some players into parting with…

In the ten years to 2014, shares in online fashion retailer Asos soared from around 7p to £70 each. The stock became the stuff of folklore among those that had either made a fortune or missed the chance of making millions by selling out too early. Its relentless growth seduced investors and created blistering momentum that pushed it to a…

When market valuations fell sharply this summer, Neil Woodford, the highly respected fund manager, described how sliding share prices can be overwhelming and distort rational perspectives. He said that while it can be difficult to remain focused on fundamentals when markets fall dramatically, it’s a chance to look for opportunities where the falls have been heaviest.

In…

When Warren Buffett raised his stake in Tesco in 2012, little did he know that he was breaking one of his own investment rules. He’d initially taken a position in the UK retail giant some years earlier. After a profit warning and news of increasingly fierce competition, Buffett chose to buy more shares as price started to slide. It was…

Faced with choosing between a $10 bottle of wine and a $90 bottle of wine, which would you go for? In one experiment - with the prices of each wine clearly marked - nearly twice as many people preferred the taste of the most expensive bottle. But unknown to the volunteers, the two wines were exactly the same.

This test was…

One of our subscribers today (dangersimpson ) sent me a marvellous piece of research by Michael Mauboussin entitled “Managing the Man Overboard Moment - making an informed decision after a large price drop".  The insights contained in this piece hold some great lessons for all stock market investors.  He shows how to decide whether to buy,…

Surely the simplest way to become rich in the stock market is to find the perfect young growth stock, fully invest, and ride it for 30 years. But a piece in the FT at the weekend caught my eye which illustrated just how hard it is to find long term winners in the market. The piece highlighted the biggest winners…

There’s a war at large in the stock market today that may be hurting your portfolio returns without you even realising it. Over the last hundred years the players in the stock market have had a fairly standard approach to reaping their profit - that of the stock picking ‘hunter’. But in the last 30 years, as the technologies of…

For much of the last 35 years, most of the investment management world has promoted the idea that individual investors can't beat the market. To beat the market, stock pickers of course have to discover mispricings in stocks, but the Nobel-acclaimed Efficient Market Hypothesis (EMH) claims that the market is a ruthless mechanism acting instantly to arbitrage away any…