2012 Guru Strategies Review: All Hail our Algorithmic Overlords?

Friday, Jan 04 2013 by
2012 Guru Strategies Review All Hail our Algorithmic Overlords

It's that time of year when investors all tend to reflect on our relative performance to figure out whether we should throw up our hands and just invest in a (boring) tracker. And what a year it's been in the equity market! From the depths of despair in the early summer when the Euro crisis looked set to swallow us all... to the fiscal cliff relief relay of recent days. When all of that was said and done, in the year to January 3rd 2012*, the FTSE 100 gained 6.6% while the FTSE All Share was up 9.0%. As it's our mission to highlight what works when in the markets, let's take a look at how effectively Stockopedia's model portfolios of the Investing Masters have been performing versus these benchmarks. 

Guru Models Keep On Slaying The Market....

The performance of the models this year has been frankly astounding. The screen performance can continually be tracked at this link or in detail here.

To recap, since December 15th 2011, we've been tracking 60 long only strategies and 5 short strategies, spanning from the investing greats (the likes of Graham) to classic academic finance papers (such as Piotroski). You can read more about how we run & rebalance the strategies here.

Of the long only strategies, an astonishing 90% (54/60) have beaten the FTSE 100 with gains of between 9% and 76%. Versus the FTSE All Share, 82% of the Strategies (49/60) are beating the Index. The average return of these long models was 22.4%. 

On the short side, all but one of the short selling strategies are in negative territory (as they should be), and even that one, the Altman Z-Score screen, is well below the market return (having eked out just 0.22%). The worst (or rather best) performing short screen is down 24.4% in the last year, showing how important it is to avoid fundamentally weak, near bankrupt stocks with potentially dodgy earnings - no surprises there! 

Which Strategies have done best?

As you can see clearly from the following chart (continuously updated here), this year has been a story of Value and Income, which have outperformed other investiny styles. 


At the top of the tables it's been a story of value, dividends and contrarianism trumping growth and…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.

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9 Comments on this Article show/hide all

kevinsamvance 5th Jan '13 1 of 9

The current top ten stocks ranked by Mcap from the Smallcap index have also gone up over 70%(plus 3% divi) from 1st Jan 2012 to 1st Jan 2013. No rebalancing trade costs every quarter and a spread average of around just 1%. There are many ways to skin a cat. KLR, SPRT, TCG, 888, NTG, FSJ, STHR, GNC, CINE, BRAM.

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Roger Lawson 7th Jan '13 2 of 9

Fascinating. But with the average return on all long screens being 22.4 when you are including small cap and AIM companies in the screens, and as you say yourself the small cap index is up 26% (although the AIM index is down but mainly I suspect because of companies in the mining sector with assets but no revenue or profits being downgraded which would be excluded from most screens anyway), it still leaves the question of whether blindly using screens would help. But doing this each year may tell us which screens are reliable and which are not. Guess we'll all be looking at what the Bill Miller screen is currently recommending.

Website: Roliscon
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loglorry 7th Jan '13 3 of 9

Do you have a screen to screen out the bad screens please or if you have several such screens then a screen for them?

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Roger Lawson 7th Jan '13 4 of 9

Hang on, the Bill Miller screen is definitely "concentrated" as the article puts it. In fact at the current time it only suggests three stocks - Dart, Standard Chartered and Air Partner. Nobody with any sense would run a portfolio of 3 stocks, particularly when 2 of them are very small companies. Maybe what we need is a "screen of screens" so we can get more in there rather like a "fund of funds" for all those of us who "sincerely want to be rich" (to guote Bernie Cornfeld).

Website: Roliscon
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Murakami 7th Jan '13 5 of 9

Thanks for the comments. We have something called the Screens of Screens - discussed in depth here - which picks the stocks that are appearing most frequently across all the other screens tracked on Stockopedia - be they value, bargain, growth, quality, income or momentum (excluding short screens). By definition, this tends to be a list of relatively defensive stocks because they exhibit good fundamentals across a wide range of investing strategies. What we haven't done (yet) is weight the importance of each screen based on its historic performance, although we are thinking about doing this.


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Murakami 7th Jan '13 6 of 9

p.s. Definitely agreed re: Bill Miller - as implemented, it's a very rigorous set of criteria so it's very concentrated when applied to just the UK stock universe and risky/volatile as an approach for that reason, presumably hence its outperformance to date and potentially its underperformance going forward.

We deliberately try to be very purist about implementing the relevant screening factors for a given Guru, rather than focusing on whether the resulting list itself is sufficiently diversified - that's the DYOR part.

We will shortly be expanding our coverage across Europe so that will add more candidate Miller stocks (you can sign up for the Europe-wide version here), plus we're working on moving from sequential screening (simple) to simultaneous Z-Score screening (much harder), at which point we should be able to generate and track more diversified lists, even for these very tough criteria/factor screens.  

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Roger Lawson 7th Jan '13 7 of 9

Well at least I am holding a few of the screen of screens stocks already!

Website: Roliscon
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kevinsamvance 9th Jan '13 8 of 9

Murakami, the reason I haven't subscribed to Pro yet is that imo the stock screen has little validity if its results cannot be backtested. The alternative is to wait several years to see how things work out which is not a good option for the trader or for Stockopedia. I've been using screening for several years & have no doubt what so ever it has vastly improved my performance but backtesting was an important part of the process in order to gain sufficient confidence to trade the strategy. The reason I highlighted the top ten smallcaps gaining 70% in my previous post is that backtesting tells me it's not actually a very good long term strategy. So, does Stockopedia have any plans to provide a future backtesting fascility?

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Murakami 9th Jan '13 9 of 9

Hi Kevin, we discuss backtesting a bit here in the FAQ: 

http://help.stockopedia.co.uk/knowledgebase/articles/80621-can-you-add-longer-timeframe-performance-histories .

The short answer is we're working on it but it's complicated to do well, and very dangerous if done badly (as most commercially available systems seem to be).

Do feel free to raise a Support ticket via the Green Help & Feedback button and we can discuss the issue in more depth offline.

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