2018 Strategies Review - A Tough Year For The Gurus

10th Jan '19 by Ben Hobson

33 comments 9982 reads

After a solid 2017, most of the 60 guru-inspired investment strategies tracked by Stockopedia hit turbulence in 2018. Much of the trouble started in the second half of the year - and the worst of it unfolded in the final three months. After a decade of powering market returns, growth and momentum strategies pulled back sharply. Whether it’s the start of a new trend is unclear. Either way, stock market investors finished 2018 feeling pretty bruised.

About the Guru Strategies

2018 was the seventh full year of us tracking the Guru Strategies in the UK, with slightly less performance history for Europe and the United States. Over time, these models have been a handy gauge of what’s working in the market and how different styles react to different conditions.

Not only do they show what’s working, but they also show when trends start to change. Through the lens of of the gurus, we get to see how different styles of investing - spanning Quality, Growth, Value, Bargain, Income and Momentum - interchange with each other.

Over the past seven years, which covers a good chunk of the boom in equities since the financial crisis, it’s clear just how successful the growth and momentum trades have been (see the orange and red lines in the chart below). That performance actually accelerated in the after the EU referendum in June 2016. In fact, it’s fair to say that both styles were still strong right up until last summer.

But as the year wore on, the bull faded fast. In the US, the prospect of rising rates and trade disputes were just two of the reasons why the S&P 500 finished the year down 6 percent. In the UK, the same concerns mixed with a host of domestic economic and political uncertainties sent the market sliding. The FTSE All Share closed the year down 13.0 percent, while the more speculative AIM All Share finished with a fall of just over 18 percent.

Index / Strategy Composite	H1 2018	Full Year 2018
FTSE 100	+0.6pc	-12.5pc
FTSE All Share	-0.8pc	-13.0pc
FTSE 250	+0.5pc	-15.6pc
FTSE SmallCap XIT	-1.5pc	-16.6pc
AIM 100	+5.1pc	-18.9pc
AIM All Share	+3.1pc	-18.2pc
S&P 500 (U.S.)	+1.7pc	-6.2pc
FTSEurofirst 300 (Europe)	-3.9pc	-13.0pc
Guru Strategy Composite	+2.4pc	-11.7pc
Growth Composite	+2.2pc	-9.3pc
Momentum Composite	+5.9pc	-9.3pc
Bargain Composite	+10.5pc	-2.4pc
Value Composite	+1.6pc	-11.2pc
Quality…

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adatherton

10th Jan '19

BTW @Stockochat hasn't worked for over 6 months

mmarkkj777

Hi Adatherton,

Re: your statement "You couldn't win this Q4 whatever you did" What about if you had just shorted the FTSE or AIM?

zeibots

11th Jan '19

You say "technicals over fundamentals and people don`t like that" .
Perhaps it`s time that these people learned to take a more balanced approach. As far as the gurus in Stockopedia are concerned the closest we get to a balanced view is William O`Neil`s site. The clue here is that it is called "-esque". To put it in other words it`s simply not the real deal. We know that O`Neil just like Mark Minervini is a techno-fundamentalist.. Their strategies involve precise timing of entries and exits from the market associated with the trend as well as the price/volume relationship of stocks. No quarterly reviews for these boys as the market does not work that way, they closely monitor their stop losses. This sort of approach is beyond the scope of our site and sadly as you say people don`t like it.

I have read O`neil`s books and my main guru is Mark Minervini, I have read his book `Trade like a Stockmarket Wizard` about three times and keep referring back to it. The book is a bit of a misnomer in that it`s focused on investment rather than trading.

This is why my portfolio has been about 85% in cash since late September and is likely to stay that way for the foreseeable future.

Roger Lawson

I mean you sometimes need to respond to news on a daily basis. Certainly I monitor my portfolio for news and individual share trends on a daily basis. I tend not to look at overall market trends because they get reflected in individual share movements anyway.

Metatron

Anybody who researches the post 1929 bear market will find that there were huge bull market rallies within it Wonder which guru strategies if any might be best suited if as I believe we are going back to the post 1929 bear market world

gus 1065

12th Jan '19

Hi Phil.

To be fair to Robbie Burns/the Naked Trader, the trades tables that accompany his blog are predominantly individual shares (both long and short) rather than broader trades he places on indices. If you follow his bi-weekly newsletter (or for that matter attend his regular seminars) he’s pretty open about what he’s up to both on specific shares and his views on the market in general.

He suggested taking profits and moving into cash in the late summer of 2018 and was advocating short index spread bets on the FTSE 100 when it was at or around 7600. In his Jan newsletter he claimed short index profits of £100k over the last quarter or so. I’m not sure his commentary would necessarily stand a full audit, but given his long track record I’m happy to accept his claims at face value. (He also admits to taking a smaller punt on a putative Santa rally that failed to arrive (so far).

While his writing style seems pretty light hearted and some may dislike his excursions into the TV schedules or the prospects for Fulham FC, he does seem to have a shrewd sense for the markets backed up by consistently good results (evidenced by a reported 14% gain in his 2018 ISA). He’s one of the few market commentators (beyond our own SCVR) that I rate and follow regularly.

http://nakedtrader.co.uk

Gus.

What influences your share price? The descending order would be economy,market,sector,industry and only then company. The market and the sector alone are likely to have a total influence of 80%.
Ignoring the elephant in the room and just looking at the individual share and the news relating has had a destructive influence of many a portfolio over the last few months.
Another factor is that very often a new bull run will produce a distinct change in sector strength, new sectors will emerge to the fore. Historically the new market leaders will make the largest percentage. advances early in a new bull market, research confirms this.

Hi Ziebots,
I Agree in principle, but Warren Buffett says why wast energy on what you can’t control. He therefore ignores the market and concentrated on Finding great companies at a good price.

The best time to actually buy stock is in a bull market. Sure, you cannot control the market but you can control the finger that presses the key to buy.

mojomogoz

Experts! Can't be trusted ;)

13th Jan '19

Hi Zeibots,

Hi Zeibots, your statement "The best time to actually buy stock is in a bull market" this may be true for traders, but not sure for long term buy-and-hold investors. Usually the best time to buy is when the markets are depressed.

ramonvasquez

14th Jan '19

Hello Everyone ...
To be frank l commend Luthrin's point about the utility of failing to account for actual dividends , bonus share issues and the rest in order to make a true comparison of all the gurus ' results .

Having read most , if not all , of the guru ' s books , my conclusion is that one should develop one ' s own screen
for the purpose of actual trading / investing .

In my own case , l just use a momentum - based method by the use of moving - average crossings . Though l have to admit l am a bit of a valueist .

To date , i am circa 80 % in actual cash , not bonds at all . Awaiting the crash [ which may never come ] !

Best wishes , Ramon .

Buying stocks in a bull market is true for everyone, there is no maybe about that. The crunch time is when the market retraces. This is when the big players take the profits that they have made and sadly many buy-and-hold investors simply hang on and watch their gains drain away and hope that someday the trend will change in their favor again.
You can learn a lot about yourself mmarkkj777 and your character as an investor by reading Lee Freeman-Shor`s book `The art of Execution`. This book is written by a fund manager who has done a lot of research on this subject and it makes a very good point -- the person who knows his character,and is knowing of his environment, is the one who wins over the long term,provided he is asked to make defined decisions.

You are right Ramon, moving average crossings are important, not only their crossings but also their direction. They also serve as the real trendlines rather than the ones you draw that may well have a lot of imagination attached. One of the very best to explore this concept and also the one who uses their order on the chart namely in top down order -- 50SMA, 150SMA, and 200SMA is Mark Minervini. This is an integral feature of his very successful investment strategy. He would not hit the buy button without having all the ducks in a row.

17th Jan '19

Hi Zeibots,

I wasn't disagreeing with you. I quoted Warren Buffett. Mark Minervini has a totally different view to holding long term. Horses for courses.

Why do you say the buy and hold investors sadly watch their gains disappear. I haven't seen Warren crying about this, through any of the bear markets (he is giving most of his retained wealth away, is it $80 billion now?). There are no bigger players.

The market always recovers long term and goes on to higher highs.

I don't always, btw. I went to cash in Nov (have held during previous corrections/downturns).

I was just presenting an alternative view, that many long term holders buy when the market is depressed. Be brave when others are scared. Be fearful when others are greedy, as the old saying goes.

Thanks for the reading tip (I'll do that). None of us are too old to keep learning.

Yes Minervini is different but not the way you think. He is more proactive and closes all his losing positions before they decline by 10%. This leaves open positions in the winners only, no sentimental attachment. He hangs on to the winners.
Try this by going back in your portfolio records and imagine that you had sold all losers when they declined to this level. You will be astounded by the difference in the performance of your whole portfolio. Granted that some of the losers will recover later but overall this is not a risk worth taking.
Reading just pages 276-279 in his book will convince you.

Hi Zeibots,

I already do this. In other threads I have suggested to cut losses quickly and use a 8-10% close stop (and been critisised for it). I have read Minervini and he is a great trader and I have been using these techniques for a while now (with success). But I also have a passive buy and hold portfolio in my Pension.

Please don't try to try to second guess how I must think. My comment was that long term buy and hold investors (as opposed to a trader) buy when the market is depressed and prices are lower. I still think this is correct.

There is no right or wrong answer. Who can say if Warren Buffett or Mark Minervini are right. The answer is probably that they are both right and their respective methods work for each of them. In the end, that's all that matters.

Gromley

Buying stocks in a bull market is true for everyone, there is no maybe about that.

Personally the stocks I bought in the bear market during late 2008 and early 2009, proved to much better performers than those I bought in 2007 during the bull market!

Of course you do qualify the view with

The crunch time is when the market retraces. This is when the big players take the profits that they have made and sadly many buy-and-hold investors simply hang on and watch their gains drain away and hope that someday the trend will change in their favor again.

Bull markets have plenty of short falls that could easily be taken as the signal for a major retrace, but in fact were not.

I you have the ability to determine, in advance, even with a modest degree of accuracy where the real market tops and bottoms are (rather than the false signals) then hats off to you. If that's the case, would you be prepared to share?

18th Jan '19

`Where the real market tops and bottoms are` -- there is no precise answer to this and the worst guide to this is provided by the financial press. The confirmed trend will tell you where you are in the market as well as the progress of individual stocks. looking at any stock`s life cycle you will find that they progress in different stages that are almost always linked to earnings. Stan Weinstein in his book that was first published in 1988 presented this concept. Nothing has changed since. This is also a core concept in Minervini`s strategy. Both of these as well as William O`Neil are techno-fundamentalists. Many years ago the banker Baron Rothchild was asked why he was such a successful investor. His reply was that he always bought too late and sold too early. Like the others he was interested only in the positive trend, this is Stage Two that is the advancing and accumulation stage. Minervini reviews all the stages in detail and makes it clear when they start and end.
Finally, my portfolio is over 85% in cash at this time and is unlikely to undergo much change any time soon.

You are on the right track in cutting losses at 8-10%, don`t just suggest it but do it. The critics of this strategy simply don`t understand the basics of running a portfolio and cannot do the maths.
However this strategy should be used hand in hand with the precise timing of opening your positions in the first place. This is to do with established trend and volume factors that give you the necessary information to ascertain if your chosen share is undergoing accumulation or distribution by the big players. This makes your stop loss levels much more meaningful and works best with equities that are liquid and have higher capitalization levels.

2018 Strategies Review - A tough year for the gurus

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Ben Hobson

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