2018 Strategies Review - A tough year for the gurus

Thursday, Jan 10 2019 by
45
2018 Strategies Review  A tough year for the gurus

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.

5c36059431ba1gurus_all-time.png

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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Disclaimer:  

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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33 Comments on this Article show/hide all

iwright7 9th Jan 1 of 33

Edited...

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iwright7 9th Jan 2 of 33
6

Ben,

Another excellent review that demonstrates how difficult it is to make money in a failing market. There were few even so called low risk strategies that avoided a loss. What I take for 2018 is that it pays to revert to a greater and greater proportion of cash (in my case up to 50%) from companies within the portfolio whose momentum has weakened most, once it becomes clear that there is general stockmarket market weakness. Then sit on the sidelines and to avoid boredom take the odd stake in improving quality companies and hope for the best.

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threeputt 10th Jan 3 of 33

Not sure this truly reflects gurus strategies, for example I know that Robbie Burns made huge profits by shorting the ftse 100 in the year as a hedging strategy. I don't know about the rest but I suspect he as an example made good profits in 2018

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Roger Lawson 10th Jan 4 of 33
3

Absolutely fascinating, and makes me feel even happier about my own portfolio performance last year - see https://roliscon.blog/2019/01/03/review-of-the-year-ive-seen-worse/ . Rather shows that screening based on a simple formula to pick a few stocks which you can stick to for months is not the answer alone. Needs to be combined with some trading activity on a day to day basis, and cash management to reduce exposure to the market when it is falling.

Website: Roliscon
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PhilH 10th Jan 5 of 33

In reply to post #434573

I know that Robbie Burns made huge profits by shorting the ftse 100 in the year as a hedging strategy.


Strange as they are not listed on his site! If you look back at his spread bet shorts you can see that he shorted the ftse in 2010

Professional Services: Sunflower Counselling
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mmarkkj777 10th Jan 6 of 33

In reply to post #434573

Hi Threeputt,

The Guru strategies, I'm sure, only represent a nod to the selection and trading styles of the actual Gurus. They should really be considered as separate entities (and I'm sure that was the intention).

Its still interesting to fish here for shares that match various screening criteria, even if you feel the market is not suitable for acquiring them at the time.

I attended Robbie's seminar late last year (Dec) and he was in fact shorting the FTSE at that time with a spread bet. He was going to close it and reverse the position for the Santa rally, if it occurred. He probably did it early Jan instead. I don't know his overall results for the year, but my guess is he probably did OK :-)




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mmarkkj777 10th Jan 7 of 33

In reply to post #434683

Hi Phil,

I don't think Robbie puts everything on his Web site. I know he is fairly open, but he probably keeps some cards close to his chest.

He is also a Stocko user and looks at his namesake Guru screen, which must be pretty strange!

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Luthrin 10th Jan 8 of 33
15

"In addition, we don't account for the drag of trading costs or the bonus of dividend payments in the performance data."

The lack of total returns data for portfolio holdings is Stockopedia's greatest weakness in my view and makes any analysis of guru strategies not only incomplete but potentially highly misleading. It seems nonsensical that income strategies are being compared to those of momentum and growth ones when the actual income from the companies held is missing from the performance calculation.

Take the Dividend Dogs screen for example. The current UK qualifiers have dividend yields ranging from 6.7% to 13.3%, so if 2018's qualifiers had yields in a similar range, what would the overall performance of that strategy have looked like if the income stream had been added to the capital return? In this strategy the dividends aren't merely a 'bonus' on the side as Ben's phrasing implies - they're core to the whole investing rationale.

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Kiewit 10th Jan 9 of 33

If one wants to follow a Quantitative investing style wouldn't the Guru screens be useful?

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Kiewit 10th Jan 10 of 33

In reply to post #434673

@Roger Lawson.

Hi Roger what do you mean by trading on a day to day basis? Wouldn't this introduce biases? Do you mean to use 200MA on the overall market or non-technical strategies to assess market momentum?

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LovelyLovelyGorgeous 10th Jan 11 of 33

In reply to post #434793

I was thinking the very same thing. The fantasy portfolios are pretty poor for that very reason

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adatherton 10th Jan 12 of 33

In reply to post #434573

Good point, if you buy alpha stocks and short the index, theoretically you will gain in all years, although obviously you will lose overall, as alpha is not as much as overall growth.

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adatherton 10th Jan 13 of 33

You couldn't win this Q4 whatever you did, but it doesn't matter, you'd still be well up on the decade, and still will if the FTSE or SPX falls further. This is why I trade (or rotate short-term, same thing), but short-term work involves technicals over fundamentals, and people don't like that, as surely earnings and news per company are what matters, not lines on a chart. But the reality is that intra-quarter, lines on a chart, and macro sentiment are all that matters, otherwise stocks would be flat between each earnings report.

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