2018 Strategies Review - A tough year for the gurus

Thursday, Jan 10 2019 by
39
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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27 Comments on this Article show/hide all

Luthrin Thu 2:19pm 8 of 27
13

"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 Thu 5:40pm 9 of 27

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

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Kiewit Thu 5:42pm 10 of 27

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 Thu 6:34pm 11 of 27

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 Thu 9:01pm 12 of 27

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 Thu 9:07pm 13 of 27

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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adatherton Thu 9:08pm 14 of 27

BTW @Stockochat hasn't worked for over 6 months

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mmarkkj777 Thu 11:06pm 15 of 27

In reply to post #434948

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?

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zeibots Fri 3:36pm 16 of 27
3

In reply to post #434948

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.

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Roger Lawson Fri 8:30pm 17 of 27

In reply to post #434883

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.

Website: Roliscon
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Metatron Fri 8:48pm 18 of 27

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

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gus 1065 Sat 7:55am 19 of 27
3

In reply to post #434683

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.

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zeibots Sat 10:31am 20 of 27

In reply to post #435398

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.

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mmarkkj777 Sat 11:29am 21 of 27
1

In reply to post #435478

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.

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zeibots Sat 4:10pm 22 of 27

In reply to post #435483

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.

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mojomogoz Sat 5:59pm 23 of 27

Experts! Can't be trusted ;)

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mmarkkj777 Sun 11:46am 24 of 27
1

In reply to post #435523

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.

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ramonvasquez Mon 7:34am 25 of 27
1

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 .





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zeibots Mon 10:46am 26 of 27
1

In reply to post #435623

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.


















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zeibots Mon 12:21pm 27 of 27

In reply to post #435733

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.

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