Battered.

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27th Sep '18 by fahimc

28 comments 6798 reads

I am following a high stock-rank screen which tends to pay dividends. I have been beaten by the markets recently with the whole portfolio down by 11% in last 3 months.

Cenkos down 30%
IGG down 25%
Bonmarche down 25%
Griffin Mining down 30%
Royal Mail down 15%
Numis down 15%
Wynnstay down 10%
Hanstten down 10%

All these shares had a SR of 99+ when I bought them about 2 months ago.

I hope this is the 1/3 of probability of picking losers from the high stock ranks is playing out!

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About the Author

Fahimc

Premium Member

28 comments

andrea34

27th Sep '18

Thanks for posting. May I ask how you decided to pick these stocks? Did you do research too, or was this based on stock screening? My comments on the stocks you mention:

Cenkos Securities (LON:CNKS) - I used to hold these but dumped them on recent trading. I don't know why you would still be holding these, the last results were shocking.

IG Group (LON:IGG) - I don't know why people would be holding onto spread betting firms at the moment, the tighter regulations are obviously affecting the trading of many of these firms now with subdued trading and outlook statements from a number of them. Oh, I've just read that the CEO is stepping down too... not a good sign.

Bonmarche Holdings (LON:BON) - I so very nearly bought them after the previous update... but I am glad I didn't. Their trading updates seem to swing from positive to negative like a yo-yo and they are always blaming the weather. The retail environment is shocking at the moment, I wouldn't invest in retail stocks at all... though I do have one existing holding in QUIZ (LON:QUIZ) which on balance I am okay with after the latest update.

Griffin Mining (LON:GFM) - the last results were not good, there is still no interim dividend, the Zone II saga goes on and on, and the prices of all of the metals that they mine are looking weak. At this point, I also have to ask you whether you have a stop-loss strategy? If so, surely this would have kicked in by now...

Royal Mail (LON:RMG) - I don't have anything particularly scathing to say about them, but they are now in a very competitive environment.

Numis (LON:NUM) - the results and updates have been very good, but they have had a very good run of late. I'd guess that they are down on profit taking and on worries over the UK market performance as a whole.

Wynnstay (LON:WYN) - I have considered an investment in these, however the momentum is fairly poor and their history is rather chequered, so I am staying on the sidelines. They are also weather-dependent too, owing to farming supplies.

Hansteen Holdings (LON:HSTN) - I think they are down after a recent sale deal was terminated. The interims look reasonable, but the dreaded word "solid" is mentioned in terms of occupancy. Overall I think they look okay, and are now trading below NAV. But I am invested in others in the sector, some of which I am disappointed with and others more positive on.

I have just posted a lengthy comment on the NAPS post and will reiterate a point from that on here - I don't think one can blindly invest purely on Stocko ranks and stats, these must be a starting point for further investigation. Griffin Mining (LON:GFM) is a prime illustration of where this strategy is seriously flawed, in my opinion.

I hope all my comments help..

fahimc

27th Sep '18

Thanks for the comments. I think more research into the stocks need to take place. I was in good stead in the last few years on pure high rank and dividend selection. I am questioning the SR, even after griffin has fallen -30% it still ranks +90.

JamesS

27th Sep '18

Numis (LON:NUM) I too am a holder of Numis, and have seen it fall approx 10% since the start of the week with the only news I have seen being on share buybacks. So i am similarly confused by the fall. However as there has been no bad news, share buybacks are generally considered good, and the fundamentals havent changed i see no reason to sell and could possibly buy more (not advice)

matylda

27th Sep '18

My comment on Numis (LON:NUM) from May for what it's worth...

Bought into Numis (NUM) after a great set of interims at the beginning of May but sold out within the same month. The reasons, 2 fold I suppose – The results had little impact on the subsequent price action and also, I decided that the Revenue was too “lumpy” (reliant on big contract wins).

Today - I would also note that forecast Revenue growth for the next 2 years is <10% per annum and EPS growth <5% per annum - On a PER of 15 or so I would expect more (unless there's more hope for "lumpy" wins than I have).

dscollard

27th Sep '18

Price dislocations are becoming much more pronounced as this bull markets ages: liquidity is reducing as monetary policy adjusts with the business cycle. Add to these that many international fund managers are shying away from the UK for now as the Brexit unknowns won't fit any risk model and you have a fairly unstable mix.

I use both fundamentals and technical analysis as combined they are much more powerful than in isolation . Adopting a discipline of selling shares that dip below their 200MAs and stay there more than a few days is a good practice.

In every case you quoted in that list, a sell on the 200MA would have saved a lot of pain.

There is no magic significance in the 200MA: it is a big warning sign of a major change in trend as evidenced by the price action. The price action is a summation of all of the players in the market for that share. Most of good technical analysis is just physics ... there is of course a lot of snake-oil, sheep- gizzard staring charlatans around but they operate on ignorance (both on their part and the gullible who believe them).

Worth adding a bit of technical analysis to your toolbox if only to have entry and exit rules that provide you with a risk management framework to take profits and control losses.

Albertos

27th Sep '18

Hi

Griffin Mining (LON:GFM)

As andrea said the latest results were not good - I'd say very bad - so the question is definitively why is the SR is still 98.

One of the problems is Garbage In Garbage Out - not Stockopedia's fault - but, for example, if you look at the EPS forecast for 2018 you will see it's 24c and this has not changed from June since when they've had a poor first half (production down, costs up) and the price of zinc has fallen. Why? Because the analysts have not changed their forecasts - in fact there is only one (therein lies another story). Compare with Central Asia Metals (LON:CAML) (which has a greater analyst following) and you'll see the forecasts drifting down with metal prices.

Secondly there a certain things the SR cannot capture - an example here is poor governance. Based in Bermuda (currently insists on holding shareholder meetings there), poor communication, contracts with companies which the GFM directors are directors of ......To give Griffin Mining (LON:GFM) a quality rating of 99 misses these qualitative factors - but IMO are playing on the SP at the moment.

You unfortunately still have to DYOR even if you subscribe to Stockopedia.

Phil

Edward Croft

27th Sep '18

Hi Fahmic - sorry to hear you've been bruised recently by the markets. I thought I'd add a few notes to this conversation. There's a lot of emphasis in the comments about doing more research into the stocks you've selected. All sensible. But none of the wise counsel have mentioned the construction or risk of your overall portfolio.

So I thought I'd add some comments with a quick analysis. Please take the following comments as my opinion and not financial advice.

1/ Sector Diversification

Firstly, you have 50% of your portfolio in financials. This is only 1 sector out of 10 in our sector schema - so objectively that's a big single sector loading which is quite risky.

You also have 75% of your portfolio in cyclical stocks - (consumer cyclicals, financials and basic materials) and 25% in defensives/sensitives. At this point in a market cycle I personally prefer to be defensive - especially ahead of Brexit.

This chart really highlights what I mean: It's a screenshot from the new version of the Stockopedia site due out in the not too distant future. The purple sectors are all 'cyclical' and visually this helps with understanding.

5bad3fbba49b3Image_2018-09-27_at_9.35.25

2/ Risk Exposure

Secondly, your selections are quite loaded towards speculative shares. There are 3 marked as speculative and those are 3 of the 4 biggest losers over the last 3 months in the selections.

Speculative shares have an expected annual volatility of 45-70% (up or down). So the price change in 3 months is really not that far off what should be expected in a declining market for this class of equity.

The more conservative/balanced shares have held up far better in the recent decline.

5bad40a85c535Image_2018-09-27_at_9.39.54

Conclusion

Stocks move in the market like shoals of fish. More speculative shares often move much more dramatically than the overall market - up and down. Risk is something that needs deliberately managed.

One needs to separate security evaluation from security selection. They are 2 different things. I use the StockRanks as my proxy for evaluating stocks, but when selecting them I choose to spread risk across the portfolio by appropriately selecting sectors/riskratings. These are extremely helpful to avoid the worst of drawdowns.

I highly recommend reading this ebook on the RiskRatings and/or watching this webinar.

fahimc

28th Sep '18

Thanks for the great response Ed. I currently have about 25 shares in my portfolio. I have started moving my share to defensive and conservative/balanced shares. Goes to show the speculative ones are the shares which are going down the most.

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Fahimc

28 comments

1/ Sector Diversification

2/ Risk Exposure

Conclusion

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