In Autumn 2017 I started my version of the 'NAPS system', which I'm calling 'The Greenhouse NAPS'. I didn't get around to writing it up until Spring 2018. In this post I'm keeping track of the sales, buys and performance of the system.  I'll be honest, it probably isn't the most exciting read, and is more to allow me to be completely open with my trades, and to make me reflect a bit on the portfolio.

First three months - Sells

The first three months of the portfolio saw the first four stocks cut. Amino Technologies (25/10/17), Mondi (12/11/17) and X5 Retail NV (28/11/17) all lost 10% of their value so hit their stop loss and were sold. 

Globaltrans Investment I sold on the 3/12/17 and feel a bit guilty about, for reasons that will become apparent. At the time, I was aware I'd had three stocks hit their 10% stop losses, which I wasn't expecting. I was therefore toying with the idea of a 5% stop loss. However, if I'm brutally honest in my reflection, this was more my emotions making the decision than me tweaking and applying the rules. Woops....

Ialso sold Headlam at a loss of 7% on the 26/12/17. The logic behind this is that I was thinking this would be a quarterly rebalanced portfolio. I had lost 4 stocks, but needed a 5th to rebalance a quarter of my portfolio after a quarter of a year. Headlam was the worst performing so was cut. 

First Three months - performance

Overall, the first three months felt like they went pretty well. The portfolio value climbed from 60k to a little over £64k, a return of 6.7% in 3 months. Not bad at all, until you compare to the FTSE which went up 5.6% in the same period. Still, I took heart from the fact this portfolio is designed to get better as it gets older, so maybe that wasn't too bad. 

First Three months - Buys

My first round of rebalancing was on Boxing day (Yes, I know the markets weren't open, but this is a paper portfolio damn it!). In addition to selling the aforementioned Headlam, I also got to bring my portfolio back up to scratch after having a sizeable chunk of money sitting around not doing anything. 

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About the Author

Jmuggleton

Premium Member

Professionally, I'm a Psychologist. However I grew up watching and learning about how my father and grandfather invested to bring slow but steady returns. I've now reached a point in my life where I feel it is time for me to learn my way of investing. After dabbing in more Naked-Trader-esque trading, I realised that I probably don't have the skill to pull that style of trading off, and I should probably use a rules based system instead. I am currently using a variant of the NAPS Stockrank system (and still finding my feet!) more »

5 comments

Chela

You talk a lot about how your emotions are affecting your trading - but yet this is a paper portfolio. Nothing wrong with that per se, if you haven't got real money to invest yet. But you'll only really find out how you'll react psychologically when it's your own real cash on the line.

Having said that, it does sound like you're "emotionally invested" in the results, even if it might not be mirrored by a real portfolio, so even if it's just your pride at stake you should learn something!  Best of luck with it, I hope it goes well.

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jmuggleton

Thanks Chela. You're absolutely right. Truth be told I've not invested any real money (in any portfolio) yet. Initially running a paper portfolio was just so I could find my feet in stocks and make mistakes that don't cost me real money. However, my first experienced taught me that I get too emotionally involved in shares. This is exactly why I wanted to develop a rules based system to take the emotion out of it. It is also why I'm writing this. I want to put down in black and white my reasoning and my feelings, so hopefully down the line I can see why I made choices/understand my reasoning, and also hopefully see that my feelings about a stock just get in the way

Monitoring and tweaking a system is something that makes sense to me personally and professionally, and is much less emotional. While I'm arguably emotionally invested in the system working, I'm reasoning that my being a step removed from the actual share buying and selling will help reduce the effect my emotions might have on any share decisions.

Thanks again for reading, and your thoughts!

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gus 1065

Hi JM.

Nice series of posts developing - please keep it up.

If your new to investing and wary of being too emotional in your stock management (aren't we all) I can recommend reading the Laws of Wealth by Daniel Crosby that was discussed in this thread earlier this year. There is also an introductory podcast to give you a flavour of his approach.

https://www.stockopedia.com/content/new-behavioral-investing-podcast-327018/

Relatively short and jargon free, I found it a very useful walk through of many of the common behavioural errors that investors fall into. Slightly US market focused but most of the lessons are not market specific. Much cheaper than "learning by doing" when you start playing with real money - wish I'd discovered it a few years ago.

Best,

Gus.

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jmuggleton

Thanks Gus. I'm listening now, and is a very interesting. Heading to amazon now!


Cheers!


Josh

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Mechanical Bull

Nice post. I’ve been using a similar StockRank driven strategy for almost five years and so these are my suggestions.

First, having a sell rule when the StockRank drops below 90 will tend to cut good momentum plays out too early. Academic research shows that of all the factors, Momentum is the most powerful over the long term. This is also backed up Stockopedia’s own performance graphs, which show Momentum generally out-performing Value and Quality:

https://www.stockopedia.com/stockranks/performance/?exchanges=LSE%2CISD&field=_MomentumScore_lo∩=10&period=1&buckets=deciles

Indeed, for UK stocks over the past five years Momentum has outperformed even the combined StockRank. Momentum will not always prevail, but in the long term it is the key ingredient. My single most important advice for new investors it is to run your winners.

Related to this, I am not convinced of the value of having a 20% profit target per stock. Analysis of my own performance over the past five years shows that 68% of my profits have come from the small number of stock picks (just 6%) that have more than doubled in value. In my view, the more moderate gainers simply serve to off-set your losses – the profitability of this kind of strategy is made trying and get in the mix with the big gainers that go on to double or multi-bag.

For these reasons, I only look to sell once the StockRank falls below 80, but I will keep holding if the stock shows signs of continued momentum (i.e. a Momentum rank over 80). When a stock reaches 100% gain I sell half my holdings to lock in some profits but the rest I will keep running for as long as the momentum holds.

My final observation is about the apparent asymmetry between your buy and sell rules. If I understand, you only buy on one day each quarter year whereas you might sell anytime if certain sell rules are met. This will tend to reduce your market exposure throughout each quarter. Furthermore, your tight stop strategy will tend to take you out of positions during small market corrections and by the time your strategy allows you to buy, the market have well have recovered. In other words, your strategy will tend to reduce your exposure just at the point when you should be increasing it.

I use a monthly review strategy which limits trading to one day in the month. If a sell rule has been hit I replace it with something else right away. The only exception to this if a stock has a profit warning in which case I sell immediately (and then replace it with something else).

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