Magic Hat portfolio: Quarto in, Huntsworth out
My Magic Hat fantasy fund, which is mostly mechanical, is on Stockopedia: http://www.stockopedia.com/fantasy-funds/magic-hat-463/
It has had a lacklustre performance over the last 3 years, slightly underperforming the FTSE 350. It does beat it over the portfolio lifespan, though. It is slightly underperforming the Joel Greenblatt screen over 2 years. The Greenblatt screen was slaughtered during 2014, having made a massive run-up in 2013. Its latest 6-month performance has exceeded its benchmark by a huge margin (19.3% return vs 4.1% for the FTSE 100). The moral is: it’s probably better to invest in a screen after a bout of underperformance than a bout of overperformance.
It is that time of month when I swap a share around in the portfolio. I’m ejecting Huntsworth, because it was bought a year ago. It has been a terrible performer, down 20.8% from its purchase price. It had a profit warning shortly after the shares were purchased, as required by Sod’s Law. The share no longer qualifies for the Magic Formula screen. It rates an “E+”. However, I think that figure is likely to be distorted by the recent set of accounts. I don’t think the situation is as bad as they seem. HNT is on a PE of 11.4, a PEG of 0.96, and a yield 4.06%. So it is entirely possible that this share could go on to perform well. I sure to wish I hadn’t ejected IMT (Imperial Tobacco) from the portfolio in order to make room for HNT. IMT is up nearly 23% over 1 year.
I have grown a little despondent with the Greenblatt screen, and was thinking of doing away with it. On reflection, though, I decided to stick with the Greenblatt screen, but add an extra criteria: select only those stock with a Stockopedia Stock Rank of at least 90.
There’s quite a few to choose from. I decided to restrict the selection to those having a dividend of at least 3%. Everyone likes a dividend, right? That still leaves a few to choose from, so I just chose one that looked good arbitrarily; nothing much more scientific than that. I decided to opt for Quarto, which is a book publisher and distributor. It is on an EV/EBITDA of 2.71. How much cheaper do you want?
I recall that QRT had positive reviews from ExpectingValue (http://expectingvalue.com/) and theredcorner (http://quinzedix.blogspot.co.uk/) in the past.
May you all be happy.
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4 comments
Quarto looks OK apart from Altman score is low, so risk of bankruptcy and the spread is about 5%.
Ive looked at Magic formula and it does not seem to perform that well. A few dodgy companies in there, are some there figures real?
The Magic Formula is a sucker for Chinese AIM stocks, I'll give you that! They tend have a lot of cash (at least allegedly), and low PEs. Unfortunately, the market is, generally speaking, wise to their shenanigans. Magic Formula stocks fall straight for them.
I would say that another weakness is that it can also be prey to anomalies in the accounts, which skew the measurement of both value and ROC.
I think a human stockpicker should be able to suss out the most egregious companies. Having said that, even the truly atrocious stocks can have a big run-up when the market is in the right mood.
For those who want a Greenblatt screen but don't want to do too much thinking, I think that overlaying the StockRank is a good idea. It tends to pick up on things that causes the raw Greenblatt screen to go astray.
From memory, and based on a sample size of 1, I found that Greenblatt stocks with good momentum did better than bad momentum. Greenblatt reported himself, though, that the reverse was the case.
Yes I'm sure you are right about Chinese co. I avoid them. But I was not talking about chinese cos. 3 that I notice were QPP, Globo and WIN, all have ?marks over them. Im sure there are others. Yes momentum is very strong and has been proven, not sure its the herd mentality or what. They say when everyone is buying thats the time to sell.
I like that Quarto is reducing its debt,but it still has to much.It seems to be forecasting an increase in the divi,which would be premature IMHO considering the amount of debt it still has.