My Favourite Contrary Indicator For Avoiding Stocks Like Globo And Plus500

23rd Oct '15 by Edward Croft

62 comments 33766 reads

This is a quick post following this morning's news that Globo has been suspended from trading on AIM just after an expose was published by an asset management firm. Globo is another of these foreign listed AIM stocks, like Plus500, that has looked 'too good to be true' to many investors. Sadly, all too many investors have been drawn in at top of the market prices into these stocks before bad news has hit them.

I spotted the company a few years ago and thought the fundamentals looked wonderful. So I downloaded their software which literally failed to work on my iPhone. The last time I bought the shares in a foreign listed AIM company whose software didn't work for me I nearly lost my shirt (RCG), so that's all the information I needed to avoid it and commented regularly to that effect. But since then Paul Scott has written about 18 major posts about Globo warning investors about the company's accounts. You can read his incredible archive on the company here. Paul is a legend - you can get his reports by email daily here.

Being a data geek - I have though developed my own fabulous contrary indicator which I'm keeping close at hand to help me avoid shares like these in future. It's Stockopedia's good old portfolio 'bubble chart' applied to the most discussed shares on bulletin boards in the UK.

For those that don't understand this chart here's a quick summary. On the vertical-axis you have a company's Quality Rank - with good (profitable) companies at the top and junk (unprofitable) companies at the bottom. On the horizontal-axis you have the Value Rank - with cheap companies to the right, and expensive companies to the left. So the academic theory goes, good, cheap companies (top-right) outperform expensive, junk companies (bottom-left) - so intelligent investors would be avoiding any stocks which lie in the red segment of the chart.

5629e51c414a5Discuss___Portfolio_Overvie

The blue bubbles on this chart are the top 100 most discussed stocks on UK bulletin boards (as of a year ago) - the current list of which can easily be found on the web at sites like the excellent Aim Soiree. Sadly as we can see most of the most discussed stocks in the UK lie in the bottom-left…

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Wol

23rd Oct '15

Arnie
You asked about how to see Paul's blog. Ed has given the link at the top of this page. In Ed's article, where he says "Paul is a legend - you can get his reports by email daily here". Just go through Ed's article and click on the link. Or you can just hover your mouse over the HOME button at the top of Stockopedia. Under regular columns, click on Small Cap Value Report. That's Paul Scott's daily report. Invaluable!
Julian

Edward Croft

Alanh - to be fair you did accuse us of republishing the infamous report (which we didn't) and you swore in your first post! If someone walked into your home and did that I'm sure you'd frown - which is all a thumbs down means. You are welcome to return at any time but please do follow the posting guidelines!

underscored

Is there any option to use Benford's law to spot made up data sets? https://en.wikipedia.org/wiki/Benford%27s_law

alanh

This comment has been moderated

No, there is no equivalent publicly searchable database of clinical trials for the EU. The EU has a clinical trial database (EudraCT https://eudract.ema.europa.eu/results-web/), but it is not yet publicly available. Many EU states and other non-US countries make publishing the details of the study on ClinicalTrials dot Gov a mandatory step of the study licence, so if I were you I would search there anyway.

Thank you for that helpful info my friend. Just goes to show that working together achieves far more than flinging testosterone brick bats. Im starting to like it here.

Catstycam

Alanh, have you read the full report by QCM?. In what aspect is it fatally flawed?. I like to think contributors here are open minded to both sides of an(y) argument, both bull and bear without getting emotional (our own worst enemy (from experience!)).

You got a thumbs down for "You would do well to do your own research before re-publishing BS." Additionally in your subsequent post "..you must have led a very sheltered life in a fundamentalist community that doesnt even watch the BBC after the water shed." That doesn't go down well and is more reminiscent of the posts I read on the bulletin boards usually reserved for the highly speculative high risk shares after a poor day.

" "You would do well to do your own research,,,,,,,,,,,,,,,,", and then you are asking folk here to help you in your research?!.

"Any help will get an unequivocal thumbs up and a recco for something HUGE which will require you load the truck up or shovel it out short.". Can't wait, but sorry, I am too busy............doing my own research!.

I am not wanting this to become anything like a slanging match on here or anywhere so will just wish you good luck. Good luck

CM

Sorry but we don't want this site to turn into an unruly mob, so I've nuked a few posts. Let's keep this place a space for sensible investors and sensible discussion.

99figaro

Where can we see the stocks that are in the bubble chart?

m096146

Lets wait and see what GLOBO says in response to the article and subsequently what the market says when the shares return from suspension. Discussion about BS is nothing to do with a website like this and should be moderated out.

Figaro - you can find them by clicking the bubble icon at the top right of the table view bar.

562ab5b1061aeNAPS___Portfolio_Overview__

Blissgull

24th Oct '15

Actually Ed there is a interesting little bug in the bubble charts which you may want to look at. You probably wouldn't want me to write it here so I will use the green feedback button.

mgallear

From the given graph it would appear that you need a QV Rank over 50 to avoid the majority of the iffy shares that are being honest about their figures. (This is cutting the investable universe down by a considerable amount.)

I have to admit that I have not analysed my portfolio in the past using the bubble tool but have started to go through my stock screens to catch any in the red sector and they have not done that badly so far.
Not sure that looking at a ranking of activity on advfn to find dishonest shares is really all that rigorous for a true fundamental quantitative investor. (But it is certainly an interesting exercise.) I suspect that most true technical investors do not care as long as they go up.

It might be wise to avoid investing in Chinese shares but if you avoided all foreign shares than you missing out on a lot of the point in using Stockopedia and having an international stock market such as the LSE and AIM

The ideas by Mark Carter are very helpful and I do look at director dealings but these are not available for European shares. I have come across comments on a company changing its auditors perhaps rather ironically on advfn, but I have never rigorously looked as this aspect to check the shares in my portfolio. Does anybody know of an easy way to do it?

I do not think it is at all easy to find out if a company is cooking it books or lying about its products by just doing a 5 minute google search - well not until it is far too late. (Have a think about Volkswagen and BP.)
I would like to know why the Benish M score and the Montier C score frequently do not detect shares with very strange balance sheets but they are obvious to an accountant like Paul? (I know it is not a good time to ask Paul a question and nothing I can say will help.)

pka

mgallear wrote: "I would like to know why the Benish M score and the Montier C score frequently do not detect shares with very strange balance sheets but they are obvious to an accountant like Paul?"

The following article doesn't fully answer your question, but it explains why Paul thinks Globo's accounts are full of red flags:

http://www.stockopedia.com/content/small-cap-value-report-gbo-koov-107216/

Mark - the Beneish M-Score was flagging for a couple of years on Globo which was one of the reasons why I gave it a wide berth. Beneish has been a great indicator to have in the toolbag - it's flagged lots of high profile companies before earnings misses or more dubious accounting issues - such as Blur Group and Supergroup.

Of course all statistical measures have only a percentage hit rate. There are false positives and false negatives on both sides. No rule of thumb statistical measure is going to be able to read the footnotes or between the lines in accounts, but it's better than having nothing.

Thanks pka - I had read that article by Paul – I think he was at his best!

HI Ed - you have four periods for the Beneish M Score. I look at the Beneish M Score, Last Yr as from the Stockopedia glossary this seemed to be the best one to use. (I do not actually screen stocks out using this measure as many companies do not have this data but try to remember to look before I buy).

AnonymousUser37607

Quality of debate on this company is so bad, uncertainty seems to be peeking, herd mentality, this stock has it all right now - question is who has done their research properly in order to stick with their convictions, short or long?

No one else should care but for what it is worth currently no position in Globo but QCM document was pretty lame in my opinion; few issues were raised but for months of detailed research (allegedly) it contained a lot of basic errors. My favourite was the search for a Mr Alan Bates in Tonbridge ... Look at pages 29 and 30 ... It is so naive and shows a real lack of basic research and understanding. Put together by amateurs.

However, in terms of Globo it is now quite clear that Costis has to go, CFO also, and most of the board. Hence, my view is that Globo has no independent future - Costis has taken this as far as he can but the incompetence now should not be acceptable to any shareholder. The bond issue demonstrates the naivety of Costis and the board - US investment bankers will promise you the earth for a fee; who was providing the push back to say this made no sense. Too many issues now are largely self-inflicted.

Costis has perpetuated the current situation by his inability to effectively communicate clear responses to the shorters - some of the points have merit - and it has been going on for far too long. Ennismore have not updated the research on their website from January 2014 - does that not send some sort of message to Globo? Many of the same issues are now recycled in the QCM document. Globo has had plenty of time to address many of the issues and hasn't. Incompetence or deliberately vague? Certainly incompetent - that would be enough for me.

MGerard

26th Oct '15

Or just buy an FT.com subscription. Excellent work by Dan Mccrum on Plus500 and Quindell.

Mikeyflange

soPaul was able to flag Globo as suspicious a while ago. Perhaps it would be of value to Stockopedia to add a new indicator that would raise a red flag for the mere mortals like myself that are not accountants.. Even looking at the stock report and stck rank today one would be forgiven for believing it was a stock worth purchasing . Globo still shows a stock rank of over 80 and passes 6 screens.. I know it's upto the investor to due due diligence , but if the auditors grant Thornton could not elicit the truth what chance have we got .
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My favourite contrary indicator for avoiding stocks like Globo and Plus500

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Edward Croft

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