My StockRanks Farming Approach - a 20k Real Money Test Portfolio

Monday, Apr 20 2015 by
70

In 6 months the portfolio has gained 20%

Background

As a Naked Trader type investor in the UK markets for the past 10 years I have found myself with some reasonable success doubling my total portfolio within that time.   I have also found Naked Trader type investing to be easy to understand and simple to adopt while adding into Robbie Burns criteria my own important filters like the free cash flow.

But as an offshore worker, I have found it difficult to effectively manage several portfolios impossible due to slow (or overlay used) internet connections (via Satellite) while onboard vessels I really wanted to find another angle of investing that would be less intense.

During my first year using Stockopedia, I spend much of the time reading through all the material in the Stock Ranks, the hunter and farming approaches to stock selection and also portfolio management.

The farming approach appeared to me to be a more suitable system of investing that would fit my lifestyle.  The farming approach would allow me to check my portfolio even just once a month, and I would still be able to sleep at nights.

If only I had trust in the StockRanks and the only way for me to gain trust in the system is to actually use the system, using real money.  So last October I decided to take £19K from my main portfolio and create the farming test approach.  I actually thought I put in  £20k but it seems I mislead!   My ISA portfolio fund contains quite a large amount which I prefer not to disclose.  But within this fund is my farmed portfolio, started on the 16th October with a cash amount of £18, 992.

My Farming Rules

  1. The Stockopedia QVM Recipe (Quality > 66, Value > 66, Momentum > 66)  
  2. Dividend Yield 12 month rolling > 0
  3. Market Cap > £20m
  4. Spread (bps) < 500
  5. Sector includes - One screener for each sector (10 sectors in total)

I also subscribe to the US & UK Edition. I only have one US stock (Tesoro) and I seem to have difficulty with adding other US stocks into my ISA via my broker.   So my decision may be to revert back to just UK stocks for this portfolio.

Exit Plan

A stock will leave the portfolio when it goes below StockRank…

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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. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. 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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Animalcare Group plc is a United Kingdom-based sales, marketing and product development company. The Company is principally engaged in the development, sale and distribution of licensed veterinary pharmaceuticals and identification products and services to companion animal veterinary markets. The Company develops and sells goods and services to veterinary professionals principally for use in companion animals, operating through the United Kingdom wholesalers and distribution and development partners in markets in Western Europe. The Company's product portfolio is divided into three product groups: pharmaceuticals (Licensed Veterinary Medicines); pet microchips (Companion Animal Identification), and consumable items (Animal Welfare Products). Animalcare Ltd is the Company's subsidiary. It has operations in the United Kingdom, Europe and Rest of World. more »

LSE Price
139.5p
Change
 
Mkt Cap (£m)
83.8
P/E (fwd)
11.6
Yield (fwd)
3.2

Barratt Developments PLC is a holding company. The Company is principally engaged in acquiring and developing land, planning, designing and constructing residential property developments and selling the homes, which it builds throughout Britain. The Company operates in two segments: Housebuilding and Commercial developments. Its housebuilding segment operates through approximately six regions and approximately 30 operating divisions delivering over 17,319 homes. Its Commercial developments are delivered by Wilson Bowden developments. It purchases land in targeted locations and designs homes for its customers using standard house designs. Its brands include Barratt Homes, David Wilson Homes and Barratt London. Its Barratt Homes brand focuses on making homes. Its Barratt London brand portfolio offers apartments and penthouses in Westminster to riverside communities in Fulham. Its David Wilson Homes brand offers home design and specification, and focuses on developing family homes. more »

LSE Price
650p
Change
-1.4%
Mkt Cap (£m)
6,711
P/E (fwd)
9.2
Yield (fwd)
7.0

Empresaria Group plc is a United Kingdom-based international specialist staffing company. The Company's principal activity is the provision of staffing and recruitment services. The Company is organized across three regions: UK, Continental Europe and Rest of the World and operates across seven key sectors. The Company targets a balanced and diversified spread of operations across its regions and sectors. The Company also targets professional and specialist job levels where its brands can offer value added services to clients. The Company has three main service lines, temporary recruitment, permanent recruitment and offshore recruitment services. The Company’s offshore recruitment services represents a range of different recruitment services and provides training services in South East Asia. The Company's brands include Alternattiva, Ball and Hoolahan, Become, FastTrack and Greycoat. It has operations in 21 countries. more »

LSE Price
65p
Change
2.4%
Mkt Cap (£m)
31.1
P/E (fwd)
5.0
Yield (fwd)
3.6



  Is LON:ANCR fundamentally strong or weak? Find out More »


58 Comments on this Article show/hide all

herbie47 22nd May '15 39 of 58
1

In reply to post #99327

Edward, Many thanks for explaining that, how do I look back at stock rankings?

Yes selling is a good question, some I have sold, like Barratts and Ashtead, Friends got taken over.

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herbie47 22nd May '15 40 of 58

In reply to post #99327

Very interesting, looking at AHT, the best time to buy was at 820p which was in June 2014, this was when AHT was ranked under 75? I see AHT now is only ranked 60 yet the shares have continued to rise and are at an all time high. What caused the big spike down? Think that is when I bought.
I'm not having a go, just trying to understand the rankings.

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Edward Croft 22nd May '15 41 of 58
3

In reply to post #99447

Looking at AHT, the best time to buy was at 820p which was in June 2014.

I think you are making the twin mistakes of 

  1. Using hindsight bias to cherry pick theoretical low priced entry points.
  2. Presuming the best time to buy a stock is when its price is lowest.

For me, the best time to buy AHT would have been August when the stock broke out of the top of its channel.  At that point one could have clearly seen that the stock was back in demand - momentum was picking up.  It would have been a much lower risk entry point than trying to catch the low price in the stock.  As you can see from the StockRank chart, the interplay of value and momentum at that point rose to near its highest.  The total returns may have been lower, but the risk-adjusted returns were  higher.

A lot of value investors try to buy in at 'cheap' prices and end up catching falling knives & value traps instead. If the stock rises back you look like a brave genius, but if it keeps falling you fall victim to all kinds of mental curses like loss aversion, "get-even-itis" and the desire to average down.  The statistics show that people tend to hang on to loser stocks far longer than they hang onto winner stocks.  It's best not to play that game imo.

For me - the best time to buy a stock is when the risk is lowest rather than when the price is lowest.  It's a subtle thing.  I'm a student of what 'works' in markets.  Simple trend following / momentum signals like buying new highs are highly profitable strategies - with many arguing that they are far more profitable than value strategies.   But buy new highs in value stocks and you get the double whammy of getting paid off by both value and momentum.

Regarding the spike down.  I'm not sure what that was - could have been a number of things  - possibly even a system glitch or data error.  


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herbie47 22nd May '15 42 of 58

In reply to post #99454

Edward, thank you. I was watching AHT for some time but always considered it too expensive, when it fell to 840p for no apparent reason I bought some, when it fell to 820p I bought some more, when it went up to 830 I bought some more, yes maybe brave, but its a FT100 company, not some some Aim stock, it is probably most successful FT100 co in last 5 years in terms of sp, going up nearly 10x. Anyway thats the situation. As for buying in August the sp did then fall back from 1060 to 900. So if I had bought at around 1000-1060 I would be worse off than at 830? Yes at 900 i should have bought more but I already had quite a few. You are probably right with some companies but I felt comfortable with AHT. When would you sell AHT?

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GrindertraderUK 13th Jul '15 43 of 58
2

Dear all. 

Since the article mentioned above that I was going to publish an update to this portfolio every quarter I wanted to comment on why I have not written a further article

I  decided that doing less is more and looking at the current portfolio performance I think on a 20K account then 1 year rebalancing is enough.   There is also a risk of writing about and acting on market noise should I rebalance quarterly or even six monthly.  The portfolio has performed extremely well considering the Greece crisis and the problems with PLUS and is around 23% still in profit.

Despite my intervention of selling PLUS holding last May. my entry and exit rules will not change.

I also changed my mind about trying to double the portfolio size.  While it is recommended to have more than 20 stocks; I want to see how I get on with around 10 stocks and only increasing number of stocks if future gains allow this.   Finally I have also decided not to add more cash into this portfolio so over the coming years I can see how the portfolio performs with the 20K starting amount.

I have growing confidence in using StockRanks in a diversified portfolio and although I will only report on this portfolio's performance once a year; I have already implemented much of the StockRanks rules in my other portfolios both underlying stock market buying and leveraged accounts.

It's an exciting time to be part of the Stockopedia community and thank everyone for their patience.  I wish you all good fortune in sensible investing.

regards Ian

Twitter - GrindertraderUK


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herbie47 27th Aug '15 44 of 58

In reply to post #102907

Just came across this article again as looking at Animalcare, I can't understand how you are making a 11.9% loss as looking at the charts Oct to April sp has gone up from 140p to over 170p?

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GrindertraderUK 27th Aug '15 45 of 58
2

Animalcare was bought on 23 March 15 when it replaced Alliance Pharma.  Appliance Pharma had at the time (I think) dropped below 90. I am sorry I can't remember exactly why I dropped it from the portfolio. 

That portfolio was the status as of reporting day.  The portfolio value screen still shows the increase since I first started the portfolio.   At the time I also said I would report every quarter and I was still determining fully when to balance .

Since then I have sold PLUS but made no other transactions.  This will be reported in Octobet and I am considering to rebalance then and just rebalance once a year. 

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herbie47 27th Aug '15 46 of 58
1

In reply to post #105448

I see. Yes I will be looking forward to your update in October.

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Bigclaw 27th Aug '15 47 of 58
1

Hi Grindertrader,

Thanks for posting this - it's always really interesting to see how everyone goes about selecting stocks.

Can I ask - do you use stop losses? If so what level are you setting them at?

The reason I ask I started using Stockopedia last October and had excellent results as I learned how to trade. My profits were dented by impatience and stock swapping - leading to high transaction costs. I has decided ona 10% stop loss - Alliance Pharma was one of my big winners although at one point it was down about 8%. This was my interpretation of followed Robbie Burns' advice of quickly getting out of losing stocks and it has worked well although it was really tested in the last week! A lot of my stocks (all top ranking Stockopedia stocks) were suddenly down well over 10%. Part of this was due to bad timing on my part in when I had bought them - especially Empresaria. Anyway I ended up selling pretty much my entire portfolio as the losses mounted - working on the principle I could alway buy back in later. Of course this meant missing the bounce..Can I ask how did your stocks fare and did you get out of any or were you tempted? Are you still checking them only every so often or do you still find yourself checking them daily? Cheers!

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underscored 27th Aug '15 48 of 58

In reply to post #105454

Your time horizon seems pretty short. Also is a drift in the SP of an illiquid small cap of 10-15% on no news anything to talk about?

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Bigclaw 27th Aug '15 49 of 58

Hi underscored, that's what Im seeking opinion on.. I've been using stop losses of 10% from my interpretation (and I stress only my interpretation!) of Robbie Burns' advice in his Naked Trader book. The shares that I ended up coming out of pretty much all bounced back significantly. I know there's a lot of debate about stop losses - what I'm wondering is whether Grindertrader (or indeed anyone else who is using the stock ranks as the base for their stock selection) has been using them and if so if there was any impact with the last week. The reason I ask is that having made the beginner's mistake of trading too much I'm favouring the farming approach, but would stop losses protect or hinder this approach? Can I ask do you use them and if so did this have an impact on your portfolio from the last week? I've ended up selling due to them and missing the corresponding bounce so I'm keen to see what others think? Hope this all makes sense!

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herbie47 27th Aug '15 50 of 58

In reply to post #105456

Grindertrader does use stop losses in fact he posted a youtube video about them only 2 days ago, if you have a look on the discussions board you should find it, however for this portfolio I believe he does not use stop losses and only Plus was sold because of a share price fall, he is talking about rebalancing in October.

I agree 10% stop loss on many shares will stop you out, I have seen Robbie Burns blog but not his book, believe he uses about 12%-15% stop losses on most of his buys. It depends on the spread as well, some shares have a wide spread of over 5%. You can also get taken out on a sudden blip down. I don't tend to use them anymore, I may consider on some high risk shares or if I'm going away and can't trade for a while. I often have found a share price fall a buying opportunity rather than selling. Look at some charts for shares like Solid State (LON:SOLI), Renishaw (LON:RSW), Ashtead (LON:AHT), Clarkson (LON:CKN) and Staffline (LON:STAF)

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Bigclaw 27th Aug '15 51 of 58
1

herbie, that's great, thanks for the informative reply to my post. Certainly there were a lot of opportunities to buy the dip on the shares that you highlighted. Good point regarding stop losses and the spread that I haven't really paid enough attention to previously. I will watch Grindertrader's video. Cheers again.

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underscored 27th Aug '15 52 of 58
2

In reply to post #105460

Sorry to not be more helpful, but am on my phone. Paul recently wrote about not using stop for non leveraged long accounts. Essentially what I remember was that the stops dropped him at the wrong time, selling low and he was having to buy in on a higher price after a bounce. Also for a stockrank approach you would base your buying and selling upon the fundamentals of the company not random price action. I personally don't use stops as I am not levered, and I am diversified enough that 1 company blowing up is not going to hurt me, whereas a day like Monday would have blown my whole portfolio and missed me the bounce...

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Bigclaw 27th Aug '15 53 of 58
1

In reply to post #105461

Many Thanks for replying, the situation Paul describes there is pretty much exactly what happened to me.. Although I lost money it's proved to be beneficial as 'success is a lousy teacher' as they say.. Thanks it's very informative to have an insight into a different approach with regard to stops especially if I'm buying on fundamentals as per the stockranks.

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underscored 27th Aug '15 54 of 58
1

In reply to post #105464

Sure, no problem. I too have made plenty of mistakes based around emotion and overriding which has really hurt my returns this year. Have good rational plan and stick to it. Checking price action everyday does not help either. Also bear in mind that stockranks are only up to date with the data received so can lag company announcements for a few days or even weeks for the tiddlers.

One quote that has helped me today is that you never want to take long term risk for short term benefit, but if you can find long term benefit for short term risk, keep hitting that button. I believe I am taking short term risk for long term benefit. Time will tell :)

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GrindertraderUK 28th Aug '15 55 of 58
1

In reply to post #105454

HI Bigclaw some good points already raised.

The stock ranks portfolio does not use stop losses at all. In this portfolio the focus os on the whole portfolio performance..rather than individual stocks within the portfolio. The stock ranks approach here is based on picking high stock ranks and then as a basket of stocks should in theory outperform the market with as little human interaction as possible. Easy to explain harder to not do anything. PLUS I intervened because I decided that was an 'extra ordinary' negative situation.

I believe it is better to NOT use stop losses when using a Stock Ranks basket approach, as stop losses defeat the purpose of making decisions based on Stock Ranks. Stop Losses are based on share price movement.

I use Stop Losses on my 'stock picking' picking portfolios and leverage accounts and if you click on my profile you can see my previous discussions on them and a link to the you tube video.


Hope this helps and good luck to you.

Ian

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GrindertraderUK 28th Aug '15 56 of 58
1

In reply to post #105461

Monday didn't blow my normal accounts. As you say I am diversified in all my portfolios. I use stop losses when i first buy into a stock, but much of my stocks in my portfolios were in high profits +50% upwards some over 100% that stops do not come into the equation

The key points for me for anyone who cannot decide to use stop losses are...

1. Are you totally satisfied with your research and direction of the stock and your knowledge of the stock is such that your totally confident with buying in and no matter the price action you...

2. are totally disciplined and control emotions to stay in the investment even if the price falls below a comfort zone... and finally

3. You have at a good number of stocks, (plus 10..20...30) diversed over a number of industries/sectors so any single stock goes wrong doesn't hurt the portfolio too much, thus taken away the emotion of falling in love with a stock

If so then stop losses may not be required in your investment plan

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Bigclaw 28th Aug '15 57 of 58
2

In reply to post #105466

Hi Ian,

It does indeed help! It's really only now, and from what you and underscored have written that I've grasped the difference in managing a portfolio based on stock ranks compared with one based on a Naked Trader style of stock picking (although undoubtedly there will be stocks that fall into both). Is really interesting to get an insight into how you go about things. I watched your video on stop losses- it was really informative. I'm going to continue with stop losses as a means of safety for any stocks I pick myself. You should definitely do some more videos. Good look to you as well.

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GrindertraderUK 29th Aug '15 58 of 58
2

In reply to post #105541

Your very welcome Bigclaw. Do what ever makes you comfortable until your confident to find other ways to de-risk.

It is difficult to put an argument for stop losses. We are a minority and plenty of people across discussions boards will tell you they do not use them with a risk the positive use of stop losses can be drowned out within the debate.

Most private investors underperform the markets yet most private investors argue against stop losses, have no investment plan at all and many chase high risk stocks. So to make your portfolio consitently gain over many years, you have to be better than average.

So I am happy to be a minority and while I do not think my knowledge of research is better than average, my discipline and controlling losses within both my investment and trade plans ensure I stay ahead of the average.

All the best.

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About GrindertraderUK

GrindertraderUK

I work in the Oil and Gas IndustryI do not invest money in the oil and gas industry

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