New Year NAPS - Top Stocks for 2018 and the Benefits of Ignorance

Tuesday, Jan 02 2018 by
244

2017 has been a good year for stock market investors, but it’s been a great one for NAPS investors. Over the course of 2017 this remarkably effortless stock selection system (that I’m now calling the “no-admin-portfolio-system”) returned over 45% after dividends, beating the performance of 99.8% of 3295 professionally managed funds in the UK.

What’s more this was achieved in less than an hour’s work at the beginning of the year, with absolutely no research into any of the individual stocks in question.

So, I’m going to start the year with a review of the NAPS performance over the last 12 months before considering the difference between ignorance and stupidity.

Once I’ve convinced myself (again) that it’s absolutely fine to know almost nothing about the individual stocks I’m selecting, I’ll then publish the 20 stocks that have made it into the 2018 NAPS Portfolio.

And then I’ll sleep on it for another year.

2017 Performance in Context

I’ve been running the NAPS portfolio since the end of 2014, and the performance has been, you might say, more than satisfactory. The portfolio has more than doubled (+115% before dividends) in these three years, with an average 29% annualised return.

Over this time period, the FTSE All Share has returned about 18.8% before dividends - at an average annualised return of 5.9%. So the NAPS has devoured the performance of FTSE index tracker funds by more than 20% per year since inception, and it’s done this at considerably lower volatility.

NAPS_-_Performance_Charts_MASTER_-_All_Y

2017 has been the best year of the three years so far with 42.5% growth before dividends. The chart above contains three lines which are clearly labelled:

  • The dark green line is the 20 stock NAPS Portfolio (top two stocks by StockRank from each sector rebalanced annually).
  • The light green line is the performance of the top 20 stocks by StockRank (no diversification, rebalanced annually).
  • The orange line is the FTSE All Share.

Although it’s a small sample, I do believe the above charts provide validation of the core ideas behind the NAPS - namely:

  1. Factor investing can beat the market. (The green lines, based upon the StockRanks, dominate the market index).
  2. Diversification across sectors can further improve returns, and reduce risk. (The dark green line beats the light green line).

The NAPS…

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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. 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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297 Comments on this Article show/hide all

Velo 2nd Dec '18 278 of 297
2

December 2nd, the penultimate update, for the NAPS 2018 folio should be posted by tomorrow (before the end of Monday evening at the very latest) for results achieved by close of trading on Friday 30th November.

As per usual, now find myself travelling back long distance at each month's week-end; hence slight delay in posting the data.

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Klaus Knapp 2nd Dec '18 279 of 297

A well thought out Method, with simplicity and brilliance in abundance.
Do you publish monthly results of your Portfolio?

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Gromley 2nd Dec '18 280 of 297

Klaus,

Ed reports on the portfolio performance six-monthly, but Velo in the previous post to yours was referring to a monthly tracker that he produces. (Both use different methods of 'keeping score' - both for valid reasons imho.)

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Velo 3rd Dec '18 281 of 297
7

Results for NAPS 2018 up to December 2nd (Actual Friday's close on Nov 30th) -

Was expecting a worse scenario than last month, but as of the 11th month, only a slight degradation with the folio, now showing a decline of x8.6% to date. ( 0.3% worse than last month report ending).

Dividends for November were on course for contributing the lowest month all year, but SCS came in with their stonking final divi on the 26th of November which was closer to a 5% than 4% yield payment for a single interim payment alone (for holders of SCS) which meant the running dividend total period now stands @ £3.3k+ effectively a 3.3% boost to the results.

The NAPS 2018 is down x 8.6% on capital investment alone, but when dividends to-date are added in, the overall result for the folio reduces to approx x5.2% down (similar to the last month's reporting when divis included).


------------------------------
First table shows increases/decreases:

Up on last month with now 8 shares showing a % gain now (3 up on last month).
thus leaving 12 showing a red decrease since Jan 2nd start this year (ergo: an improvement on last month)

PLUS goes crackers, crushing it's top place last month even further, by a massive rise up to an incredible 70% gain.
(Another 19 like that please ED :)

And just like last month INDV languishes in bottom spot with an even worse performance now showing x75% decrease.


------------------------------
Second table shows the Stock Ranks in comparison to starting out on Jan 2nd this year -

STOCK RANKS:
13 shares show a Stock Rank above SR90, compared to the year start - which had 18 commencing in the S/R 90's.
* 5 shares have increased their rating compared to the start of the year
* And 15 continue to show reduced Stock Rank ratings since the year start.

Highest S/R is 99 (4 of them)
Lowest SR is 39 (VOD, which represents a 51 point S/Ranking drop from its start point on Jan 2nd).

VLE shows the largest single improvement in S/R ratings by increasing 14 points from it's Jan 2nd starting point.

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Velo 3rd Dec '18 282 of 297
5

5c05a335183ecDec_2nd_%_Gains.jpg



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Velo 3rd Dec '18 283 of 297
4

5c05a0ad6a66fDec_2nd_-_SRanks.jpg

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lightningtiger 3rd Dec '18 284 of 297

Worth mentioning the dividends paid out in November for SCS @ 10.9p / share & Plus 500 @ 79.84p/ share net.,which leaves ESOP to pay the tax refund of 25% back for Plus 500 from Israel. The 70.84p/ share also includes the 1 .% charge for currency charges from Hargreaves. the dividend paid out for plus 500 was $1.3786 US.

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dfs12 4th Dec '18 285 of 297
2

In reply to post #424103

Fabulous work Velo. Thanks so much for all your time on these monthly updates this year. You've provided a fantastic running commentary on the Naps portfolio. Fitting that the last month should underline the value of dividends so strongly.

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PeterLatto 26th Dec '18 286 of 297

very good to be able to track the chosen shares on time. it focuses the mind on whether it is best for the amateur investor to be in shares or in funds . I sold all my shares in July after a fall in the market . Significaqnt falls in the shares since then [ building sector ] . Am nervous of getting back in with all the problems - brexit , european problems and usa -China friction .
No apparent easy sure fire options at present .

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ramonvasquez 31st Dec '18 287 of 297

Once upon a time l was a wild speculator in gold stocks , but am now more of a mid-cap handicapper and large - cap speculator . l am currently about eighty percent in cash at four percent yield [ please do not ask me where or how ] .
My current intention is to deal only in the 100 ~ 90 Stock Rank stocks on an equal - weight basis during the coming crash .

Best wishes and thanks to everyone connected to Stockopedia . Ramon .





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Velo 1st Jan 288 of 297
2

In reply to post #424193

Thanks for your generous encouragement DFS12. Appreciated.

As per usual, due to circumstances beyond my control at month endings, I won't be free or arrive back at my desk until v late Wednesday evening. So would like to end 2018 on the same date as per all year - on the 2nd of the month. Have taken copies of Dec 31st (the true year end, or if others object to the 2nd of the final month and consider that it "adds" an extra day to the year end) or if for some reason I'm unable to get 2nd Jan closing data if still on the road.

However, I'm expecting Ed will have his review and the new 2019 NAPS ready to go, before I post. However, I will complete the year and post ASAP after I get settled in, once back at base.

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Velo 3rd Jan 289 of 297
10

Final Results for 12 months NAPS 2018 up to January 2nd 2019 -


Probably more than anyone else on this particular forum, I have viewed the NAPS 2018 weekly or more, since it's inception and my overriding opinion formed over that period is that of one of a complete "failure to launch". Not one single month did it inspire. A complete damp squib! The 12 months ending on Jan 2nd 2019 came in showing the worst ever of the year, a double percentage loss of x 13.5% capital loss ( x £13,539.09 down).

Dividends, when taken into account, came in @ £3.5k (£3,505.26) thus providing a 3.5% helping hand to the capital loss, for a moment I thought it might by just mere single pounds reduce it to x 9.9% loss, but no, it just missed it by a hair's breadth to reduce the loss to yet still a double figure "true loss" of a x10% loss - right on the nose.
Tsk! just another 0.1% down to 9.9% and it might have had a disproportionate effect on perceptions. (Actually ended up using £100,039.28 as the starting capital back in Jan 2018; you'll just have to forgive me for spending £39 more than budget, I liked the nice roundness look of it all and didn't want to start chopping 2 shares off here and there etc :)

So in a bull market (Stocko launched in 2012?) Stock ranks has proved what all should have been using as the stats show previous years NAPS all coming in with roughly 20%+ gains on average. Stocko has yet to be tested in a real live bear market. 2018 has not encouraged me to believe that stock ranks will produce gains in a bear market. 2019 will be important to dispel that feeling I have.

2 notable star UK fund managers have come in with impressive gains for 2018, so I just don't buy that a double figure loss is "acceptable" as something to be pleased about, just because it's a better "loss" that the FTSE indices, which are all down, worse than the NAPS 2018.
A pyrrhic victory if you like. Just a mere 1% gain would have convinced me to be more positive.

ie.,  Nick Train of Lindsall Train GLOBAL equities is up 140% over 5 years (comparable to stock ranks over 5 years) but as of Christmas week was UP 11% for the last 12 months! Obviously that's global and an unfair comparison.

The other UK fund manager Terry Smith is similar to stock ranks over the past 5 years for gains but has finished up 4% over the last 12 months. Again heavy exposure to US stocks; so suppose even though they're UK funds it's still not a fair comparison. But the point is all their past 5 years are comparable with Stock ranks achievement in the same time span - but NAPS 2018 failed and fell behind that comparison.

 It's just that I shift uneasily when I'm presented with a double figure loss as a "win" and only a win when compared to the wider market.

Saying that, I will be renewing my subscription to Stocko next year as I can't find nor recommend anything better - just call me grumpy.

PS. The current guru leader screen for over 5 years, the Tiny Titans screen, shows a 3% increase for the last year, this last 12 months being it's lowest performance - but still a gain! 

AND that's what I was expecting from the NAPS - 1% to 3% gain. But instead it's a double figure loss. Just don't ask me to get excited about that still being "better" than the indices :( Nobody ever remembers who came second; there's probably loads and loads round the world with a loss, saying 'at least I've beaten the market indices' - who cares when it's a loss?)

 ------------------------------

 

First table below shows increases/decreases:


Only 5 shares end the year with a gain. Five!

thus leaving 15 showing a red decrease since Jan 2nd 2018 start.

 PLUS reduces that big gain from last month, but still impresses with a year end finish of 55% up.

 INDV jealously guards it's bottom position by closing as the worst performer with a 72% loss! (Actually 3% better than last month; small mercies and all that).

But what really irks me about the 15 red "losers" is that an incredible 8 of those 15 - EIGHT! Sport a stock rank of OVER 90 - (ranging from 91 to 99) That to me sounds like a 'hole' in the system. They were chosen at the year beginning so you can't say they bloomed late in the year into the S/R 90's range. Repeat: 8 of those in the red are well over into the 90's Stock Ranks. The worst performing of the S/R 90's shares showing a 30% loss - GFM - (profit warning the culprit for the decrease).

 PS. That S/R99 share that still ended as a red "loser" makes it into the 2019 NAPS ie., (SCS)

 ------------------------------


Second table shows the Stock Ranks in comparison to starting out on Jan 2nd 2018 -

 STOCK RANKS:

12 shares remain showing a Stock Rank above SR90, compared to the year start - which had 18 commencing in the S/R 90's.

* 5 shares have increased their rating compared to the start of the year

* And same as last month, 15 shares continue to show a reduced Stock Rank ratings since the 2018 year start.

 Highest S/R is 99 (3 of them)

Lowest SR is 42  (VOD, a slight improvement on last month's showing).

 VLE still continues to show the largest single improvement in S/R ratings by increasing 14 points from it's Jan 2nd 2018, starting point.

Interestingly, the worst performing share showing a loss of 72% (INDV) doesn't have a half bad stock rank - S/R 78.

 *** I've been asked for the full list of actual £ dividends paid out to each and every share. Will do so, but it might be tomorrow now. ***

--------------------------

PS.

Won't be doing the same monthly follow up for NAPS 2019 as I will become increasingly unreliable due to other demands, but mainly, to my being busily occupied in the periods over month-ends.

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Velo 3rd Jan 290 of 297
3

5c2e91721046fJan_2nd_2019_%_gains.jpg

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Velo 3rd Jan 291 of 297
2

5c2e91e20d6bdJan_2nd_2019_-_SRanks.jpg

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Henry55 4th Jan 292 of 297
3

Thanks for your "No Spin" excellent analysis Velo - much appreciated.
Henry

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Velo 4th Jan 293 of 297
2

ERROR!

Apologies - Was compiling the dividends for showing the payments per share when I noticed an oddity with PLUS.
Checked and yes I've entered the dividend for Plus as single pence instead of single pounds. It's paid in USD so had to convert to GBP and messed up the decimal point. It WILL make a significant difference to the dividends paid (more than I've shown) and will easily reduce the total year's result to a SINGLE figure % loss when dividends taken into account.

It's gone midnight already so want to go over and recheck tomorrow if possible, or Sat if I run out of time. The capital loss is as shown, but the dividends received is much larger than the £3.5k I've shown; hence end result of 2018 NAPS will be a single figure loss only. Will update in due course.

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Edward Croft 4th Jan 294 of 297
5

In reply to post #432213

@Velo - I highly welcome the comments.  I think it's important I respond to some of them as I fear that your musings can lead to some misinterpretation.

1. "StockRanks producing gains in bear markets"

Stocko has yet to be tested in a real live bear market. 2018 has not encouraged me to believe that stock ranks will produce gains in a bear market.

I don't think there's any stock market rating system in the world that would claim to be able to make persistent gains in bear markets.  The nature of the market - which I elaborated on extensively in this article is that it rises and falls in about a 2:1 ratio.  So will most deciles of the StockRanks.  It's par for the course.  We've certainly never made the claim that the StockRanks will create positive returns in down years, and I don't think you should be under any illusion that they were designed for this purpose.  They weren't.

They were designed to be statistical measures designed to aid investors to find cheap, high quality and strong momentum stocks with more ease - that's it.  Shares with the strongest exposure to these traits (e.g. 90+ Ranked) have beaten the market historically, on average, over the long term.  But there is no guarantee that they will outperform on any single year, and no guarantee they will outperform any year in the future.  

It seems you are looking for a system that will produce absolute positive returns in all years down as well as up.  That's definitely not the NAPS.  In order to do something like this, I would personally be looking for a low-volatility absolute return strategy - likely multi-asset with plenty  of long-short hedging and market timing thrown in.  It's a much more expensive active strategy and I do have friends running hedge funds who run these kinds of strategies.  They don't return 91% over 4 years but they do minimise the downside.

2. Comparison with 2 globally cherry-picked fund managers

2 notable star UK fund managers have come in with impressive gains for 2018, so I just don't buy that a double figure loss is "acceptable" as something to be pleased about.

I do recommend reading "Fooled by Randomness" by Nicholas Nassim Taleb.  Cherry-picking 2 fund managers that have done well in 2018 is hindsight bias, but also an unfair comparison.   Nick Train and Terry Smith run Conservative, Quality, Global portfolios.  The NAPS is more speculative, is far more value and momentum driven, and entirely UK focused.  

It's only fair to compare the NAPS against the UK All companies fund & trust segment which can be found here on TrustNet.   TrustNet shows total return statistics (including dividends).   The NAPS returned -11.5% in 2018 (see below) plus 3.5% in dividends... i.e. -8%.   This would have been a top quintile performance (top 20%)  against UK fund managers on a 1 year basis.  The NAPS have returned 91% (before dividends) over 4 years.  There is no 4 year comparison on the TrustNet website, but there is a 5 year comparison.  Only 1 fund out of 254 has returned more than the NAPS over this timeframe.   MFM Bowland.

My point is not that the NAPS is a superior strategy - it's that direct investing in shares as a private investor has the potential to be far more profitable than investing in funds.  

3. NAPS Performance Calculations

The NAPS is an illustration, and a jazz sheet for others to riff on, it's certainly  not a tip list for others to copy.  The performance figures I quote are from the close of the year, to the close of the year after.  i.e. 29th December 2017 to 31st December 2018.  On that basis it's an 11.5% loss for the year.  I do appreciate that buying the same shares on another day will create a different set of performance figures.... but really on any other day the NAPS portfolio would have differed too.  

I would always encourage readers to do their own research, and do their own thinking - this is a DIY site.  Everyone should look for a strategy to match their own psychology and goals.  Anyone looking for a strategy that has gains in every year, even in bear markets definitely shouldn't be using the NAPS. 


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dfs12 4th Jan 295 of 297
2

In reply to post #432213

Many thanks for all your hard work posting the monthly update figures Velo. It is great to see such fine detail on the progress of the Naps. I don't blame you for ducking out next year.

Like you I'd love to find a stock picking system that creates a positive return regardless of the market conditions. But I reckon that is a pretty tall order for any system. Bearing in mind the low time overheads and the astonishingly positive performance over 4 years I think Naps demonstrates that picking high rank diversified stocks pays off. Maybe I'm just easily pleased (although friends and loved ones wouldn't recognise that description) but I'm than happy that Naps has outperformed almost all indices this year (albeit a small outperformance).

Having looked at my portfolio over the last 20 years I've noticed that I've always made money in the year following a losing year - so perhaps 2019 will be better than 2018. Let's hope so.

Thanks again.

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Nick Ray 6th Jan 296 of 297
6

In reply to post #306893

Way back on 30th January last year I conjectured that choosing stocks with a Value Rank in the range 25 to 75 would eliminate stocks which were under or over priced and hence give a more stable portfolio.

I called it a "hostage to fortune" at the time, and here are the results of the portfolios.

5c31fe438766anaps2018.png

In the first half of the year it looked as if the "MIDV" (only Value Rank in range 25-75) portfolio would indeed out-perform the original NAPS. However curiously enough, once the downturn started the choice of mid-valued stocks did nothing to help the MIDV portfolio's performance compared with the original NAPS. They ended the year extremely close.

Perhaps the most interesting thing in retrospect is that a portfolio with only 11 stocks has performed almost exactly the same as a portfolio with 20 stocks.

Obviously this is only one experiment, but it looks as if this particular tinkering with the system has not yielded any obvious benefit.

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Velo 6th Jan 297 of 297
2

I was asked the other month to post the individual dividends per share (which I had to hand) and I now do so, to complete the 2018 NAPS.

In doing so, as I posted previously above, I discovered an error.
PLUS dividends (paid in USD) had the decimal point incorrectly displayed - thus grossly undervaluing their contribution. Astonishingly the total dividends are not as I posted of £3.5k but now stand at £4,687 for the full year! (4.6% yield based on the original investment of Jan 2ns 2018)

Which means the capital loss remains as posted as still showing x13.5% down, but when the corrected dividends are taken into account, instead of previously posting of an overall inclusive loss of x10% down, the adjusted dividends now reduce further to x8.8% down!

So it is a single figure % loss after all! I haven't deducted any 25% foregn tax nor the 1% currency HL conversion charge on any of the foreign paid dividends so roughly let's say circa x9% single figures down for the year ending.

I'll post the dividends per share at the foot of this post. I'm in no rush to delete the 'old' 2018 NAPS so if during the year anyone curiously asks how the 2018 NAPS is progressing now that it escapes review changes, I can easily take a glance and post the overall figure - but not the dividends, just the capital movement of the folio.

Dividends paid:

BMY £199
BP. £293
FORT £162
GFM nil
INDV £90
JEL £151
LSL £200
MGNS £166
OCN £237
PLUS £1194 !!!
RPC £161
SCS £367
SND £159
STCK £131
STHR £188
TATE £206
TW. £364
VLE nil
VOD £284
VTC £135

TOTAL £4,687 (4.6%)

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