Portfolio Review: How I beat the market by 33% in my first year of investing

Friday, Jan 01 2016 by


I thought it would be worthwhile to share the results of my first investment portfolio on Stockopedia. By way of introduction I’m a private investor in my late-twenties with no previous experience in investing in the stock market prior to this year. In fact I’m pretty certain I couldn’t have told you the difference between a PE Ratio and a Dividend Yield last December!

My strategy for learning to invest was to read as much as possible from the best investors before making the dangerous decision to commit any money to the stock market. For anyone here that’s new to investing, the books I would highly recommend are the Intelligent Investor (i.e. the Bible) by Benjamin Graham, Five Rules for Successful Stock Investing by Pat Dorsey, You Can Be A Stock Market Genius by Joel Greenblatt and for those starting early Millennial Money by Patrick O’Shaughnessy.

My Strategy

After reading a number of books, I created a £42,000 portfolio in January 2015 with the aim of investing in UK small-cap companies.

My strategy was to identify good quality, reasonable-priced, growth companies with positive market sentiment. Investing in small-caps is inherently risky so I wanted to ensure that the companies I was investing in were financially sound, which to me meant having a reasonable debt position and the capability of paying out dividends to shareholders.

I set about finding these companies using a rule-based investment strategy in an attempt to minimise the cognitive biases of stock selection that we’re all plagued by.

Clearly the Stockopedia Stockrank metrics for ‘Value, Quality and Momentum’ can provide a good starting point, but I wanted to delve deeper than this and identify the most important individual metrics in each of these categories, amalgamated from the advice from a number of successful investors.

The Rules

The screening criteria I decided upon were as follows:


Enterprise Value /Free-Cash-Flow < 20

     PE Rolling 1yr <20


     Relative Strength 6m> 0


     Earning-Per-Share 3yr CAGR > 0


Return on Capital Employed > 12%

Financial Health:

Long Term Debt < 5x Net Profit

     Dividend Yield > 0%


     Market Cp > £20M

     Market Cp < £1000M

     Sector Exclude:Financials

These screening criteria identified 21 stocks on 2nd January 2015. The vast majority of the stocks were…

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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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Dart Group PLC is a leisure travel and distribution, and logistics company. The Company is engaged in the provision of air travel organizer licensing (ATOL) licensed package holidays by its tour operator, Jet2holidays Limited, and scheduled leisure flights by its airline, Jet2.com Limited (Jet2.com). It distributes temperature-controlled and ambient products on behalf of retailers, processors, growers and importers in the United Kingdom. It operates through two segments: Leisure Travel, and Distribution & Logistics. The Leisure Travel business focuses on scheduled leisure flights by Jet2.com to holiday destinations in the Mediterranean, the Canary Islands and to European Leisure Cities. The Distribution & Logistics business includes the operations of Fowler Welch-Coolchain Limited, a distribution and logistics services provider. Its temperature-controlled operations are in Spalding in Lincolnshire, Teynham and Paddock Wood in Kent, and Hilsea near Portsmouth. more »

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Tristel Plc is a United Kingdom-based manufacturer of infection prevention and contamination control products. The Company's technology is a chlorine dioxide formulation. The Company operates through three segments: Human Healthcare, Animal Healthcare and Contamination Control. The Human Healthcare segment is engaged in the manufacture, development and sale of infection control and hygiene products, which include products that are used primarily for infection control in hospitals. The segments products are marketed under the brand, Tristel. The Animal Healthcare segment relates to manufacture and sale of disinfection and cleaning products into veterinary and animal welfare sectors. The segments products are marketed under the brand, Anistel. The Contamination Control segment addresses the pharmaceutical and personal care product manufacturing industries. The segments products are marketed under the brand, Crystel. Its manufacturing facility is located in Newmarket, Cambridgeshire. more »

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AdEPT Technology Group plc, formerly AdEPT Telecom plc, is engaged in providing managed services for information technology (IT), unified communications, connectivity and voice to over 100 Councils, NHS Trusts and other government bodies. The Company's segments are fixed line services (being calls and line rental services) and managed services (which are data connectivity, hardware services, IP telephony, support and maintenance services). It is engaged in the provision of voice and data communication services to both domestic and business customers. The Company offers technical and commercial options for onsite and cloud-based telephony. The Company serves approximately 20,000 commercial customers including worldwide and nationwide brand names. more »

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33 Comments on this Article show/hide all

pka 3rd Jan '16 14 of 33

Gundroo, Well done for devising an excellent set of rules that gave you great results last year.

If there is a general re-rating of the market, you might have a problem in the future that your rules would produce fewer candidate stocks for your portfolio, for example because there might be fewer stocks in the market that have a PE Rolling 1yr value less than 20. A way to avoid that is to use some screening rules based on average market values, rather than on absolute values. That would produce roughly the same number of candidate stocks for your portfolio each time you used the rules.

For example, instead of using a rule that PE Rolling 1yr < 20, you could use a rule that PE Rolling 1yr < 1.2 x Market Median. (The 1.2 value is arbitrary - you could use whatever value you think is appropriate.)

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ivolpe 4th Jan '16 15 of 33


Can I ask why you excluded financials?

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dangersimpson 4th Jan '16 16 of 33

Hi Gunderoo,

Thanks for sharing.

A couple of comments on your screen:

1. As your title suggests you've built a Quality & Momentum portfolio. The average stock rank is Q=87 & M=88. However you don't have much value exposure with an avergae rank of V=60. The past couple of years have seen good returns to Momentum and not so much to Value. A lot of high profile Value Investors struggled in 2015. This may reverse at some point - in fact one of the reasons that strategies work is that they face long periods of underperformance. There will be a time when momentum does the same. e.g.


If you find that a QM strategy works best with your temperament then you will need the courage to see out these periods of underperformance and stick with the strategy.

If you consider yourself a quant investor not wedded to QM you may want to consider increasing your value exposure through tightening your value criteria or a seperate value portfolio. It may even have harmed your return in 2015 in a period of value underperformance but it should give you more consistent returns over the long term.

2. When deploying your money you may want to consider some earnings quality measures either quantitively or qualitively. This would avoid the likes of Globo (LON:GBO). Also on your 2016 list some well regarded investors have questioned £MTO's earnings quality:


You may also want to check for large or increasing short positions that can be a sign that things are not as rosie as they seem. e.g.


Here's my thoughts on how to use this info:


3. Dewhurst has 2 classes of share - Voting & Non-Voting - you would only want to buy the non-voting A shares Dewhurst (LON:DWHA) since the voting shares are family held so that your vote won't have any influence and the non-voting generally trade at a discount.

4. Some shares can be quite illiquid despite being MCap >20m. A big spread on a quant strategy that buys and sells yearly can be a big drag on performance. You may want to add a screening criteria on the spread to avoid the shares that have large spreads.

Good luck for 2016.

Book: Excellent Investing: How to Build a Winning Portfolio
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herbie47 4th Jan '16 17 of 33

In reply to post #116541

Thanks for posting only just seen it. I agree value does not look so good, in fact I was considering selling some of those on valuation grounds. Yes I prefer PEG to PE, you can use the Slater PEG on these screens I see. I would not buy 2 companies in the same sub-sector, ie Vertu and Cambriam Autos.

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Amanda Heron 4th Jan '16 18 of 33

Well done Gundroo. I too am a one year newbie investor. I read James O 'Shaughnessy "What Works on Wall Street"; " How to Make Money in Stocks" by William O'Neill"; "The Little Book that Beats the Market" by Joel Greenblatt; "The Little Book that Builds Wealth" by Pat Dorsey; and "Beyond the Zulu Principle" by Jim Slater. All have been invaluable.

I too started a Fantasy Portfolio, DB9, which, after a wild start with some strange selections until I put in a more rules based selection process, is doing reasonably well at 18.7%. Thanks to Grindertrader, I have started to use his criteria and then pick the highest relative strength in each sector. There are still some that don't meet these criteria, particularly when I get carried away by some of Paul Scott's audiocasts, which is probably why a stricter rules based strategy will work better.

I also look at timing my entries and stop losses by looking at Ichimoku charts (thanks PhilH) and chart signals ( You Tube: StockGoodies Chart School). I read all the wonderful comments from the Stockopedia community and learn a huge amount from you all, especially Paul Scott, so many thanks. Now I have a clearer idea of stock picking and feel a bit more confident, my real portfolio is starting. It is such a different sensation pressing the button with real money !!

Happy New Year to you all

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Cisk 4th Jan '16 19 of 33

Gundroo, much appreciation for sharing your investment experiences over this past year. Well done on starting investing early, and for sticking to a strategy - probably the hardest thing is to follow your convictions, through both the good times and bad.

Look forward to your upcoming posts.



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TangoDoc 4th Jan '16 20 of 33

I really loved this article Gundroo and it has made me a great deal more thoughtful about momentum and less obsessed about dividend yield. I have attempted several times to create a decent screen but always set my limits far too high to raise as many as 20 stocks on the list and rarely like them when I look closer. Once I applied your rules to the present day, I found much to admire in the portfolio it threw up. My problem now is how to incorporate some of these principles into my own portfolio management without throwing my own, apparently successful but rather unsophisticated system overboard completely.
I worry a bit about balancing, partly because I probably don't do it that logically or ruthlessly. Maybe I trade too infrequently for that reason. Having said that, my own shambolic method has also raised a return of 30% in the calendar year but while the dividend return has been 5.6%, because I have yet to decide on a stop loss policy as such, i now hold a really weird looking collection with some stocks up 55% balanced by others down 55%.

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gus 1065 5th Jan '16 21 of 33

In reply to post #116772

Hi Dangersimpson.

Thanks for the link to the shorting analysis on Mitie (LON:MTO). Very thorough and well argued, and I note there is still an open shorted interest of at least 5.5% on this stock making it about the 20th most shorted on the list from a group of about five traders.

Not sure if Lordshiptrading is still open on his reported short at £2.70, (dated Jan 2015) but if he is the shares are now at about £3.08 with a running yield of 4.2%. Do you have any sense as to how long traders typically look to keep this kind of position open for? My sense in this case is that the analysis is that the shares are overvalued (rather than that they're about to fall off a cliff as a result of discovery of fraud a la Globo) and that accordingly it could be a long and expensive wait for this particular trade to pay off.


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dangersimpson 6th Jan '16 22 of 33

In reply to post #117015

Hi Gus,

I don't personally know the author of the Lordship Trading blog so don't know his personal timeframe for investments. If I short anything I try to treat it like any other investment so don't have a shorter investment timeframe than a long position. Where I do modify strategy is to have a much smaller maximum position size to be able to ride out spikes or not suffer serious losses if someone makes an offer for the company. Many small shorts are much better than a few conviction shorts in this regard.

If I understand it correctly the concern with Mitie (LON:MTO) is the increase in long term recievables. That the company keeps booking revenues and profits today for cash that will be recieved more than 1 year in the future and therefore the earnings quality is deterioating. I don't think anyone thinks that what the company is doing is improper just that it adds to the risk. I'm not sufficiently convinced that the risks are serious enough to take a short position myself but tbh I haven't gone into great detail in my personal analysis. However the combination of concerns over earnings quality combined with the level of short interest makes me very wary about a long investment in the company.

This is really my point to the OP. When we make investments based purely on screening results these results are wholly dependent on the figures that are in the database. Therefore we should check these figures before investing. When we make decisions based on reported earnings then earnings quality really matters and we should check this.

In fact the more I think about this the more I think a simple checklist would add significant value to those running mechanical screening/quant portfolios:

- Do the published accounts match the numbers in the database?
- Is the database up to date?
- Is earnings quality good? e.g. does OCF roughly match PTP over the long term?
- Is there a low or no short position declared on the FCA declarations? (see: www.shorttracker.co.uk)
- Are any well known bears with concerns over the company?
- Is the company subject to a takeover offer? (Often missed by momentum quant investors.)

One should be able to answer yes to the first four questions and no to the last two for inclusion in the portfolio.

You may get some false positives where the shorts are wrong but the beauty of a quant portfolio is that you have plenty of other options that have (by definition in your opinion) the same expected return so can easily exclude the few that have concerns raised about them - you really don't need to swing at every pitch.


Book: Excellent Investing: How to Build a Winning Portfolio
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gus 1065 6th Jan '16 23 of 33

In reply to post #117054

Hi Mark.

Many thanks for your detailed reply. I share your view that we should temper our enthusiasm for mechanical stock picking with a rigorous sanity checking of the underlying data - "trust but verify" and all that. I'm quite a simple (minded?) investor in that I prefer to avoid shorting and either go long or stay in cash. Given the start to 2016 I should perhaps broaden my horizons and at least investigate some kind of short hedge based on the market index as a whole.

With regards to Mitie (LON:MTO) (appreciate it's not a stock you are specifically focused on) I've revisited the half year results and management presentation from November 2015. I am not too concerned about the increase in the receivables duration. I note Mitie (LON:MTO) have been increasing the proportion of sales and revenues to the public vs private sector (44% to 56%, 36 to 38% respectively). I used to do a lot of asset based lending and found that although public sector accounts are strong credits they often exact longer payment terms and/or tend to be less punctual making payments when due. I believe this could well be the primary driver of this increase. Needs to be kept under review, but commentary suggests the company is aware of this and working to manage it.

As a general comment, I wonder if there is an element of "me-too-ism" among the shorting community, as I note that Carillion (17.2%) and Serco (4.1%), both facilities management companies are also significantly shorted. Post problems at the likes of G4S, it may be that FM is seen as fertile ground for this particular trade.

Anyway, thanks again for your response.



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dangersimpson 6th Jan '16 24 of 33

In reply to post #117084

Hi Gus,

We are probably wandering dangerously OT from the original post but couple of quick comments:

- Maybe you are right regarding payment terms Mitie (LON:MTO) but I'm surprised that a company would accept 1 year+ terms even to a government contract. Did you accept 1 year+ terms in your business? It seems more likely to me that they have booked revenue on contracts that they intend to deliver in the future rather than accepting late payment terms on contracts they have alredy delivered. But again I think the default option for a quant investor should just be to avoid companies that have question marks over their earnings quality even if they are ultimately misplaced.

- Re: Carillion (LON:CLLN) at least some of the short will be due to convertible bond arbitrage so it's quite hard to work out how much is delta hedging and how much is directional positioning.

- I am actually short a small amount of Serco (LON:SRP). They recently announced that they would only generate £50m PTP in 2016 with cash outflow giving £200-250m debt at YE. So their EV = £1.3b = 26 x PTP. Anyone long here is betting on a big turnaround in business in 2017 and the market is not usually that patient with underperforming businesses!

Anyway good luck for 2016.


Book: Excellent Investing: How to Build a Winning Portfolio
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DWit199 6th Jan '16 25 of 33

This thread reminds me of some of the discussions on The Motley Fool in 1999. This from November of that year.

"The [momentum] strategy appears a great idea, but why accept 35% over 6 months,(albeit impressive) when 100% is possible after 6 weeks?"


The Footsie peak was 6930 at the end of December that year, a level it took 15 years to reach again.

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imranawan 6th Jan '16 26 of 33

In reply to post #116778

Hi Amanda

Do you have a link to Grindertrader's specific blog post? I've come across a few, but wondered whether you had a link.

Best wishes,

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whitepjs 6th Jan '16 27 of 33

You run a 20% trailing stop, which seems pretty sensible in money management terms.

Two questions:

1. Was the stop automatic, or would it require you physical intervention to make the sale.
2. What would you have done with the money if any of the stops had been hit?



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Amanda Heron 6th Jan '16 28 of 33

Grindertraders's blog post was:
Grinder trader 'My StockRanks Farming Approach - a 20k Real Money Test Portfolio'

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hayashi22 1st Jul '16 29 of 33

Gundroo-have you updated the performance of your 2016 stock picks? Be interested in how they are doing?

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stockpot 23rd Sep '16 30 of 33

Looking at their charts, surely at least a couple of those losing shares should have been curtailed by the 20% trailing stop-loss?

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tiswas 12th Apr '17 31 of 33

GVC Holdings (LON:GVC) now has a lowly stockrank of 27 and whilst I continue to like the story I am wondering if I should be selling some as this is probably the lowest ranked stock I hold.

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weycome45 13th Jun '17 32 of 33

impressive BUT I've checked on DART...a random pickon one of your stocks and according to STOCKO there is no FCF PER SHARE for last few years so why has it rocketed ?

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gus 1065 13th Jun '17 33 of 33

Hi weycome.

Are you sure you're looking at Dart (LON:DTG) ? Stocko page shows substantial operating and free cash flow for past few years and the Q rank of 95 suggests the algos are pretty happy with the overall quality. I agree the share price had a bit of a wobble last summer (being in the travel sector it took a hit with the Brexit vote and then some of the continental terror incidents) but this seems to have been more down to sentiment than underlying problems and the shares have been on a roll for the past 6 months.


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About gundroo


Newbie private investor with a medical background.I like to invest in good quality, reasonably-priced UK small-cap growth companies following rule-based investment strategies.


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