Semi-Final SNAPS - World Cup Fever takes over the NAPS Portfolio

Monday, Jul 09 2018 by
64
SemiFinal SNAPS  World Cup Fever takes over the NAPS Portfolio

England are through to the semis and the nation is dreaming. This time it seems we really do have a chance. I still remember precisely where I was the last time we made it this far. 14 years old, Waddle & Pearce missing penalties, Gazza’s tears… damn. My sons are the same age now as I was then and these moments don’t come around often, so it would have been criminal not to watch ridiculous amounts of the football together in the last few weeks. So yes, I’m writing this article a week late… but for good reason. It’s coming home.

Before I get onto the NAPS Portfolios, I must share my completely failed attempt to win the “Stockopedia World Cup Sweepstake”. To cut a long story short, we each had to pick 6 teams with varying payoffs depending on 1) how bad those teams were and 2) how deep they would go into the tournament. For an office like ours, it’s a great excuse to go down the rabbit hole developing quant models. My own selections, based on ELO Ratings, have completely failed me. Not only are all my teams out… but I had a bet on Colombia rather than England, which led to my younger son violently punching me when they equalized in extra time. I am forever indebted to Jordan Pickford’s fine penalty saves as in an alternate universe Colombia win the Cup, my son never speaks to me again and everyone in the office quits due to my smugness.

For those of you that hate football, aren’t English, and are furious that I’ve even mentioned it, humour me. There are far worse things to theme a NAPS article about… erm… Love Island?

Tournament Performance Record

Just to recap… the NAPS Portfolio was last discussed at New Year where it was bacronymed as the No Admin Portfolio System. It’s a fully mechanical 20 stock portfolio of the highest ranked stocks by StockRank, equally diversified across 10 sectors, rebalanced annually. This simple and rather idle investment approach has dramatically outperformed the market in the last three and a half years.

Every July I compare the SNAPS Portfolio, which is the same approach but rebalanced 6 monthly rather than annually. As you can see in the charts below… the NAPS currently has the edge on the SNAPS from a performance perspective.

Year to…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way

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. ?>


Do you like this Post?
Yes
No
64 thumbs up
0 thumbs down
Share this post with friends



Bloomsbury Publishing Plc is a global publisher. The Company is involved in the publication of books and other related services. The Company operates through four publishing divisions: Adult, Children's & Educational, Academic & Professional, and Information. These divisions derive their revenue from book publishing, sale of publishing and distribution rights, management and other publishing services. It specializes in the humanities and social sciences, and publishes over 1,000 books and digital services each year. The Company's digital products include Berg Fashion Library, Bloomsbury Collections, Bloomsbury Fashion Central, Churchill Archive and Drama Online. The Company's subsidiaries include A & C Black Limited, Bloomsbury Publishing Inc, Bloomsbury Information Limited, Bloomsbury Professional Limited, Bloomsbury Australia PTY Limited, The Continuum International Publishing Group Limited and Osprey Publishing Limited, among others. more »

LSE Price
207p
Change
-3.7%
Mkt Cap (£m)
162
P/E (fwd)
13.7
Yield (fwd)
3.8

Pennon Group Plc is an environmental infrastructure company. The Company operates through subsidiaries, which include South West Water Limited, Bournemouth Water Limited and Viridor Limited. The Company's segments include Water and Waste management. Its water business comprises the regulated water and wastewater services undertaken by South West Water Limited and the regulated water services undertaken by Bournemouth Water Limited. The waste management business is the waste recycling and recovery services provided by Viridor Limited. South West Water Limited is engaged in providing water and wastewater services for Devon, Cornwall and parts of Dorset and Somerset. Bournemouth Water Limited is engaged in providing the water services for parts of Dorset, Hampshire and Wiltshire. Viridor Limited is a recycling, energy recovery and waste management company, providing services to over 150 local authorities and corporate clients, as well as over 32,000 customers across the United Kingdom. more »

LSE Price
742.2p
Change
2.1%
Mkt Cap (£m)
3,057
P/E (fwd)
13.0
Yield (fwd)
6.0

BP p.l.c. is an integrated oil and gas company. The Company owns an interest in OJSC Oil Company Rosneft (Rosneft), an oil and gas company. The Company's segments include Upstream, Downstream, Rosneft, and Other businesses and corporate. The Upstream segment is engaged in oil and natural gas exploration, field development and production, as well as midstream transportation, storage and processing. The Downstream segment has global manufacturing and marketing operations. The Rosneft segment has a resource base of hydrocarbons onshore and offshore. The Other businesses and corporate segment comprises the biofuels and wind businesses, shipping and treasury functions, and corporate activities around the world. The Company provides its customers with fuel for transportation, energy for heat and light, lubricants to keep engines moving and the petrochemicals products used to make everyday items as diverse as paints, clothes and packaging. more »

LSE Price
519p
Change
-0.7%
Mkt Cap (£m)
104,863
P/E (fwd)
10.4
Yield (fwd)
6.0



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


37 Comments on this Article show/hide all

Richard Cook 10th Jul 18 of 37

I wonder how this would have done with U.S. stocks?

| Link | Share
Nick Ray 10th Jul 19 of 37
4

In reply to post #380794

I had a quick look at the performance of drawdown/volatility on the one-year future returns.

5b4528079454bdrawdownvolatility.png

The green 50% line is the median return with some selected other quantiles added. Note that the amount of separation between the top and bottom lines is a rough guide to the variance (future volatility) in the returns.

There is not a lot in it, but I'd say that setting a trailing stop-loss somewhere around 0.85*(1y volatility) is about right. However most people would find that much further away than they would like. When I look at the drawdown without normalising by volatility the trailing stop-loss comes in at about -40% which is again really quite high.

The problem is that the median drawdown is about -15%. So at -15% you are going to be wrong about 50% of the time. Even good stocks will retrace quite a long way and high volatility stocks will retrace even further.

However stops are not really in the spirit of NAPS. If you check you'll find that some NAPS stocks have low momentum at the time they are selected. If you put a stop-loss on them they will most likely be stopped out before they get a chance to perform.

| Link | Share
shine66 11th Jul 20 of 37

'Asymetric returns are typical across holdings in stock market portfolios'. 

Plus500 (LON:PLUS) has made a huge contribution to the performance, but in 'real-life' would you have trimmed all the way up to maintain a balanced portfolio?

| Link | Share
martinmullane 12th Jul 21 of 37
1

In reply to post #380884

Howard,
Appreciate your comments re "tradestop"
I also have a mixed US/UK Portfolio.

Which of the 3 tradestop packages do you use?

| Link | Share | 1 reply
ddinksdadd 14th Jul 22 of 37
1

In reply to post #380884

Hi Howard,

interesting site thanks for the heads up . I wonder if stockopedia could replicate something like this in one of their upgrades?

Regards

Jim

| Link | Share
rpannell 15th Jul 23 of 37
Plus500 (LON:PLUS) has made a huge contribution to the performance, but in 'real-life' would you have trimmed all the way up to maintain a balanced portfolio?

So a sell the winners whilst adding to the losers strategy - hmmm

| Link | Share
Howard Adams 15th Jul 24 of 37
3

In reply to post #381569

Hi Martin

Sorry for slow response but I did not get the usual email when someone had replied to a posting.

I took lifelong membership when Tradestops was first launched in the UK.

I admit I do not use it's functionality to any where near what it could offer.

Mostly because I'm such a Stocko fan but also because I'm very hands-on with my investing.

But what Tradestops is strong at, is that if you wanted to be/needed to be a little more hands-off it's strength is that it effective;y watches your investments for you and supports you buying into/maintaining a portfolio which is risk adjusted to a level of holdings volatility you are most comfortable with. So it helps with each equity assessment, portfolio risk assessment and tools to help you re-balance based on volatility quotients. Also, each volatility quotient is recalculated each week so you can see changes occuring.

Their educational material is also rather interesting as are their ideas about using the tool to monitor across indices or even ETFs to watch markets, sectors or even themes.

I'm not sure of the different package offerings now, but like all these things I'm sure you can start at a lower level then upgrade if you feel it offers value for your investing activities.

My Tradstops is not essential to my investing, but it's very useful and has certainly paid for itself several times over. But, you need to put some effort into exploring it.

Regards
Howard

| Link | Share
Stuart Bates 18th Jul 25 of 37

Great article as always Ed.

Love the football analogy.

| Link | Share
Jonathan777 10th Aug 26 of 37
2

Would be great to see the NAPS portfolio posted on the site as a Fantasy Fund.

| Link | Share | 1 reply
Edward Croft 10th Aug 27 of 37
4

In reply to post #389859

Jonathan - yes it really should be a fantasy fund. I will get round to it. We're in the process of merging the Folios and Funds into one super feature. It's a work in progress... but the idea is that Funds are really publicly shared portfolios with certain transaction restrictions.

| Link | Share
Ron1302 21st Aug 28 of 37

Hi Ed, interesting conversations on NAPS 2018. I created a virtual portfolio when NAPS 2018 was introduced, putting £1000 in each stock. At todays date this portfolio is showing a loss of £250, not very impressive!!! I don't think it matters too much what index you compare it against the important thing is did I make a profit over the year or not. I think Plus 500 distorts the picture Incidentally I already owned or bought a few of the stocks in NAPS 2018

| Link | Share | 1 reply
herbie47 1st Sep 29 of 37
4

In reply to post #392284

There is quite a bit of luck over timing, I did a fantasy NAPs around same time as Ed picked his but came up with a different selection, I did not pick Plus500 (LON:PLUS) but did pick Bioquell (LON:BQE) which is +115%, also Premier Oil (LON:PMO) +62%, Filtronic (LON:FTC) +54%, also TechFinancials Inc (LON:TECH) -75%, overall +4.5%. Interestingly that Bioquell (LON:BQE) is now only SR of 73, Premier Oil (LON:PMO) is 56 and Filtronic (LON:FTC) is only 51. The current top 10 ranked shares have gone up or down from -18% to +8%.

| Link | Share
artnoonan 3rd Sep 30 of 37

I love the football analogy; it seems to make a lot of sense and also resonates with the whole idea of the most recent NAP2018 version that incorporates the small/medium/high cap distribution but somehow is more explicit in levelling out the risk and volatility.
I agree that PLUS has distorted the performance more than normal and if you eliminate PLUS the return is (as of end Aug18) is even less than flat. I had taken action to cull some of my NAP2018 elements back in Jun18 and did a little better but not as well as I might have hoped. In the process of analysing where I might have gone wrong/could do better, I recognised that I had only 5% defensives; the rest being roughly a split between Cyclicals and Sensitives so your article (just read a few days ago) was an excellently timed wake-up call.
I am now looking to fashion my existing NAP with more Defensives and overall incorporating the principles of this "football analogy" balance.
Keep up the good work. Thanks.

| Link | Share
shauniekent 5th Sep 31 of 37

Ed - you personally re-balance a quarter quarterly. Do you take the quarter that has lowest stock ranks at the time or do you simply rebalance through the portfolio in age order (rebalance the stocks that have been in your portfolio for the longest - ie 1 year.

| Link | Share
ACounsell 1st Oct 32 of 37
1

Today's very large profit warning from Royal Mail (LON:RMG) will not have done the SNAPS portfolio any favours. I fear that this years NAPS and SNAPS will not match the excellent performance from previous years. Indeed without the success of the very speculative Plus500 (LON:PLUS) both NAPS and SNAPS would be showing a negative return. Ed's annual review in January will make for interesting reading though to be fair he has pointed out previously that the past is no guide to the future!

| Link | Share
ACounsell 1st Oct 33 of 37
1

Two further questions relating to my previous post:

  1. Royal Mail (LON:RMG) had a Stockrank of 99, was a Super Stock and had a Balanced (i.e. low relative volatility) rating on Stockopedia. None of this suggested a profit warning might occur and that the share price would collapse by close to 20% in less than an hour (which suggests high volatility). Is there anyway the system could have flagged this possibility?
  2. Given the work Stockopedia has done on Profit Warnings (see the ebook) the immediate reaction to the Royal Mail (LON:RMG) profit warning would be to sell (as the market clearly has!).  However, does the NAPS/SNAPS protfolio strategy overide this and only get rebalance at 6 monthly intervals?

Be interested to hear Ed's views.

| Link | Share | 3 replies
Gromley 1st Oct 34 of 37
2

In reply to post #403514

Hi ACounsell,

Just to give you my thoughts on those two questions.

1. "Is there anyway the system could have flagged this possibility?"

To be somewhat facetious, then yes  ; the rule is that if the StockRank sits between 0 & 100 (inclusive) then the possibility exists that there will be a significant 'out of the blue' profits warning.

Trying to be more helpful, I cannot see personally that there is anything in the stats that would have been a predictor (although I'll happily be corrected on that point.

Those that take the view that the StockRanks can "only ever" be used as a starting point for further research, may be able to point to it being "obvious" that the forecasts included a substantial execution risk.

I don't want to argue particularly against the idea of doing additional analysis on NAPS style selection, but you would need to be sure that your analysis actually adds rather than subtracts value. (For some people it may, for others it may not).

I have certainly seen the reasoning why some of the NAPS losing selections should not have been made if one did analysis beyond 'the factors' , but I suspect that Plus500 (LON:PLUS) would have been rejected on the same basis and perhaps some of the other big NAPS winners in the last few years.

As I understand Ed's hopes and claims for the NAPS portfolios, it is that they will outperform on average. This is why NAPS have had both winning selections and losing selections, whilst posting substantial outperformance overall. It also is why we might  see an under-performance this year (although the night is still young as they say) which would see NAPS having trounced the market three years out of four and still substantially ahead over four years.

Whatever approach you follow you will get some losers and sometimes they will come in runs.


2. "However, does the NAPS/SNAPS protfolio strategy overide this [the sell on a profits warning strategy] and only get rebalance at 6 monthly intervals?"

As currently written NAPS has no sell triggers, other than at the end of the allotted holding period.

However, anyone can run a similar approach with whatever adaptions they choose and indeed Ed may chose to tweak the strategy in future years.

You might recall from the half year (post 9 here) that I have struggled to find a stop loss level that produces superior returns than hanging on in there (this period may be the exception).

I have an inkling though that selling on profit warnings may be a more effective approach - not all price declines are the result of profit warning, but judging whether a price decline is the result of a profits warning or other noise  may go beyond the ethos of the Non-Admin  Portfolio System.

Maybe at times like this we should all just pick our copy of the Hitchhiker's Guide To The Galaxy.


| Link | Share
herbie47 1st Oct 35 of 37
1

In reply to post #403514

NAPS were set up without any stop loss and then either do SNAPS after 6 months or run for 1 year and then redo. I'm not sure how a system would spot a profit warning and stop losses are not guaranteed, so even if you did have a stop loss at say 450p your broker may have only got 400p or less or not have sold at all.

| Link | Share
Edward Croft 1st Oct 36 of 37
4

In reply to post #403514

Andrew, 

I will try to update on this more extensively in a blog post. 

I've tried to be clear from the start that there is no set "NAPS" strategy - so there's no set response. The NAPS is really a philosophy, not a prescription. I interpret it with my own set of rules, but everyone who uses the philosophy tends to iterate and shape their own.  

Ultimately everyone has their own personal financial situation, time-horizon, tolerance for risk, liquidity requirements, portfolio size and so on... so there can be no master set of rules that works for everyone.  Everyone must, and should cultivate their own.   One of the ethics of this site is to be educational, but non-advisory... we try to help investors become more self-reliant. 

The NAPS (SNAPS) is published as a hands-off annual (semi-annually) long-only portfolio, with no stop losses & some general diversification rules.  It is benchmarked against a long-only index (FTSE All Share), and it will remain long at all times, in all market environments.  So from this perspective, the published SNAPS will do absolutely nothing with regards to the Royal Mail Group decline - just as neither will the FTSE All-Share. 

But of course an investor with different risk-tolerances, or a more active/pragmatic approach may  choose to act very differently.  After all, we'vepublished extensive material on how to act around profit warnings, how to use stop losses, manage risk and more.  Cultivating one's own strategy is part of the challenge, and part of the fun.

I like to say that the NAPS is a jazz chord sheet to riff on, rather than something to be rote learned.  So if your interpretation of the Profit Warning Guide suggests you wish to act differently, and you prefer taking a more active approach to your risk management - then go for it.

| Link | Share
Nick Ray 2nd Oct 37 of 37
1
Royal Mail (LON:RMG) had a Stockrank of 99, was a Super Stock and had a Balanced (i.e. low relative volatility) rating on Stockopedia. None of this suggested a profit warning might occur and that the share price would collapse by close to 20% in less than an hour (which suggests high volatility). Is there anyway the system could have flagged this possibility?


Some possible "warning signs" - not necessarily of profit warnings but of less good performance in general - which could be turned into rules to augment a screen based on high SR:
  • High Value Rank (V > 80). If a stock is so good why does it stay cheap for prolonged periods? The Stock Rank system tends to reward high Value Rank stocks but they tend to be flighty - either great or terrible.
  • Poor Momentum to Volatility Ratio. Although the stock rated "balanced" and it has a "1y Volatility %" of 30 (quite reasonable) the "% Price Chg 1y" is presently 2%. Before the fall the "% Price Chg 1y" would have been about 25. But I would have been looking for a value at least 2x the Volatility and preferably 2.5x.

But as Ed says you have to cultivate your own rules and it does come down partly to personal preference for risk and/or trading style. For example, there are people who thrive on looking for High Value stocks which they have reasons to believe will do very well. For them a rule like the one above which eliminates High Value is useless.

| Link | Share

What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter

 Are LON:BMY's fundamentals sound as an investment? Find out More »





Stock Picking Tutorial Centre

Most Popular Now
I Read The News Today Oh Boy 19Nov2018
I Read The News Today Oh Boy! 19-Nov-2018
Stories and Journals Mon 7:22am


I must be missing something
I must be missing something
LON:AMER Sat 12:41am

Brixit
Brixit
LON:BARC 6:24pm




Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis