Semi-Year SNAPS 2019 - how many stocks are enough?

Thursday, Jul 04 2019 by

So the first half of 2019 has been a bit of a shocker for the NAPS (my 'no-admin-portfolio-system'). While the major market indices have bounced from the end of year lows, the NAPS portfolio has languished. The NAPS year to date have generated a -0.1% capital return against a FTSE All Share return of +10.4%.

As a headline figure that's very poor, especially as the 90+ StockRank set of shares from which the NAPS are selected have returned 11.3% slightly ahead of the market. This puzzling show has drained some of the outperformance from the long term results. Nonetheless, excluding dividends, the NAPS have generated a return of 90% over the last 4.5 years versus only 14% for the FTSE All Share. Given the lion's share of the outperformance has all been generated in years 1-3 the question that will be on everyone's lips is - have the NAPS stopped working?

Performance Review

As you can see in the chart below, the NAPS (in blue) has significantly lagged the FTSE All Share (in grey) year to date.


Although the picture is far healthier since inception in January 2015.5d1c709398b2aImage_2019-07-01_at_8.53.17

The SNAPS Portfolio, which is the semi-year rebalanced version of the NAPS, is lagging a bit further behind... with an 82% return since inception. You can see the overall numbers, year to date and since inception in the chart below.


Winners & Losers year to date

The top winners year to date have been D4T4 Solutions, Evraz and Emis, but they've been offset by a larger than usual mix of losers. The big loser for the year is Plus500. Down by 58%. After gaining 53% in 2018 this is of course disappointing. A gain of 53% followed by a loss of 58% should equate to an overall 36% loss of the starting capital invested in Plus, but the magic of rebalancing has actually brought the total loss on Plus 500 to only 0.2% over the 18 month period.


Plus 500 can only explain 3% of the underperformance year to date - but the whole portfolio has dragged. As you can see above the portfolio has generated 12 winners and 8 losers. That's a 60% hit rate of selecting winners - which is ok, but I've a…

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29 Comments on this Article show/hide all

iwright7 3rd Jul 10 of 29


Great analysis. I am with you on your QM comment, because it's a style I like myself:

...I've considered moving to a pure QM strategy which tends to highlight some more dynamic names.

I am curious whether this is because you relate for example to other QM Guru screens such as  William O'Neil CAN-SLIM and Richard Driehaus Momentum, and/or whether it is because Value per-se (in QVM) has struggled in recent years?  Perhaps room for both approaches (and maybe more of the 4 winning styles), as model portfolios?  Suggest the 4 winning styles /annum, created at the start of each quarter and tracked for 12 months.  Ian  

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andrea34l 3rd Jul 11 of 29

I quite like the idea of a semi/slightly-active approach, as suggested by Pete - do a brief monthly/bi-monthly summary of the stocks in the portfolio, and replace only those whose price has dropped more than 20% due purely to trading/outlook warnings and replace them with whichever is next in the top-20/30 that didn't make it in the original selection. I don't think it would take much admin to identify these warnings.

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DanielRudd 3rd Jul 12 of 29

I would rebalance based on risk-on risk-off or recovery/expansion/deceleration/recession rather than using a calendar year.

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Johns 4th Jul 13 of 29

Very interesting article and coincidentally I had been looking at precisely this issue recently.

it seems even holding 30 shares can lead to returns wildly different to the underlying group you have selected from. In one of your charts it show max return of around 25% and as low as 5%. But of course if you were really lucky or unlucky it could vary a lot more than that. This is problematic if you're hoping to more or less replicate the top decile of 90+ shares because the chances of doing in any one year is quite low.

Also the volatility of the underlying market and the subsequent variation of returns of the individual shares in the 90+ group will affect your chances of approximating it. And as someone already pointed out it would interesting to see how selecting from low volatility shares could affect the result.

ps I tried to calculate the performance of the 90+ decile for the first 6 months of the year from the performance chart and came up with about 9% which is different to the 11% mentioned in the article. I'm wondering if the 11% includes dividends ?

I was also curious to see in the graphic the returns appear to be clustered more around a 13-14% return instead of 11% I wonder why that is.

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jjis 4th Jul 14 of 29

Hi Ed, thanks for an interesting update as ever. As someone who runs a monthly screened income portfolio based on a quantitative process & as a full time investor who use that & the stock ranks to run real life portfolios I thought I'd add a few observations from my experiences with those.

Obviously a monthly screening or even quarterly for that matter is a lot more admin than you have with the NAPS, but does help to keep exposure to the factors higher over time, which if they are out performing factors is obviously desirable. So far in the 4 years or so that I've been running that 20-30 stock portfolio it has generally delivered market beating returns, although it did have one year of significant under performance in 2016. That's even after allowing for the higher trading costs from monthly re-balancing, although on occasions I have skipped trades in a few quiet months over the summer / Christmas etc. or when there is no need to trade due to the Scores etc. 

As for Stock Rank based portfolios run on a more manual / relaxed basis I have found that using a 50-60 Score as a cut off point to review stocks in addition to monitoring news flow and acting accordingly works quite well for some masterful inactivity and also keep costs and admin down to a minimum in a larger more diversified, sleep at night, longer term full time portfolio. 

This is generally constructed from the more conservative outperforming styles too in the main which also helps. I think the most important thing though is to try and avoid the losers by not holding stocks in the bottom two quintiles unless you have a very good reason to & avoiding the losing styles like Sucker stocks unless you are that way inclined. See the graph from the performance of the RANKS below which bears this out. It also shows that the 50-60 decile has actual outperformed the 60-70 & 70-80 deciles & they have all outperformed the markets, although by less than the top 2 deciles which is probably what you should focus on if you are really chasing performance & don't mind more volatility. 

It seems to me that the Ranks do wax and wane as one subscriber posted about recently, but I've found that quite often stocks bounce around in the 50 to 90 range depending on how the momentum tends to move, although of course you need to pay attention to the reasons behind the deterioration and as ever you always have to make a judgement call which you can never get away from.

Hope this might help people trying to use the Ranks in their own way, I know they help me - so thanks for your service.



Webite: Compound Income

Twitter: Jamie@CompoundIncome


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sprite 4th Jul 15 of 29

Most interesting article
When I drew up my 2019 portfolio, I was rather disheartened at the comparative lack of high SR shares which were of interest to me in the UK market. Further, last year I explored the Australia/NZ markets with singular lack of success and so I changed my subscription to European shares. Following the principle of minimum effort I picked out 5 stocks with SRs 95+in sectors in which I could not come up with a  home grown selection. So far three have repaid my investment royally, one is pretty much unchanged and the worst is minus 12.6%. Bearing in mind these purchases were stupidly made at the time of a quickly falling pound I am very pleased and now at re-balancing time, I shall endeavour to pursue this strategy further.

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Gromley 4th Jul 16 of 29

Cracking article as ever Ed and some great comments too. Such a rich vein for further thought.

Two things in particular have grabbed my immediate attention.


You (Ed) hint at taking a more QM oriented approach going forwards and I am curious as to the reasoning.

A quick look at the SR performance charts suggest that over the 6 and a bit years of SR history QVM has narrowly outperformed QM (although in fact it is so narrow that dependent on how you set the filters you can draw the opposite conclusion).

Over the past two years, however, QM has a more convincing lead of QVM (although the absolute performance of both doesn’t look too stellar – although better than a ‘market’ that is only up fractionally in the last 2 years).
So, are you allowing recency bias to influence you here? Or is there more to it than that?
As I suggested recently on another thread; perhaps the time when everyone is thinking of dumping ‘value’ is precisely the time to be embracing it?

Variability of performance amongst the highest StockRanks.

A second area of interest here is the interesting find from Nick Ray that for the higher stock ranks the variability of performance is significantly increased.

This puts me in mind of the very highest yielding shares, where you can find some real gems but also a fair share of dogs.

Is there some sense that the very highest StockRanks include a fair share of stocks that are “too good to be true”, alongside a larger number that really are true?

Other posters have in the past suggested that a more qualitative view of quality might provide a useful additional “filter”. I am somewhat sceptical on this point, but it is fair to point out that such an approach would probably have saved one from last year’s dog Indivior (LON:INDV) and this year’s Plus500 (LON:PLUS) . Also though it would have likely to have kept you out of last years star Plus500 (LON:PLUS) again and probably EVRAZ (LON:EVR) (These were just the ones that seemed most ‘obvious’ to me so it’s hardly scientific).

What would be interesting however, and something I aim my sights on, would be to see if there are any common factors amongst superstocks that fail to shine.

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pka 4th Jul 17 of 29

Gromley wrote: "What would be interesting however, and something I aim my sights on, would be to see if there are any common factors amongst superstocks that fail to shine."

I suggest excluding any overseas-domiciled stocks from a NAPS portfolio, unless they are domiciled in countries in which one has a lot of confidence. That might cause one to miss some profitable opportunities but would also probably save one from investing in some stocks that turn out later to have had fraudulent accounts.

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dfs12 4th Jul 18 of 29

Thanks for the review Ed. I find it strangely reassuring to see that even the best strategies will have periods of underperformance. Gives hope for us mere mortals. Like Gromley, I wonder why you are considering a move away from Value. Although it has certainly not been a good strategy over the last 6 or more years is it really time to retire it altogether (even if only in NAPS)? Jack has published an article in the last couple of days highlighting the guru screens that have worked best in the last 6 months and bizarrely the bargain/value ones have outperformed. Although they are mostly rammed with stocks I wouldn't consider, it may be an indication that things are turning back towards value? On a slightly separate issue I would be keen to see a Fantasy fund set up to mirror the NAPS and SNAPS portfolios. And finally I would love to see a Fantasy fund/performance rating system for the guru screens that recognises both bid offer spread and dividends. You've mentioned dividend automation is one of the earlier enhancements on the new system - so perhaps this might be possible?

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Martin Verlaine 4th Jul 0 of 29

I notice that Citywire are also boosting REI. I had a look the website and viewed their properties ( very helpfully  shown). Having lived in  the Midlands for many years  I know a number of these and have reservations on the quality of several. I also see a lot of retail and short leases. So to  me the two combined are something of a red flag. I think you could easily attribute a 20% decline in retail values so this is a clear avoid. Would think discount to ‘ stated ‘ NAV needs to be closer to 30% 

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laurie 4th Jul 20 of 29

Dear Ed,
I like to add a debt filter to my selections. It picks up cash flow issues, provides a margin of safety, etc. If you had, for example, total debt must be less than 3xs op profit, the three biggest winners would still be included, but 5 of the 7 biggest losers would have been excluded. Britvic was the only company excluded by the suggested filter that beat the All Share.

For your interest, and assuming the historical information I have is correct, the following shares would have been excluded: Britvic, Dart, Carr's, OCN, BT, OPG, SBRY, U and I.

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Gromley 4th Jul 21 of 29
I like to add a debt filter to my selections. It picks up cash flow issues, provides a margin of safety, etc. If you had, for example, total debt must be less than 3xs op profit, the three biggest winners would still be included, but 5 of the 7 biggest losers would have been excluded. Britvic was the only company excluded by the suggested filter that beat the All Share.

For your interest, and assuming the historical information I have is correct, the following shares would have been excluded: Britvic, Dart, Carr's, OCN, BT, OPG, SBRY, U and I.

laurie - that is a fascinating and potentially very powerful stat if true (No disrespect intended by adding that rider, but it is not something I have personally validated and I always exercise scepticism until I have the evidence)

One would need to consider of course whether the same improvement would have been achieved on the earlier iterations of NAPS - a lot of hard work to test that of course, but if it could substantiate the case you make it would be work very well spent.

It would also be useful of course if one could find a clear link between the levels of debt and the price declines of the worst fallers in this years NAPS. I am not sufficiently up to speed on all of them to really be able to say for sure , but off the top of my head I'm don't think that debt levels have been a recent price affecting issue.

In fact I used to work for one of the companies cited and I can recall that the relative debt was much higher in the past, but at the time of peak market comment on the debt levels I was being told that there was so much investment capital available to the business that if I was strongly encouraged to bid for Capital to support growth capex or acquisitions. Stepping back from the situation although I would say that I am quite financially conservative, I have to say that the encouragement to invest was right (so far) despite the apparently high debt levels.

Anyway, "in other news" I started to look at the cadre of potential candidates for this years NAPS and I think I have to support Ed's view that 2019-NAPS were "unlucky".

I happen to have a sample of SR data from 23-Dec-18 and another for 14-Jun-19 which gives a close comparative to the NAPS review.

SR >=90 and Mcap >= £10m gave me 127 qualifers of which 76% were "winners" by mid June delivering an average return of 12% (not stellar in the context of the wider market, but okay).

However, there were 9 (out of 127 = 7%) of those stocks that fell by more 25%. Ed's unfortunate NAPS  folio managed to select FOUR of these (therefore 20% of the 20 stock folio).

I cannot immediately find any systemic failings in the NAPS selections so for the time being I'd still back Ed's view that NAPs' has just been unlucky in 2019.

Given though the NAPS namings relation to one of the earlier attempts to unify Europe, I cannot help but recall Napoleon's preference for "Lucky Generals" - just as well  that Ed I think has reached "Field Marshall" status by this stage.

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iwright7 5th Jul 22 of 29

Laurie and Gromley. The Debt filter of: Net Debt < 3 * Op Profit, is one of the Naked Trader Esque Guru rules for excluding companies with excessive debt. Robbie now uses uses Net Debt < 3 * Pretax Profit as the guideline,  but hey ho.

I don't know where Robbie derived his debt metric, (but I am pretty sure it was not from backtesting), but I have a hunch it was from one of Buffett's guidelines of 2-5 years earnings to remove debt, in order to build in a margin of safety during recession. 

High quality companies tend to not need to borrow heavily (because they have higher Return Ratios), so it makes a lot of sense to me not to invest in over-geared companies. By adding an additional debt max filter you are effectively pushing the mixed ratio Q + M + V score towards a selection of companies with a probability of higher Quality, (and probably away from Value).   Ian 

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herbie47 5th Jul 23 of 29

Talking of Robbie and number of shares, he seems to have about 50 different shares currently.

I would exclude companies with high debt and "foreign" companies, many of those seem to go wrong, there have been several Israeli companies, Chinese of course, Russian I would consider high risk.

Has Indivior (LON:INDV) appeared the most times in NAPs? It is still quite highly rated even though it has fallen almost 90% in just over a year, why is it so highly rated?

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monions 5th Jul 24 of 29

That's a good point Herbie on Indivior (LON:INDV). I think the QR and VR are skewed by old data. The incredibly high ROCE will push the QR. The value rank doesn't make sense to me - I think it is based on ultra low historic P/E, which isn't the case going forward. So I would say those two ranks are misleading for Indivior (LON:INDV).

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Nick Ray 5th Jul 25 of 29
Has Indivior (LON:INDV) appeared the most times in NAPs? It is still quite highly rated even though it has fallen almost 90% in just over a year, why is it so highly rated?

Yes it has. There have been five NAPS so far and INDV is one of a handful which have appeared three times.

For the curious here's a table of the number of appearances for each stock in NAPS to date.

Stock# Appearances
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daverawc 5th Jul 26 of 29

If you operate a 10% stop loss limit and reinvest the remainder in the top performing stock and continue the process by investing the residual from the next loser in the 2nd best performing stock and so on down to the 5th best performer then start again at number 1, this would have improved performance significantly for last year and i suspect for all previous years.
I accept this would produce a more concentrated portfolio, but at least it would be concentrated in winners.

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purpleski 7th Jul 27 of 29


“I like to add a debt filter to my selections. It picks up cash flow issues, provides a margin of safety, etc. If you had, for example, total debt must be less than 3xs op profit, the three biggest winners would still be included, but 5 of the 7 biggest losers would have been excluded. Britvic was the only company excluded by the suggested filter that beat the All Share.”

I read Robbie’s (Naked Trader) a long time a go and his 3 x profits rule just chimed with me (having been in a lot of debt in my 20’s I am debt adverse myself) and his 3 x debt rule is my starting criteria in any screen and the first thing I look at when a stock comes on my radar.

So if I was to construct a NAPS the first rule would be a 3 x profit debt rule.

I have followed Ed’s NAPS articles since inception but have not implemented a strategy like it for two reasons, both of which could be erroneous:

- So far (five years) I have out performed the market and the NAPS and am happy to put the time in. I am retired after all, so I have got to something with my time!!

- If it was that easy (over the long term 10 years +) then we would all be doing it and there would be an awful lot of people out of a job.

We will see and I do hope that if Ed moves on to writing about other stuff, somebody at Stockopedia takes over the NAPS column.

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Gromley 7th Jul 28 of 29

Hi purpleski & ian (& indeed laurie) - [the 'reply' button is not appearing on my screen at the moment - it seems to go AWOL sometimes is that just me - so just to be clear I'm answering on the debt question.]

I haven't had the chance to drill down much further yet (but am minded to look for patterns amongst high SR stocks that fail generically whether in NAPs or not).

One point of note though is that whereas the Robbie Burns rule that ian refered to was net debt : profit (of whichever flavour).

However Laurie referred to total (ie gross) debt - certainly most of the 'fails' would have passed the net debt test.

For example J Sainsbury (LON:SBRY) in FY 18

(Maybe not the best example as I suspect debt didn't really have much to do with the price declines of the last few months).

Gross Debt : £2.5 Bn

Net Debt : £0.6 Bn

With Operating profits of  £0.5 Bn

The net debt ratio was a comfortable 1.2 x

Whereas the Gross debt ratio was a more worrisome 5x.

Which begs the question, should we pay more attention to Gross or Net debt? Most investors seem to focus on net debt, but the puzzle for me is always : If the company has debt and a significant cash-pile, then does it in fact imply that the cash is actually encumbered (ie already promised to someone else - particularly if the company 'window dresses' their balance sheet as most I believe do).

If the gross debt was actually called in - could they really use this cash to repay some of it?

I don't know the answers there - just thinking out loud.

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GN100 Mon 9:40pm 0 of 29

In reply to post #490311

daverawc, I have tried stop losses in a LTBH portfolio and found them very unrewarding. You often get taken out on a downspike - some of them are quite vicious - only to see the price recover in fairly short order. OK, 10% may allow for it but those spikes will still come along and take you out when you are around the 8-9% region. In reality you have to accept this if you are going to use a stop loss and not just use a warning price level followed by your own judgement which is even more difficult in practice.

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