Shares for 2014

Time for a review of my “5 shares for 2013?, that I chose slightly over a year ago. http://is.gd/iL4C3a

The ASXX (All-Share exc. Inv Companies) is up 17% over 1 year. A very happy performance. The performance of my 5 shares was not so happy, however. Here’s how they did:

1. Idox (LON:IDOX) -39% . The shares caught a cold on the May trading update, and confidence throughout the rest of the year. Despite bullish prospects last year, it was not to be. I had selected it from Stockopedia’s CAN-SLIM strategy. It is a strategy that usually performs well. Just not this time.
2. Lamprell (LON:LAM) +50%. Good performance from this turnaround, and I am anticipating good things from it next year
3. Man (LON:EMG) +3%. This is a straight-forward value share. Unfortunately, the fortunes of the company are tied heavily to its AHL fund, which seems to have the nasty habit of wiping out months of profits accumulated carefully with sudden downturns.
4. Albemarle & Bond Holdings (LON:ABM) -91%. Albermarle & Bond. A disasterous pick by me, which had the company melting gold to make ends meet. My comment that the “dividend looks safe” proved to be particularly laughable. ABM passed Stockopedia’s “Geraldine Weiss Lite Dividend Screen” *
5. Avon Rubber (LON:AVON) +57%. Avon Rubber. This was a momentum share that kept going, and was selected from Stockopedia’s Richard Driehaus screen.

So, if you had chosen these shares for your 2013 portfolio, you’d be up 3% – well short of the index, and a very disappointing result.

If I had to offer a general observation, I’d say that I don’t like dividend shares. The upside tends to be limited, and the downside can be affected by too many “black swans”. We saw that in ABM’s case. going back, we can see this in companies like TSCO (Tesco), which dropped 20% in January 2012. Over 5 years, the shares are down 6%, compared with the Footsie up 60%.

Another observation I would make is to beware of “general” value shares. They’re a bit like dividend shares. Your upside is usually limited because the low PE ratio tends to reflect low growth expectations, and if something goes wrong, your shares will likely still get clobbered. I think you need to buy value when the company is absurdly cheap.

Instead of cobbling together a portfolio of shares for 2014 (and let’s face it, after 2013?s performance, would you want to see it anyway?), I thought it would be interesting to put together a list of sites that I follow that have their own portfolios. I have restricted my list to those who invest in UK shares only. Here’s the list in alphabetical order:

• Johns investment chronicle http://www.johnsinvestmentchronicle.com/
• • His top 10 selection can be found on Stockopedia: http://www.stockopedia.com/fantasy-funds/jic-top-10-4459/
• Paul Scott’s Small Caps – Google spreadsheet http://is.gd/Jod4Mi
• Richard Beddard: http://www.iii.co.uk/news-opinion/blogs/share-sleuth/portfolio
• The red corner http://quinzedix.blogspot.co.uk/

There are other great sources for portfolios:

• UK StockChallenge http://www.stockchallenge.co.uk/ which will kick off soon
• NSFC Nicky Fraser Share Competition http://boards.fool.co.uk/nfsc-2014-competition-now-open-12940775.aspx I have added my own entry for the year: LMI http://boards.fool.co.uk/nfsc-2014-lmi-lonmin-12941290.aspx
• Stockopedia: http://www.stockopedia.com/ It offers a great selection of styles to choose from. I like the growth portfolios best of all, and I’m keen on tracking the progress on the CAN-SLIM strategy (the selection of IDOX notwitstanding). Over on the AAII site, the CAN-SLIM strategy has done very well, and it will be interesting to see if Stockopedia can replicate its performance over a decade. O’Neill’s actual strategy is very hard to replicate, I think, either by a computer or a human. It relies on chart patterns and qualitative information, which is nigh on impossible for a computer to capture. However, AAII’s interpretation has done very well.

Starting next year, I will be continuing my portfolio cleanout that I started this month. There are so many good sources for share ideas on the web, that it makes sense to scan through them and pick what you think are the best ideas.

My Stockopedia fund has been renamed from “Blippy Defensive” to “Magic Blippy”. Originally, I set out to prove that a portfolio of defensive shares can beat the general market. Did it? Well, sorta. The 2-year performance is about in line with the FTSE350. However, what isn’t shown in that is that near the beginning of the portfolio’s life the market took a beating, whilst the portfolio held up well. It’s this resilience that has pulled the portfolio significantly ahead of the index.

Having said that, I’m going to see if I can do better. Defensive shares are OK, but I don’t expect that I will be able to shoot the lights out with them. I now want to see if Stockopedia’s Magic Formula can be used to outperform the market if a subset is selected. My plan is, every month, to select a share from the Greenblatt portfolio to put into the fund. It will take a year to transition the portfolio, and it will be interesting to see self-selection improves or worsens the result.

Wish me luck.

Have a happy, healthy, and wealthy 2014.