Before I get started, I’d just like to point you towards Jack Brumby’s piece from last week, which covers three potential recovery plays. Jack also included two charts which contrast Google search levels for “corona” with the performance of the FTSE All-Share index this year. 

In short, since hitting peak panic in mid-March, interest in the pandemic appears to have fallen and investors have pumped cash back into the market. In the real world, we’re seeing a growing number of listed companies finding ways to get working again. That’s also the feeling in the area where I live - more local businesses are finding ways to reopen.

This week I’ve decided to step back and look at one important aspect of the rules which govern my SIF Folio: my holding period.

The story so far

When I launched SIF in April 2016, my minimum holding period was six months. Stocks could only stay in the portfolio for longer if they continued to satisfy all of my screening criteria.

In 2017, I decided to increase my standard holding period to nine months. Although I didn’t have much statistical support for this change, two factors made me think it might be a good idea:

Data refresh: Nine months should be long enough to ensure that all companies publish at least one set of accounts during my holding period. This should ensure that the quantitative data for each firm will be ‘refreshed’ at least once during my holding period. This provides a greater opportunity for strong or improving performance to be reflected in a stock’s valuation. (Of course, the opposite is also true, as bad figures can trigger a sell off.)

Relative strength: My screen uses one-year relative strength (RS1y) as a measure of momentum. This looks for shares that have outperformed the market over the last 12 months. Stockopedia’s research indicates that this measure is most predictive over a 6-24 month timeframe. So my six month holding period seemed like it might be a little too short.

Since 2017, I’ve left my holding period unchanged at nine months. Stocks can stay in the portfolio for longer if they continue to pass all of my screening tests, but I’ve found this uncommon in practice.

Backtesting: is 9 months too long?

One reason why I rarely make changes to my screen is that I have no…

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