Six years of investing trends through the lens of the StockRank Styles

Friday, Jun 21 2019 by
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Six years of investing trends through the lens of the StockRank Styles

Back in April 2009 -- a little over 10 years ago -- world stock markets reached an inflection point. No-one knew it at the time (though some later claimed they did) but it was the moment when negative momentum triggered by the financial crisis stopped and equity prices started rising. These were the very early days of a new bull market.

At the point of maximum pessimism - almost to the day of the market hitting a post-crisis low - a star fund manager called David Dreman was fired as a subadviser to the $2.9 billion DWS Dreman High Return Equity Fund.

After running the fund for 20 years, Dreman’s misdeed had been to stick faithfully to his contrarian value investing style. High exposure to financial stocks had savaged his recent performance, and his three and five year returns weren’t much better.

And what happened next? Well, inevitably, Dreman went on to slay the market as it roared back to life (and handily outperform the new managers of his old fund). But that isn’t quite the end of the story. In an interview shortly afterwards, the battle-scarred value manager remarked:

5d0cb3fea9186dreman.jpg

“Low P/E investing is a proven strategy, and this is exactly the kind of market we do well in—many great stocks got knocked down to levels we have not seen since the 1950s. Over the next five years the stock market could possibly double.”

On this point, Dreman was wrong. It actually only took four and a half years for the S&P to double (...and eight and a half years for it to triple).

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Dreman’s experiences are a good illustration of the way different investment styles zig and zag over time. In his case, cheap, out of favour contrarian stocks fell flat through the slump but paid off handsomely in the recovery. In the years afterwards, value strategies came under pressure again, but other styles flourished.

With the introduction of Stockopedia’s StockRanks six years ago - and then the launch of the StockRank Styles - we’ve been able to get a much better look at how these style trends change. Before we dive into what we’ve seen over that time, here’s a quick reminder of how this analysis works...

StockRanks show the investment strengths and weaknesses of any share in a single number. You’ll find…

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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. ?>


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29 Comments on this Article show/hide all

Terry the Trader 22nd Jun 10 of 29
3

Very interesting, but won't we all end up just buying " Super Stocks"?

I only joined last week and this is my first ever comment, so maybe I am missing something

However I have been trading for over ten year.

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wilkonz 23rd Jun 11 of 29
4

In reply to post #485891

...won't we all end up just buying " Super Stocks"?

A reasonable question, Terry. As Ben Hobson pointed out, some 'Super Stocks' did badly (not so long ago Plus500 (LON:PLUS) was a Super Stock until 'typos' were found in its financial statements) and some 'Sucker Stocks' did quite well. My feeling is that the StockRank Styles are just a starting point for our stock picking (like tips) and that it makes sense to apply due diligence to our selections before buying anything. All the same, I instantly rule out four losing styles (Sucker Stock, Value Trap, Momentum Trap and Falling Star) and don't bother researching them. Statistically they are bad news and I'm not smart enough to pick out the rare winners. It would be possible to do reasonably well, I'm sure, by buying a random selection of Super Stocks, but one would probably do just as well investing in a decent fund (not one of Neil Woodford's) and there would be a significant saving on transaction costs.

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herbie47 23rd Jun 12 of 29
3

In reply to post #485891

You can buy Super Stocks but at the moment there are a lot of cyclical shares, quite a few are housebuilders, in the top 10, then you have a fair few "foreign" shares in the next 10. To be honest at the moment I don't fancy buying many of them.

My feeling is my superstocks performance has been pretty mixed, my High Flyers have done far better. You also have to remember that these styles can change quite often. Are there any shares that have been a Superstock for 6 years?

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herbie47 23rd Jun 13 of 29
4

Out of interest why does Royal Dutch Shell (LON:RDSB) not appear in the Superstocks style list or the top QMV list? It has a SR of 99 and is a Superstock.

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ttman 24th Jun 14 of 29
1

In reply to post #485951

It looks like dual listed stocks are excluded from the ranking screens by default. Gazprom PAO (LON:OGZD) being another example.

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herbie47 24th Jun 15 of 29

In reply to post #486206

I thought that maybe the case but I don't really see why.

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BIACS 27th Jun 16 of 29
4

I'd be most interested to know how the various styles and ranked stocks performed specifically during the market slowdowns and wobbles - e.g. between July '18 and January '19. i.e. which types of stocks faired better when the wheels were coming off? Were the contrarian and value-rank heavy stocks the safest as one might expect, or was everything sold off equally?

Any chance that some stats be shared on this?

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justinian 27th Jun 17 of 29
2

I like the article. My experience of individual stock investing has been the issue regarding distribution of outcomes. As your article points out, styles change over time. Quite a high proportion of the total returns come from relatively few, very strong outperformers and when selecting just a few stocks, there is a greater chance of missing out on them. Then there are the high costs of course which is not fully taken into account in the stats. All in all, you don't find out the answers regarding your quasi lottery picks until after a long period of time and then it's already too late. Some, of course, will say they have done very well out of them, which is to be statistically expected. I fear also that this site itself is causing buyers to become more concentrated in fewer stocks - we can all easily see which look best according to the scores. Despite these comments, I really love the site and the learnings we can all make on our journey. I just wish it had been around when I had more time to make 'mistakes'.

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zeibots 27th Jun 18 of 29
3

The Styles of stocks change over time, why not produce actual charts for individual stocks so that these changes in Styles can be monitored?

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timk 27th Jun 19 of 29
2

Styles are, for me, a useful in screening, by simply excluding the four dud styles.

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Metatron 27th Jun 20 of 29

Would be interesting if results were applied to the various guru screens as regards rank. i.e if applied to Dreman stockscreens how did Superstocks or Sucker stocks etc did do respectively to each other

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ken lowes 28th Jun 21 of 29
2

I really like the site as it allows me to play around with investment ideas based on yesterday, but therein is the problem, yesterday. The first two shares i ever bought upon subscribing in 2014 lost 100% in the one and 50% in the other they were after all ranked at 99/100 so why would i expect such an outcome. Now i have my own screens which work really well and then a check list which among other factors checks the stockrank position, price and P/E at the beginning of the move perhaps four or five years earlier and guess what the price is lower, the P/E often lower and the stockrank at an unacceptable level. . But it would be as this is not a look into the future but the past. A bit like the Elliott Wave Count which was created in the 1930's once the time has traveled it is easy to see what you should have done. That having been said Stockopedia is still the best site that I subscribe to. If it was easy we would all be rich!

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mlane 4th Jul 22 of 29

Brilliant write up, made me check my core screener to ensure the outputs were winning styles. Good to revisit the foundation of the thinking from time to time. Thanks M

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David Banning 6th Jul 23 of 29

Just getting to grips with Stockopedia and want to load my 30 shares into my dashboard to see how they look. I can then use on a daily/weekly basis.
Trouble is I add and sell stocks actively and it could be time consuming. I will see. However, hopefully I should get good results

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jwebster 6th Jul 24 of 29
5

What’s interesting if you look at the chart “average returns by style” the median win is much the same for Super Stock, High Flyer and Turnaround. I would even add Contrarian and Value Trap as similar.

What does stand out is the lower median loss for Super Stock.

So effectively, Super Stock is not picking better winners, rather, it’s controlling the losses which is a good thing.

It illustrates the point investing is as much about reducing volatility and downside risk versus solely chasing boom stocks.

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wilkonz 6th Jul 25 of 29
2

In reply to post #490361

'...it’s controlling the losses which is a good thing.'

I think this is a crucial point. Investing is more about avoiding losses than making spectacular profits. As Warren Buffett's first rule states: Don't lose money. Rule two: See rule one. The winners take care of themselves nicely without any help.


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Micky3 26th Jul 26 of 29

The Stockopedia methodology seems to work fine, especially for UK stocks over the last six years where the QVM Stockrank 90-100 has risen 115% whilst the All Share Index has risen less than a third of that. It is a mystery to me though that the same US QVM Stockrank rose only 26% over the same period whilst the S & P 500 rose twice that amount at 55%. Can I trust the Stockopedia USA categories? Or is there a reason that I can't yet see. I note that in the States Zacks are now running a similar system, but their QVM picks do seem to be different and more successful, albeit over a very short period. Any comments?

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herbie47 27th Jul 27 of 29

In reply to post #490371

Yet Warren Buffett has suffered huge losses in shares such as Tescos, GE and Kraft Heinz to name a few.

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pgs501 27th Jul 28 of 29
1

In reply to post #497846

I think the USA stockrank underperformance is down to two parts. Firstly the FAANG mega caps huge success has caused the whole USA market to rise a lot however stockrank deciles are equal weighted and so even if any FAANG stocks are 90-100 they would hardly move the needle individually. Secondly I have read that the USA is a significantly more efficient market than anywhere else in the world and factors have far less explanatory power there. After publication of papers proving a factor future US outperformance  from that factor halves, but publication has no impact anywhere else. Thankfully the sophisticated US investors keep 90% of their portfolios in their home market so factors still work well over here.

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Micky3 28th Jul 29 of 29

OK, so does that mean the US Ranks have less predictive power or do the high ranking stocks still outperform albeit hidden behind the few massive FAANG Companies performances? On another point, why does the Stockopedia Peter Lynch system contain Financial Stocks when the system explicitly omits this category?

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About Ben Hobson

Ben Hobson

Stockopedia writer, editor, researcher and interviewer!

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