Stock Rank help

17th Mar '17 by Wazzy2

23 comments 9793 reads

I purchased some shares in GOG on 17th Feb when the stock rank was 99. They released some poor results and now the stock rank is showing as 65 but I cannot find any discussion or advice on whether to sit tight and ride it out.

I understand that the stock rank is based on statistics and it's meant to help investors determine which share to purchase but isn't this a flawed system if the stock rank plummets on one set of results.

And more, importantly, shouldn't Stockopedia be issuing some commentary along the way ?

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Wazzy2

Premium Member

23 comments

Blissgull

17th Mar '17

Bad luck Wazzy.

" isn't this a flawed system if the stock rank plummets on one set of results.
And more, importantly, shouldn't Stockopedia be issuing some commentary along the way ?"

I have to disagree with both of these questions.

The stockranks are an imperfect system for predicting the future since no perfect system exists, and that is not what they are designed to do anyway. Rather they give us an idea of probabilities based on what has worked in the past.

No-one can accurately predict which shares will be winners and losers over the next few months or whatever timeframe you use, all you can do is try to shift the probabilities in your favour. We can be a bit like bookmakers making sure the odds are in our favour then we should win over time, even if we lose lots of bets along the way.

If you rely on just one share, or too few shares, however well chosen, you are trusting to luck. If you go for a sufficiently large number of shares using a proven system then you are relying on the laws of mathematics.

Edward Croft

17th Mar '17

This thread may have just triggered me to get into blog mode. I will respond fully in a bigger piece in the next few days.... but there are a couple of major points from this thread I'd like to bring up.

Firstly, I empathise with anyone who has made losses in the stock market... it's not a nice feeling. I've made plenty myself over time. Whenever we lose money we tend to look around for someone to blame. In such a buoyant market, making losses feels like an injustice. But it's certainly no fault of the StockRanks - they are a probabilistic system to be used at personal discretion with no guarantee of success. The reality is they've worked exceptionally well over the last year, and the last 4 years. Anyone heeding our writings about diversification and how to use the ranks has been well prepared... whether you should ride out a loss or cut though really comes down to personal preference and insight. There aren't right or wrong answers, though I do certainly personally prefer to cut shares that turn negative...

A couple of shares I'd like to go deeper into that have been mentioned....

Firstly, Go Ahead Group has been the very worst performer of all the 90+ StockRank shares since the start of the year. It's fallen 21% in a period when the average high ranking share has risen 9%. The 90+ ranked set has seen 76% winners and 23% losers in this period. Calling the StockRanks a flawed system due to this one poor result is quite misleading - see all the stats below. The question one has to ask is why one might have selected Go-Ahead Group in preference to the 100+ other high ranking shares that have proven to be winners? I've answered why people make these psychological mistakes before.

Secondly, Fairpoint was ranked 95 in March 2016. In April 2016 the rank fell dramatically to 57 on a new set of results. At that time it was priced at 136p. The shares now stand at 17p after a long gradual, and occasionally violent fall downwards. I would argue that the StockRanks had more than flagged this outcome well in advance. Anyone taking heed of the sharp April 2016 ranking fall would have saved 87.5% of their money !

I doubt Go-Ahead Group will fall as far as Fairpoint did last year, but who knows. The key point is the ranking change is well flagged.

I'm writing an book on this topic, but in the meantime read these blogs to learn more about the ranks:

- How to think about high StockRank Shares

- If you want to win at the races you have to know your odds.

-Why you think thee are more high StockRank profit warnings than there really are

And have some fun reading these charts.

58cc5c81311d7Untitled_spreadsheet_-_Goog

58cc5c9ae5f51Untitled_spreadsheet_-_Goog

Ticker	Security	Price Change	Performance
TAP	Taptica International	172.5 -> 277.5	60.9%
SQZ	Serica Energy	14.5 -> 21.9	50.9%
FIH	FIH	227.5 -> 327.5	44.0%
OCT	Octagonal	2.2 -> 3.1	42.0%
IQE	IQE	38 -> 53.8	41.4%
SPE	Sopheon	350 -> 478.5	36.7%
SDI	Scientific Digital Imaging	18.5 -> 25.3	36.5%
RM.	RM	135 -> 184	36.3%
MGNS	Morgan Sindall	745 -> 1015	36.2%
TET	Treatt	252.5 -> 343	35.8%
HGM	Highland Gold Mining	139.8 -> 188.3	34.7%
EMR	Empresaria	103 -> 138	34.0%
GAW	Games Workshop	713.5 -> 955	33.8%
HEAD	Headlam	487.8 -> 644	32.0%
BVXP	Bioventix	1350 -> 1720	27.4%
BOY	Bodycote	644 -> 820	27.3%
CMS	Communisis	43.4 -> 55	26.8%
SOM	Somero Enterprises Inc	222.5 -> 280	25.8%
CEY	Centamin	138.5 -> 174	25.6%
MGR	Miton	32.3 -> 40.3	24.8%
ALU	Alumasc	154.5 -> 191	23.6%
GFRD	Galliford Try	1291 -> 1574	21.9%
PIL	Produce Investments	175 -> 210	20.0%
BRBY	Burberry	1497 -> 1791	19.6%
WYN	Wynnstay	537.5 -> 642.5	19.5%
OSB	OneSavings Bank	338 -> 403.8	19.5%
XLM	XLMedia	93 -> 110	18.3%
PSN	Persimmon	1776 -> 2088	17.6%
MNDI	Mondi	1666 -> 1929	15.8%
SRE	Sirius Real Estate	44.8 -> 51.8	15.6%
BDEV	Barratt Developments	462.4 -> 534.5	15.6%
VTC	Vitec	648.5 -> 749.5	15.6%
RDW	Redrow	429 -> 494.1	15.2%
SOLI	Solid State	445 -> 510	14.6%
NTG	Northgate	493 -> 563	14.2%
CTH	Caretech Holdings	316 -> 357.5	13.1%
LAM	Lamprell	92 -> 103.8	12.8%
GKN	GKN	331.7 -> 373.9	12.7%
REC	Record	36.8 -> 41.4	12.6%
INDV	Indivior	296.2 -> 331.9	12.1%
BHY	Henry Boot	201.5 -> 225.8	12.0%
EIG	EI	121.5 -> 136	11.9%
GLE	MJ Gleeson	545 -> 610	11.9%
PAGE	Pagegroup	390.5 -> 435.5	11.5%
BWY	Bellway	2476 -> 2759	11.4%
PRP	Prime People	91 -> 101	11.0%
WIN	Wincanton	246 -> 271.3	10.3%
TON	Titon Holdings	113.5 -> 124.5	9.7%
RIO	Rio Tinto	3158.5 -> 3454.5	9.4%
LTHM	James Latham	750 -> 820	9.3%
TCS	TCS Holding	10.6 -> 11.5	9.0%
CCL	Carnival	4125 -> 4490	8.8%
HAS	Hays	149.2 -> 162.3	8.8%
NMD	North Midland Construction	185 -> 201	8.6%
PEY	Princess Private Equity Holding	8.6 -> 9.4	8.6%
DTG	Dart	496 -> 536.5	8.2%
TATE	Tate & Lyle	707.5 -> 765	8.1%
GTLY	Gateley Holdings	130.5 -> 141	8.0%
AIR	Air Partner	100.5 -> 108.5	8.0%
STY	Styles and Wood	390 -> 420	7.7%
TSG	Trans-Siberian Gold	40.5 -> 43.5	7.4%
MGAM	Morgan Advanced Materials	285.4 -> 306	7.2%
MAB1	Mortgage Advice Bureau (Holdings)	346.3 -> 369.5	6.7%
SFR	Severfield	75 -> 80	6.7%
COA	Coats	54.5 -> 57.8	6.0%
MWE	MTI Wireless Edge	21 -> 22.3	6.0%
HMSG	HMS Hydraulic Machines and Systems	7.5 -> 7.9	5.9%
MHPC	MHP SA	8.8 -> 9.3	5.8%
ZYT	Zytronic	400 -> 420	5.0%
PLP	Polypipe	323.9 -> 339	4.7%
HSW	Hostelworld	223.8 -> 233	4.1%
ULS	ULS Technology	96 -> 99	3.1%
III	3i	704 -> 725.5	3.1%
TRI	Trifast	205 -> 211.3	3.0%
WOS	Wolseley	4962 -> 5105	2.9%
VNET	Vianet	93.5 -> 96	2.7%
PHTM	Photo-Me International	164 -> 168.3	2.6%
MOSB	Moss Bros	99 -> 101.5	2.5%
TMMG	Mission Marketing	42.3 -> 43	1.8%
STHR	SThree	310.1 -> 315.5	1.7%
STCK	Stock Spirits	180.8 -> 183.8	1.7%
BMY	Bloomsbury Publishing	169.8 -> 172.5	1.6%
SFE	Safestyle UK	290.3 -> 294.8	1.6%
LDSG	Leeds	37 -> 37.5	1.4%
SHOE	Shoe Zone	175.5 -> 177.5	1.1%
PVCS	PV Crystalox Solar	23.6 -> 23.9	1.1%
LIO	Liontrust Asset Management	383.5 -> 387.5	1.0%
WINK	M Winkworth	100 -> 100.5	0.5%
SVI	SVG Capital	708 -> 711	0.4%
HFG	Hilton Food	621 -> 623.5	0.4%
MCB	McBride	181 -> 181	0.0%
MCLS	McColl's Retail	186 -> 185	-0.5%
JLG	John Laing	270.8 -> 268.3	-0.9%
EXI	Exillon Energy	139 -> 136	-2.2%
OCN	Ocean Wilsons Holdings	1022.5 -> 997.5	-2.4%
STCM	Steppe Cement	18 -> 17.5	-2.8%
CAML	Central Asia Metals	227.4 -> 219	-3.7%
FLO	Flowtech Fluidpower	127.5 -> 122.5	-3.9%
IBPO	iEnergizer	81 -> 77.5	-4.3%
SSY	SCISYS	110 -> 105	-4.5%
JUP	Jupiter Fund Management	443.6 -> 420.5	-5.2%
WIZZ	Wizz Air Holdings	1791 -> 1696	-5.3%
SCS	SCS	171.5 -> 161.5	-5.8%
FIF	Finsbury Food	120 -> 113	-5.8%
HFD	Halfords	365.5 -> 342.7	-6.2%
ASTO	Assetco	387.5 -> 360	-7.1%
CCC	Computacenter	800 -> 742.5	-7.2%
FIVE	X5 Retail NV	32.5 -> 29.7	-8.5%
UTW	Utilitywise	199.5 -> 182.3	-8.6%
DRX	Drax	377.9 -> 344.9	-8.7%
GLTR	Globaltrans Investment	6.3 -> 5.7	-10.1%
CAPD	Capital Drilling	57.5 -> 51.5	-10.4%
DSG	Dillistone	96 -> 85.5	-10.9%
AIEA	Airea	35 -> 31	-11.4%
GEM	Gemfields	51.5 -> 45.5	-11.7%
QRT	Quarto Inc	301.5 -> 259	-14.1%
TRD	Triad	84.3 -> 69.5	-17.5%
SRP	Serco	143.3 -> 117.3	-18.1%
GOG	Go-Ahead	2241 -> 1752	-21.8%

Edward Croft

17th Mar '17

"Shouldn't Stockopedia be issuing some commentary along the way?"

Just so you know, I ran a count this week. Our subscribers own 9,462 different shares on UK and international markets in their portfolios. It's a physical impossibility to run editorial on so many shares.

We do publish tens of thousands of words in editorial and commentary every week, but we have never set out to create editorial on every stock in the market. And we never will ! The only way we can cover global markets is through quantitative analysis.

We're all DIY investors here and run by the mantra of DYOR (do your own research). The community is fantastic here and normally if you ask, someone will reply... especially in a larger stock like GOG. Please do contribute as much as you can. It helps everyone.

vodathan

18th Mar '17

I think it's worth bearing in mind that a big component of the stock rank analysis is financial results, which will by definition always be historical rather than reflect current factors.
The SR and other metrics Stockopedia delivers can't account for external events that can have a sudden effect on the market. Having said that a diversified portfolio with high SR has historically outperformed the market and provided some protection against these external events.

I personally see Stocko as a very useful tool to navigate quickly and efficiently through the large volume of stats on a veritable minefield of stocks, not as specific investment advice (which it can't be).
My limited financial knowledge is leveraged through the hard work done by the Stocko algorithms. Screens and filters can be tailored to any one of a number of investment styles depending on personal preference and appetite for risk. All supplemented by solid analysis from the likes of Paul and Graham, together with commenters far above the mindless dross found on other sites.

I personally sold my small GOG stake as soon as the results came out, having seen the research Ed did on profit warnings - glad I did!
But the loss I incurred was more than offset by my other 90+ SR stocks that were part of the 75% of winners.
Had I only invested in one 90+ SR stock I would have stood a significant (25%) risk of losing a big portion of my investment.

Caveat Emptor! (and DYOR of course).

jjis

18th Mar '17

Hi Wazzy2 - you don't say what your approach to investing is or what your objectives are - such as looking for trading profits or are you investing for the long term? So that might be the first thing to think about in relation to this holding rather than trying to blame the Stock Ranks for your bad luck.

Any way on Go-Ahead (LON:GOG) it seems to be a reasonably well managed group which has increased or at least maintained its dividend every year since 1995 and grown it by 3.4% per annum over the last 5 years, which is not a bad record. The share price fall of around 23% since the results statement has been much larger than the resultant downgrades to earnings of 4% & 6.6% for this year and next year.

Consequently the shares have de-rated to a PE of around 8.4x which is the lowest rating it has been on for the last 5 years, so on that measure at least it is at the low end of its range. As for the dividend the forecast yield has risen to 5.8% to 6% and seems likely to still be covered by earnings and cash flow. I do note however that back in 2012-13 the market did choose to value this one on a yield of 6.8% to 7.5% at its lowest points. So I guess if there were further downgrades and the dividend ended up being only held rather than increased then there could still be a bit of downside. Comparing valuations with peers like Stagecoach (LON:SGC) & FirstGroup (LON:FGP) these figures do not seem out of line particularly either way.

Technically if you look at the chart the shares are heavily oversold & the RSI is starting to show some positive divergence (often occurs at a top or bottom) coincidentally I tweeted as much only yesterday. I note that the price is also some way below its 200 day moving average for what that is worth, although shares often mean revert to this from above and below. More fundamentally I also note that the Chairman, CEO and finance director have all purchase stock since the results. So people inside the business seem to think the shares are OK down here. I also note that the shares are still cum the interim dividend of 30.17p which goes xd on the 30th March worth about 1.7%.

Personally I would be more inclined to be a buyer than a seller down here, but as I said at the start I'm not sure what your objectives are. Personally I prefer to run a broadly diversified income portfolio composed of shares like this. I do not get too hung up on the Stock Ranks & compile my own Compound Income Scores that focus on value, financial security, dividend growth / sustainability, operational quality & earning momentum. This does lead me to higher ranking stocks, although not always as sometimes the price momentum is poor, as in this case, but maybe therein lies the opportunity?

On the Stock Ranks if you are using them as part of a diversified portfolio, you may want to focus on the top decile or quintile for new purchases, but to avoid too much turnover you could perhaps consider holding stocks down to a 40 or 50 rank unless something has fundamentally changed for the worse or you have a rule of selling out on profits warnings. If you look at the historic performance chart of the ranks it is more important to avoid the losers in the bottom two quintiles as ranks down to 40-60 have still out performed so far.

So there you go, bottom line summary is I'd be more of a holder / buyer down here, although no guarantees as to how it goes from here, but I hope this helps you with your deliberations and whatever you decide to do.

Jamie

Compound Income

Twitter: Jamie@CompoundIncome

BlackKettle

18th Mar '17

"..but I cannot find any discussion or advice on whether to sit tight and ride it out"

If you are after actual advice on buying, holding or selling any given share I suggest this may not be the place for you; you may want to look towards paying a professional adviser / broker.

"...but isn't this a flawed system if the stock rank plummets on one set of results."

I believe the system worked perfectly. The rankings are all based on available data. When that data changes (new set of results, change in share price) then the rankings will change to reflect that new data. So if a large change in a share price occurs, then all rankings that use the share price as part of their data sets will change by a sizeable amount too.

For anyone after an alternative way of predicting future share performance perhaps they could try tasseography (the art of reading tea leaves to predict the future, though this is generally not seen as a reliable system. However now I think about this, it would probably be no worse than the tips given by many professional brokerage companies).

Investor & Trader

18th Mar '17

Wazzy2.

Based on your questions I suggest you go back to the drawing board and understand the basics of investing.

Not sure how you expected the stock ranks to know what was going to be presented in the set of results?

In terms of ' sitting tight' If it helps I use the stock ranks to find fundamentally sound stocks, with some earnings momentum. I generally sell when the price drops below the 50 SMA. This keeps the system mechanical with no emotion.

But in line with other comments, this is just a method of moving the probabilities in my favour with risk management. If a company does give some unfortunate unforeseen results the SMA gets me out and I move on.

Benson212

18th Mar '17

Hi Wazzy2,

I held Go-Ahead (LON:GOG) in my portfolio and sold shortly after the profit warning. This is because I use a falling stock rank as a signal to sell, specifically when the VM rank falls below 85.

Learning from GOG (and not wanting this to happen again), I added a few quality metrics alongside the Stock Ranks:

Gross Gearing including Pension Deficit < 100%
Price/Tangible Book > 0
Price/Free-Cash-Flow > 0
ROE % > 0

The additional quality criteria allows me to weed out stocks with a poor balance sheet. In the case of Go-Ahead (LON:GOG), I wouldn't have picked up the stock because the debt on the balance sheet is excessively high. Furthermore, the free-cash-flow is now negative...

Hope this helps!

(This does not constitute investment advice, DYOR!)

Ben

Rusty2

19th Mar '17

Hi Ben, I disagree about Go-Ahead (LON:GOG) debt, yes gross debt looks a bit high but net debt is negative. Compared to their peers they are the best rated on net debt: http://www.stockopedia.com/compare/?tickers=LON%3AGOG%2C+LON%3ASGC%2C+LON%3AFGP%2C+LON%3ANEX%2C+

I'm not a expert on balance sheets but with their cash pile it does not look too bad to me.

underscored

19th Mar '17

I would suggest the op views the following webinar https://www.youtube.com/watch?v=tRj3lEsYB_s

Nick Ray

20th Mar '17

Ed's extra data allows us to do some calculations. He says that the top SR decile are up by an average of 9% in the YTD. But what if we chose at random from the whole index? The FT all-share index is up about 4% in the same period. So it looks as though the extra 5% is due to the selectivity of the Stock Rank.

However these are only averages. As we see with Go-Ahead (LON:GOG) if you choose a single stock then you could get a result a long way from the average (although better than the worst performer in the whole index.) So how do we "lock in" the benefit of the improved average performance?

Looking at Ed's histogram the standard deviation for the top decile is about 10-15% roughly. So you can get a closer approximation to the mean performance by taking more samples (i.e. having more stocks in your portfolio). The standard deviation of your portfolio will reduce roughly by 1/sqrt(N) (N=number of stocks in portfolio). So about 16 stocks looks about right (in hindsight; using this particular data; and assuming a normal distribution or something close to it; and assuming that we require the performance over 2.5 months to overcome negative volatility (and should we?))

All these assumptions are hand-wavy, and in particular, nothing will protect you from a market crash where all the stocks fall together. But it backs up the idea that you need to cultivate how you want the portfolio as a whole to perform rather than any of its individual constituents.

Wazzy2

20th Mar '17

Thanks for all your advice. I have re-read your old blogs Ed, and it is useful to have done so.
I will set some of my own criteria as Ben suggests, thank you Ben.
I've more than doubled my money since I started my investment ISA in 2009 and have only had a few howlers along the way, but I have been using income investment as my main strategy. I'm still learning the ropes with Stock Ranks but have equally made some nice gains.

Rusty2

20th Mar '17

"Our subscribers own 9,462 different shares on UK and international markets in their portfolios."

Edward, I think that is misleading, not sure about others but most of the shares in my portfolios I don't actually own, only 1 out of 8 portfolios is my actual holdings, most of the others are watchlists or just trying out different strategies.

Investor & Trader

20th Mar '17

I think Edward means hypothetically own, the point is there is that much interest shown in various stocks I t would be impossible to satisfy all those needs.

Benson212

20th Mar '17

Hi herbie47,

I agree Go-Ahead looks good from a net debt perspective and is favourable compared to its peers. However, my personal preference is to use gross gearing because a company's cash position can change frequently, especially when the free-cash-flow turns negative.

I have to admit though, Go-Ahead hoards a lot of cash and high debt appears to be the "norm" in this industry. Maybe net debt is better for more defensive/utilty stocks?

Ben

Benson212

20th Mar '17

Hi Wazzy2,

I would just like to re-iterate that this isn't a fool proof system. Referring to herbie47's comment (third comment down), the quality metrics wouldn't have saved me from the crash at Fairpoint (LON:FRP). Only the VM rank falling below 85 would have stopped me out early - but at a loss.

However, the other two stocks would never have qualified because Entu (UK) (LON:ENTU) had negative tangible assets and Laura Ashley Holdings (LON:ALY) had negative free-cash-flow.

Best of luck!

jjis

20th Mar '17

Herbie47 & Ben - the balance sheet debt / cash is quite confusing on this one and it also distorts the EV values on the Stock report as that picks up the headline net cash position. However in last years final results they point out -

"Net cash at the year end of £323.0m (2015: £292.9m) reflects £30.1m of additional cash, the majority of which is restricted. The higher cash balance is largely due to working capital movements relating to timing of franchise payments. The adjusted net debt (net debt plus restricted cash) to EBITDA ratio of 1.36x (2015: 1.32x) is below our target range of 1.5x to 2.5x."

I think they mean less restricted cash which they say elsewhere in the statement results in adjusted net debt of £293.3m rather than the net cash of £323m. This would change the EV based valuations quite dramatically. Hope this clarifies and doesn't add to the confusion!

aflash

20th Mar '17

Anyone looking for commentary is headed for trouble because as Wazzy2 has found there is none around when you want to make a decision.
I would argue that there is already enough commentary on Stockopedia and it is the next step that the site is valuable for.
Let us look at GOG with the help of Roland Head's excellent dissection of the Stock Ranks in his SIF portfolio columns.
Go (ahead) to his 27 April 2016 article via the 'Discuss' tab.
Scroll down to the Go-Ahead QualityRank Components. Take notes.
Go (ahead) to the 'Tools' tab on the Stock report page
Click on 'Passenger Transportation Services Industry'
Click on the QualityRank column for GOG
Compare:
The big difference is the Gross Profit to Assets which has gone from Green to Red
and the Beneish M Score.
The rest is fairly straight forward.
The company is clearly in value territory, the Discounted Cash Flow is positive (Tools tab + Valuation Models) Others on this thread have pointed out that it is ex-dividend at the end of the month.
It will drop once that happens, maybe only by the amount of the dividend but will not have yield support for a few months.
So where is chart support?
I have measured Fibonacci retracements from the 2015 HI to the 2012 and 2009 LOs. A 61% retracement would give 1725p for the first, about where we are now. Support has been broken at around 1781p so do not expect a quick bounce.
The trend is down. We had a great rise from 1781 to 2273ish. The bottom could be much lower.

Rusty2

20th Mar '17

I think a lot has to do with the on going strike, if that is sorted fairly soon then I'm sure the shares will shoot up. My concern is the future contracts, I have read that they may find it difficult to win new ones after the problems with Southern Rail.

Wazzy2

20th Mar '17

Yes, I get that. cheers

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