The new StockRanks Portal is now LIVE
Thanks to everyone who listened into the webinar just now - this is a quick announcement to say the StockRanks tab is now live... please have a look in the main site navigation bar where you'll see a 'ranks' tab... there's a super StockRank browser, a 'movers' page and a whole performance history portal.
We'll be improving these features over the next couple of weeks... for now we want as much feedback as possible so please do let us know any issues using the feedback button to the right. We'll try and get the webinar live as soon as we can for anyone who missed it, but here's a quick summary of the new features....
StockRanks Browser
We've made it incredibly easy to filter the market by our growing variety of ranking factors... across quality, momentum, value and even growth.
You can add one of ten sector filters or drill down using a range of size filters. With about 20,000 shares in the system it's easier than ever to find candidate stocks without fiddling around in the screener.
There's even an option to load your settings in the screener for further filtering - for example if you'd like to add an additional rule (like PEG, Yield etc).
StockRanks Performance
The StockRank Performance Portal allows the building of a range of stockrank tests across European and UK shares (US data is coming shortly). You can check out how different buckets of stock ranks have performed against each other across the different ranks - with different rebalancing periods, with different market cap filters and so on. We are still working on speed, but as an example here's the European StockRank performance since launch in June 2014 rebalanced quarterly. A stunning 46% gain for the top StockRank bucket.
StockRanks Movers
You can also find the stocks moving the most across the StockRanks in recent weeks using the 'movers' tab. We've tried to make it really simple to find shares that are rising up in the ranks (or down). Someone asked in the webinar if we could send alerts based on the rank changes - not yet, but we are indeed working on it. One thing at a time !
I think these features make a massive improvement to the toolbox on the website. For too long it's been a struggle finding and tracking sets of higher StockRank stocks - it shouldn't only be those who are great at configuring the screener who are able to dig deeper into the data. I'd really love it if any one using these features can give us good and bad feedback using the green feedback tab - we have a long way to go.
We are determined to keep innovating and building great tools for our subscribers - I feel like we've barely yet begun - our feature backlog runs so very deep. It's a challenge to make powerful tools understandable and usable to both novices and professionals at the same time but we're making huge progress. Thanks to the development team and everyone who subscribes to the site - good luck with the new tools and safe investing !!!
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
43 comments
re: negative P/B, this is a useful perspective
http://www.gurufocus.com/news/176639/is-negative-book-value-bad
Hi Ed
I look forward to hearing Paul's reply on this front to you :-)
I find it quite difficult to accept any suggestion that -ve TBV should be a positive when considering how Stockopedia calculates its Value metric. Whatever the studies you refer to, I think many of us probably take more of a PYAD stance when considering value.
Will look at your links next week and reply on those then.
Best wishes, Martin
P.S. As highlighted by vaticinator, perhaps it would be more helpful to present TBV/share divided by the share price, rather than P/TBV, as that would enable an easy visual comparison across all stocks, however you wish to use this number in the Value metric!!
Shanklin - I'm merely relaying the academic studies that have been done on the subject and the standards that have been applied elsewhere by greater minds than myself.
Once again, I really don't feel that we should lose ourselves in the semantics of what is or is not 'value' - I've already been over that debate extensively above. It's just a Value Rank - it's not the entirety of Value Investing in a single number - it's pure and simple a better measure of value than basic ratios like the P/E, the P/B and all the others.
Ben Graham started all this off with his Graham Multiplier - when he merged the P/B and P/E. We've merely done a more extensive job with a 6 factor model... there's exactly the same issues with this measure of 'cheapness' as you'd get with a simple P/E but it's got a better track record and is far more understandable for lay investors.
And of course... nobody needs to use it if they don't wish... but it's proved to be a remarkably good component of our StockRank system to date... even on it's own the cheapest 20% of the market has dramatically outperformed the most expensive quite consistently as can be shown in this chart.
Used in conjunction with other metrics it's done far, far better... the real message is - one shouldn't use any single factor on it's own... it's better to use multi-factor models.
Interesting discussion chaps.
Is negative book value really an indication that a stock is 'expensive' ? There's really no justification for that if you study the research. A -ve BV is actually an indication of years of accrued losses and therefore a high distress risk. If you believe that the value premium is a payoff for taking distress risk then -ve BV stocks can actually enhance the value effect.
There's plenty of research that shows that Negative Book Value stocks with high distress risk actually significantlyoutperform - which is precisely the scenario we have seen with Wincanton. e.g. http://world-finance-conference.com/papers_wfc2/35... and in summary http://www.cfapubs.org/doi/pdf/10.2469/dig.v39.n2....
In the paper they actually add -ve BE stocks back into different valuation quantiles - rather than sticking them all in the highest growth (expensive) segment - classified by their historic return similarity.
We've followed a lot of literature in our construction of the Value Rank and many will exclude all negative book value stocks from rankings - e.g. and most famously Fama & French who treat -ve BV stocks the same way as delistings. Our approach, being a blended scoring system, doesn't throw the baby out with the bathwater like Fama & French, but falls back on other value factors for classification. I think it's a more moderate and fair approach.
Obviously others will disagree, but that's what makes a market ! Hope that clarifies.
PS - we originally published -ve P/B on the stock reports... but removed it as about half a dozen subscribers were up in arms about it with very good arguments - it's very hard to please everybody!
It seems to me that the problem of using PBV in a calculation is that as the Book Value approaches zero, the PBV ratio approaches infinity?
Why not invert the ratio, Book Value/Price or BVP so we have a continuous metric which falls to zero and goes negative as book value falls through zero. Similar to earnings yield vs PE ratios.
Sorry if I have missed the point!
Reading the ValueRank help literature it says this ...
So it'd appear to be option two as you suggested.
Hope that helps
Phil
Low +ve P/TBV is better than high +ve P/TBV is better than -ve P/TBV.
High -ve P/TBV is better than low -ve P/TBV. For example, if xxx's SP is £1.00 and:
- P/TBV is -100, xxx has TBV of -1p/share
- P/TBV is -1, xxx has TBV of -£1.00/share
Everything else being equal, there is a 99p/share difference in how one would value company xxx. On this basis, I can see no justification for setting TBV to "Null" and just ignoring it.
Cheers, Martin
Can we clarify, does ignoring a n/a PBV mean either that ValueRank is:
1) balanced equally over the six factors but with 0 being input for PBV, meaning that the ValueScore is throttled by a sixth
OR
2) PBV is totally ignored and the Value Score only considers five inputs
If it's the former then the ValueRank is penalised for a negative PBV.
Thanks in advance
Phil
Can we clarify, does ignoring a n/a PBV mean either that ValueRank is:
1) balanced equally over the six factors but with 0 being input for PBV, meaning that the ValueScore is throttled by a sixth
OR
2) PBV is totally ignored and the Value Score only considers five inputs
If it's the former then the ValueRank is penalised for a negative PBV
No, low price to book is a good thing in value screens, so if you use the former, a zero in rankings for stocks with negative PBV, you are effectively giving companies whose PBV is infinity an impossibly good, low, score.
Peter
Hi Peter,
You misunderstand.I believe that each parameter is given a score and then these scores are combined to create a ValueScore which is then ranked across the set to give a ValueRank.
So companies with a negative PBV would receive a score of 0 for that parameter, which would reduce the ValueScore and hence the ValueRank
I hope that helps
Phil
Phil
That is not how I read Ed's description of how a -ve TBV is treated in the V calculation. Perhaps wrongly, my understanding is your (2).
Cheers, Martin
Hi Martin,
Let's see if he clarifies it then.
Cheers
Phil
Hi Ed
The transparency is helpful because it means we can discuss the metrics.
However, it is extremely unhelpful to ignoreP/ TBV for any company for which it is negative as this means you give an excessive value rank to all such companies and by implication you give an excessively low value rank to all companies with positive P/TBV.
I can see no possible justification for the approach of ignoring -ve P/TBV. Whilst it would perhaps only have a modest impact on, for example, WIN's value metric, it would have the effect of reducing it slightly.
Thoughts welcome. Why is it ignored?
Cheers, Martin
P.S. Obviously in my earlier post, TBV should be replaced by P/TBV.
I have been a member for a few days, so forgive me if the following has already been discussed.
In your help texts related to the rankings, it is explained which factors are calculated into a weighted averaged composite score. Are the mentioned factors all weighted equally? If not, did you disclose the different weights somewhere for review?
More specifically, it could be that the Altman-Z score plays its role adequately in the Quality Ranking. But its influence may be diluted too much when it comes to the QVM Ranking.
Q+V+M each equally weighted in the StockRank.
For the Value Rank everything is equally weighted where available. Quality Rank is quite a bit more complex. We can't disclose absolutely everything as the only way we could would be to open source our code.
Frankly - I'm all for transparency and this may be possible with the product goals we have here. The goal is to eventually let anybody create their own ranking systems and 'fork' our own - with our rankings being literally a starting point for anybody who wants to build on them. That might take a bit of time, but I'd be thrilled if we get to that point and some of our subscribers start generating more powerful ranking systems on subsets of our data.
I don't like 'proprietary' / opaque systems like Value Line in the US where you have no idea of the inputs and they rely on the mystique of 50 years performance history rather than full disclosure.
Ed
I wonder if Paul may have a point. Both Wincanton and Hogg Robinson have negative book values, and their price to book value shows up as "n/a". PBV is one of the six value factors underpinning the stock rank so how is a negative PBV stock treated exactly? Is is possible that there is some kind of mathematical anomaly that is inflating the value rank of negative PBV stocks?
MB
If companies have NULLs for any ratio the ratio is excluded from the Value Rank calculation. This is pretty standard practice amongst value ranking methodologies. We don't publish negative PBV so this won't impact it.
I do understand that using the Value Rank in isolation could be hairy. I certainly wouldn't!
Hi Ed
Very difficult to understand why you convert a negative TBV to null and then ignore it for value metric calculation purposes. Surely you could use the true -ve number in some way when calculating the V metric? As it is IMHO you are calculating excessively high V's for all such stocks.
HTH. Cheers, Martin
Ed, Is it meaningful to calculate Value Ranks for infrastructure investment trusts? I ask because HICL Infrastructure Fund has a Value Rank of 77 at present, which suggests it is good value, but it is on a 15% premium to its Net Asset Value at present according to Hargreaves Lansdowne's web site:
http://www.hl.co.uk/shares/shares-search-results/h/hicl-infrastructure-co-ord-gbp-0.0001
Traditionally investments trusts on significant premiums to their Net Asset Values are usually considered to be poor value.
Hi Ed,
My QMPlus screen (where the Plus is the growth parameters I require) is currently highlighting (in order of increasing risk adjusted PEG):
EPA:INF - a French IT software/service provider
HEL:SUY1V - A Finnish paper wipe manufacturer
Data Modul AG Produktion und Vertrieb von Elektronischen Systemen (ETR:DAM) - A German flatbed TV manufacturer/distributor (which I hold but has disappointingly been bought out)
Cabot Microelectronics (NSQ:CCMP) - A US polishing pad supplier for microelectronics industry - although with a high PE and a high PEGR (0.94) I'm less attracted to this one
QMPlus type stocks I currently hold include:
Lam Research (NSQ:LRCX) - A US provider of wafer manufacturing equipment (-4%)
Character (LON:CCT) - A UK based toy distributor (+11%)
CellaVision AB (STO:CEVI) - A Swedish based medical technology company (+132%)
Sprue Aegis (LON:SPRP) - A UK based smoke/CO2 alarm manufacturer and distributor (+310%)
Cancom SE (ETR:COK) - A German provider of IT software/services (+0%)
ETR:GFT - A German provider of IT solutions (+93%)
Southwest Airlines Co (NYQ:LUV) - A US airline (+5%)
Adesso AG (ETR:ADN1) - A German provider of IT solutions (-12%)
You can see all of my current holdings including my other SuperStocks in my fantasy fund ... http://www.stockopedia.com/fantasy-funds/philhs-fund-4060/
Regards
Phil
So as it stands perhaps you'd prefer it to be called CheapRank or something like that as after all the Stockopedia help documentation describes the rank as follows ...
Do all the 'Value' investors listed in the Guru section demand Balance Sheet Strength, e.g. Graham, Miller, Neff, Beddard, Dreman, Fisher, etc...
Here's something I'm working on... there are different combinations of StockRank fingerprints - and each describes a different classification of stock. See the graphic below.
The length of the bars shows the relative ranks in each case. The third row shows the 'traps'... I classify a stock with a high Value Rank and low Q&M ranks as a "Value Trap" - to be avoided at all costs unless you really know what you are doing. This layer lies just above 'sucker stocks' which score badly across the board and have performed dismally.
I hope that we can start showing the performance of each of these classifications using our backtester... might take a bit of time, but from our current data the performance of each bucket gets worse the lower down the list you go. QVM has done best so far... but there's no guarantee that that will continue - especially if momentum in general has a tumble. QV might come back into play. I also wouldn't be surprised if VM did best over the long run as so many investors focus on Quality and it tends to be well priced - will be fascinating to watch it play out.
I'm hoping to write the above up more clearly in a proper blog.
Hi Ed,
I really like that diagram. Personally I gun for Super Stocks and High Flyers but the High Flyers must be 'cheap' in term of growth, i.e. low risk adjusted PEG.
Be really interesting to see what comes out of the analysis. Keep up the good work.
Regards
Phil
Phil - what's on your European QM radar lately ?
Hi,Paul.I think that Ed has come up with a calculation which is a useful starting point in determining the value of a stock,which he has called 'value'.It is not heavily balance sheet weighted because he wanted to reserve that for a different quantifier which would be arrived at using a different calculation.He wanted to be able to contrast the product of that calculation with another which was more heavily balance sheet weighted,which he has called 'quality'.
Your problem with that appears to lie with his use of the word 'value'..You are perhaps concerned that people may use the value rankings on their own - but that is their choice.Ed is able to cite objective data to support the usefulness of his overall stock rankings.
I can see the dangers in investing in companies with weak balance sheets.Stockopedia is and is meant to be a [very] useful tool
Hi Paul,
"But the point of a "Value" score is surely that it will screen out companies with weak balance sheets?"
Er no! The point of a value rank is that it uses academic research to highlight factors that have been demonstrated to maximise returns wrt Value.
If research arises that suggests Balance Sheet strength (or specific aspects of balance sheet strength) is a key factor then I'm guessing the Stockopedia team will consider it's addition OR you can combine value with the QualityRank that includes some balance sheet tests.
It's like RONSEAL it does what is says on the tin. If you want other criteria in your screening process then add them to your filter.
I've already suggested on these forums that you might want to describe the parameters that would constitute a ScottRank in terms of a balance sheet ranking which could be used for screening but it seems to have gone unnoticed. This rank could then be back tested to study it's significance.
Warm regards
Phil
Thanks Phil.
I'm surprised that Value - meaning a strong Balance Sheet, is such a revolutionary concept, but it seems to be!
Come up with all the algorithms you like, but I'll keep shouting that anyone using the word VALUE should be basing a very large part of their analysis on the balance sheet.
If they're not, then they are not doing value!
That's rather my point here. I'm looking at so-called "Value" scores, which do not in any way relate to what Value investors consider Value!
Q and V scores are something completely different.
The Stockopedia "Value" scores are NOT value! We need to challenge this. Value is all about Bal Sheet safety. It's not about a low PER based on dodgy broker forecasts. Or a high dividiend yield that may be cut.
I think the "Value" scores on Stockopedia look badly wrong. That's why I am yelling from the rooftops about them! It may work for an algorithm for a year or two where everyone ignores solvency, but a "Value" set of figures that leads people into investing in comanies with insovent balance sheets needs to be stopped!
Regards, Paul.
Paul - apologies if I misread your post - indeed it was late ! Let me explain more clearly.
In labelling the ranks we've chosen to use the academic perspective on value, quality and momentum rather than the 'popular' one. The "Value anomaly" from an academic perspective is that cheap stocks tend to outperform expensive stocks over longer term time periods.
This is true whether you use Price to Book, Price to Earnings, Dividend Yield or any other measure of value as your sorting method regardless of company quality or anything else. This understanding and research goes back nearly 100 years - from Ben Graham to Fama & French through more recent 'popular' books like David Dreman's. If anyone wants to brush up on the history of this 'value' effect - then flick through the amazing Tweedy Browne summary of the literature.
So our "Value Rank" is a pure and simple blended measure of cheapness. Purely cheap stocks often do haveissues... that's why bargain investing can be so hard... many do go bust. Amongst the highest scoring Value stocks you'll find loads of high bankruptcy risk stocks and broken business models. It's a minefield.
It's massively important to stress that the Value Rank shouldn't be used alone. It can be used alone - and in fact many, many studies of similar blended ranking systems have shown that as a portfolio approach it's massively outperformed the indices over decades (e.g. see here )... but nearly all studies (our own included) show that investors ought to have better results using additional filters to separate the winners from the losers amongst the cheap basket.
This is where the Quality Rank comes in - or the use of any quality filter... from the ROCE which Joel Greenblatt likes to other measures of profitability or the Z-Scores, F-Scores and so on used by academics. Value + Quality => better returns than pure Value.
I think what you are expecting from a Value Rank is what we consider the QV Rank ... Quality + Value. That's the kind of scoring system that's a much more traditional value investor's hunting ground - and I do try to explain this in webinars and with the use of the Venn Diagram... QV is the place where most value investors reside (Woodford, Buffett, Greenblatt, Piotroski). There are very few investors who dare to use V alone... Ben Graham and other contrarians perhaps.
I do understand that popularly most people think of Value not just as cheapness, but we've tried to remain true to the academic (and index fund provider) terminology which prevails today. Reading SSRN late at night builds this pure idea of value into a rock in the mind. "Value Investing" is a separate thing and a much broader topic.
We've chatted before about this but if you wanted to create the Paul Scott Rank - which used your own set of metrics - then I'm sure it's something we could muster up so lets talk more in person and see what we can do ? The Paul Scott Stockopedia edition. :-)
I for one would really like to see this set of rules defined even if it isn't consolidated into a rank as we can then consider adding them to our screens (if Stockopedia allows) and we can also start to back test their effectiveness.
Regards
Phil
But the point of a "Value" score is surely that it will screen out companies with weak balance sheets?
Value investors focus very heavily on balance sheets, because it provides downside protection. Hence you lose little money on the stocks you get wrong (in theory!!), and you make good money on the ones you get right.
So the Stockopedia "Value" filter should be assessing balance sheet strength. It's not a Value screen if it doesn't.
Once you have a proper Value filter, on balance sheet strength, then you can combine that with Q and M filters. But the V filter is meant to de-risk things by testing to see if the Bal Sheet is robust.
That is not happening with QVM as it stands, because the V bit is letting through lots of companies with terrible Bal Sheets.
So my point is that the V bit is not working as it should be for a value investor. Maybe it should be renamed?
Regards, Paul.
I'm looking at purely the Value list of shares at the moment, and it's throwing up lots of companies with terrible balance sheets, that are not value shares - e.g.
Hogg Robinson (LON:HRG)
Wincanton (LON:WIN)
Management Consulting (LON:MMC)
Quindell (LON:QPP)
Sure, these might qualify on other ranks, but they specifically come up under Value, and that bothers me a lot, as value investors would not go near these shares, due to their terrible balance sheets. OK, QPP might have a sound balance sheet if you believe the numbers. So perhaps remove that one (and I'm biased anyway).
Not having a go, as I love the Ranks portal, it's fantastic. This is my only query.
Regards, Paul.
I don't think any argument has been made that high value ranks alone should be used to construct a portfolio. See http://www.stockopedia.com/stockranks/performance/?marketId=gb&field=_ValueScore_?=100&period=1&buckets=deciles
From all the literature I have seen on this site, an individual type of rank is to be used in conjunction with at least one other rank (or custom screen/filter) in order to establish an edge. So for your value investor friends perhaps bankruptcy risk, gearing, interest cover, etc could be added. For more generic Stock Rank followers it's more likely to be VM, QV or QVM ranks.
Hi Ed,
I enjoyed your webinar, and I very much like the new "Ranks" page on the top (black) menu. Had a bit of a rummage last night, and it all feels intuitive, and understandable.
As we've discussed before, my only concern is that your "Value" calculations seem to take little to no account of balance sheet strength. This seems very strange to me, as value investors focus on the balance sheet more than anything else! After all, asset backing can help protect the downside, and can give companies that are struggling time to recover.
Ignoring balance sheets might have (fortuitously) worked well in the last few years, when banks have allowed zombie companies to continue trading whilst technically insolvent. However, we should recognise that this is a historical aberration. In the past, companies like Thomas Cook, and Wincanton, would have been put into Receivership without hesitation by the bank manager.
For that reason, I think you need to be careful about ignoring the balance sheet, as sooner or later that oversight could well come back and bite the StockRanks on the bottom!
The financial meltdown of 2008 happened because a lot of people in the financial sector ignored latent risks. The same thing is happening again, in my opinion!
Other than that, I really like the StockRanks, and will enjoy exploring more. Many stocks I like seem to crop up in the top decile of QVM, which is reassuring. BUT, I will continue to ruthlessly screen out anything with a weak balance sheet in my personal investing!
Regards, Paul.
Paul - as I explained in the webinar the Balance Sheet is categorically not ignored in the StockRanks and I don't know why you'd say it is. There are heavy weightings to Leverage, the Altman Z-Score and the the trends therein within the Quality Rank.
As I've explained countless times removing high bankruptcy risk or high earnings risk stocks is a portfolio construction concern - it is not a rankings concern.
Investors should construct portfolios with due concern to the risks they are willing to expose themselves to. If they don't want to expose themselves to financial risk its a snip to remove stocks like Wincanton from their selections. That's why we publish a huge bankruptcy risk red flag on Stock Reports and make it available in the screener.
But there are plenty of investors willing to expose themselves to value and momentum as factors - both of which together have been more powerful in predicting future returns than financial distress risk.
Evens a stopped clock strikes twice per day - investors can be right about their fundamental analysis but be wrong in their timing - bankruptcy risks are a disaster in credit crunches but often much smaller risks in bullish or financially loose periods in markets. In my opinion there's being right and there's making money - I prefer the latter approach!
Ed,
You sound a bit tired, so might be better if we discuss at leisure another time.
With respect, I think you've given a generic reply, rather than what I actually commented on!
My comment was specifically about the Value ranking system. As a value investor, I place very heavy emphasis on the balance sheet, as do all value investors I've met.
So my question is why do your Value scores specifically (not quality, and not momentum) score companies with very weak balance sheets so highly? This suggests to me that your Value score is not looking at balance sheets in a way that value investors do.
Hence I am questioning whether the Value score on Stocko is representative of how value investors protect the downside through balance sheet strength.
Regards, Paul.
Can we have the performance data from each tier of market cap available independently please?
Yep... I've got ranges set up in my own version which isn't yet released to the site.
Here's small caps... £50m to £350m (UK quarterly)
Here's mid caps - £350m to £2.5bn (UK quarterly)
The flatline in the bottom set of ranked stocks was a period when zero stocks qualified for that set. This is the problem with using market cap ranges... the results can get very skewed as you can end up with e.g. 50 stocks in one bucket, but only 1 in another.
Here's Large Caps Greater than £2.5bn - again the flatlines in the bottom buckets are because there were no qualifying stocks - you can see here the 80-90 ranked set has outperformed the 90+ ranked set in large caps.
And here's £0m to £50m microcaps... Almost a 60% return in the top 'decile'. As you can see it gets pretty wild amongst microcaps - this is due to the massive impact just a few stocks have on results - e.g. a stock going from .01p to 2p can skew an entire 'decile' bucket.
Hope that helps.
Thanks for that, I am excited to see how the USA is going to look.
Ed, Thanks for your graphs showing the performance histories of the QVM StockRank over different market cap ranges. It's interesting that the graphs for Large Caps Greater than £2.5bn are so volatile compared with the graphs for Mid Caps and Small Caps. I suppose that is because there are only about 100 of such Large Caps in the UK market, so the number of stocks in each bucket is likely to be relatively small, which in turn means the returns from each bucket are likely to be more volatile than the returns from a Mid Cap or Small Cap bucket that is likely to contain many more stocks.
Thanks Ed,
I look forward to be able to browse the "Ranges" set of performance graphs. I hope it will be released in the not too distant future.
The flat lines in the decile buckets are actually very helpful in that they show that there is a move to "quality" in more distressed times (i.e. bottom deciles being sparsely populated in big cap) and those that remain in these buckets should probably be treated with the barge pole.
The only other way to deal with the sparse data problem is to re-rank the entries in each market range i.e. take all small cap and then represent the data in deciles (or whatever). This requires extra work, but will give smoother graphs. However, you also lose some information doing this e.g. large caps don't occupy many of the lower QVM ranks (which I feel is useful information to have).
Lastly can I make a plea to be able to rank the performance of individual sectors with this nice visual display. It would certainly help me decide which sector's stocks are acting well (or badly) at any given time.
cheers,
Rick
Ed, You made some very good points in your reply to my post.
You wrote: " It was pretty much a mini 'bear' market for small caps as Paul Scott noted and the StockRanks are heavily exposed to small caps."
Indeed. The StockRank buckets are effectively equal-weighted portfolios of all the stocks qualifying for the range of that bucket, including some stocks with tiny market capitalisations. The FTSE All Share Index, on the other hand, is market cap weighted, so it is predominantly influenced by the performance of the stocks with the biggest market capitalisations.
Ed,
Thanks for an excellent webinar yesterday and for creating a great set of very useful new features for Stockopedia.
I find it very interesting that the StockRanks Performance Portal shows that most of the out-performance of the 90-100 QVM bucket for UK stocks over the FTSE All Share Index took place over the first year of the two-year performance history. In the second year, that top bucket didn't out-perform the All Share by anything near as much, although the bottom buckets did continue to under-perform the All Share in the second year. I suppose that's because stock market conditions are constantly changing and a single year's performance history is nowhere near long enough to assess the benefits of a particular approach to investing.
pka - 2014 was very much a year of churn for the markets as a whole but I was still pleased with how the StockRanks segments held up or even outperformed in various markets. It was pretty much a mini 'bear' market for small caps as Paul Scott noted and the StockRanks are heavily exposed to small caps. Indeed there was a lot of commentary that 'active' fund managers had their worst year for a decade, with fewer than 1 in 5 beating the benchmark - http://www.ft.com/cms/s/0/fa864984-668c-11e4-8bf6-00144feabdc0.html
I don't expect the StockRanks to outperform every year and nor should anybody using them as part of their investment process - it's a fantasy to expect them to. Joel Greenblatt pointed out that there have been occasional periods when his own Magic Formula underperformed for 2 or 3 years. Pure value investing strategies on their own sometimes have underperformed for 5 years in a row. What we should hope to aim for is outperformance over every 3 year period - it's important to set realistic goals.
We do though side with such luminaries as Robert Novy-Marx & Cliff Asness who have shown that adding quality and momentum factors to a value investing approach has historically reduced the risk of short term underperformance. How effective our approach to the problem has been will only be discovered over time.