14th Jun '19 by Gromley

36 comments 4463 reads

5-May-21 : Just a footnote here for anyone happening on this article in the future. I'll shortly be leaving Stockopedia (at least for now), but I will be continuing this experiment, so if anyone wants to keep track of how it turns out; you can follow it at https://campozo.net/Gromley_writes the content will be up by 10th May.

Update

(16-Dec-2020)

Just a quick update to reflect that Walker Greenbank (former ticker LON:WGB) recently renamed themselves as Sanderson Design (LON:SDG) . This to reflect their primary brand.

Also, over a year has ticked on since I originally published this; so it is probably worth providing a short pre-amble.

This is a working experiment in "when to sell" - I am applying this basic approach to a large part of my portfolio (and it is looking good so far) but I chose to highlight one stock for this summary.

The experiment had a bit of a false start : I bought in June 2019 & by October 2019 my "stop loss" / "stop think" rule and I sold out my personal position but did not consider my theoretical/experimental position closed as my actual sell decision was more deeply rooted in the thought that the stock had not properly met my buy criteria in the first place. So perhaps I should add to my sell criteria - "when I admit (to myself) making a mistake"

I considered my theoretical position closed, a few weeks later in November 2019.

It was nothing but good fortune to not be holding when the coronavirus crash kicked in.

I bought back in June 2020 (which was nice) and the experiment got properly back on track. It's probably a fortunate and unusual entry point, but never-the-less the basis sell criteria I think still hold.

Back to the original article :

Given that I only just bought my Walker Greenbank (LON:WGB) shares today, this may seem a little premature.

However, prompted by Jack Brumby’s piece Why are we so bad at selling I thought to try out a little thought experiment and spell out publicly under what conditions I would sell.

Why I bought

Very briefly I believe this to be a high quality business which represents excellent value and as I noted in today’s SCVR…

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john652

16th Oct '19

Hi Gromley,

An excellent thread. Can I ask your thoughts on why you use closing prices for your stops, which I think looks a very good idea. Over the years I have experimented with stops and only now use them in very specific situations , so either something oversold and I think at the bottom usually after temporary bad news, or to protect a profit in something that looks very overbought. Even so the level of the stop is tricky as I’ve found way to many times I am stopped out on opening with tiny volume only to see the price back up 20 mins later. Sceptical, very.

As such interested in your reasoning for closing prices, it may be ‘what else is there’...

Gromley

Thanks for the additional thoughts and comments folks, always welcome.

Here are some midday musing on them.

Price vs 250SMA

Interesting thoughts Nick Ray. On the sell side, I suppose my “stop loss” is in some way a distant cousin to the moving average. On the buy side, however, it wasn’t so much the price reaction that tempted me to buyback, but more of that below.

Risk Rating and stop distance.

I do agree Guzziman setting stops appropriate to the volatility of the individual stock I do believe is a useful consideration. However, I do not think that the Stocko RR actually gives me quite what I want in this case. I haven’t quite got my head around the Stocko calculation, but essentially WGB is considered “speculative” because the price has moved around a lot. However, I think this is because the “news” has moved around a lot. My general view having looked back at the history in the absence of news the WGB share-price does not actually wobble too much – it moves in relatively straight lines.

The 16% fall we saw from 89p at the end of July to 74.5p last Friday was quite unusual in the absence of news and at most times in the past would have been indicative of a downtrend. Had the results included an effective profit warning then I am pretty sure that the price would have been down a further 20% or more, so unless I had a guaranteed stop loss, 25% would not have been a great help.

Anyway, case unproven thus far I think in terms of stop levels.

closing prices

Hi John. There’s no special magic for me choosing day closes “stop losses”, although I am wary as you mention of strange intra-day spikes. Really, I am just using the “stop levels” as a prompt for me to make a decision.

More than one thought process going on here.

My decision to sell last week was essentially “an insurance policy” against the possibility of a profits warning. Once it was clear yesterday morning that there was no profits warning, then being true to what I am trying to do with this experiment I should have bought back. (The c. 2p round trip cost would have been an acceptable cost for the insurance imho).

In actual fact however the real reason I did not buy back, relates to another area of my investing I have been working on improving – the propensity to buy too soon.

When I originally bought in June, I noted that “momentum could be on the turn (or perhaps has already turned).” Certainly, the Stocko momentum score has improved since (from 46 to 93 a few days ago). However, this is relative to the market and my view is that “momentum of sentiment in absolute terms” (if that makes any sense) has really improved. So I was already starting to wonder if I had again “bought too soon”. It was really a reflection on this that kept my finger of the buy button.

Were I to buy back now I would be approximately 7p out of the money as a result of my “churn.” However only 2p of that relates to my “safety first sell” the other c. 5p relates to my “buying caution.”

That may just be gobbledygook, but for the purposes of this experiment I am going to assume that I did buy back. If and when I do buy back with real money, I will “true up” the differences.

I will do a fuller update against the stated criteria in the next couple of days was the numbers have fully flowed through to the StockReport. As a quick aside though I note that the EPS estimates for both this year and next year have been reduced very marginally (maybe more to come if other brokers update), which perhaps hints at my thoughts on sentiment above.

HumourMe

Stops are an issue I struggle with, however, your comment that they are a form of insurance chimes with my recent thinking. Like insurance there is a cost, in return for some piece of mind.

The Art of Execution suggests 20-33% fall is the time for review. Then Assassins move on (i.e. sell) and Hunters, if the case merits it, average down (this makes me shudder) or sell. However, Hunters start with a smaller position size and plan to top up if they get a better price. In the book the investors are limited to 25% of their stake, which fits the kelly criteria, if you assume a 50% chance of 2:1 returns. Not sure that I could be that brave.

Other articles that quote a flat stop loss rate regardless of volatility (e.g. some quoted here https://www.quant-investing.com/blogs/general/2015/02/16/truths-about-stop-losses-that-nobody-wants-to-believe) make me nervous, however, for value shares, undue volatility to the downside is often what makes them value, so I have issues with using volatility based stops too. Once bought then of course I'll embrace any volatility that returns them to 'fair value'.

27th Nov '19

I am somewhat overdue my latest review of my Walker Greenbank (LON:WGB) holding* - Personal circumstances have somewhat change when and where I do my writing and analysis.

* Also, just to recap : “in real life” I actually sold my shares a short while ago, but as this was for reasons outside of the original criteria for this experiment I still considered myself to be holding my notional experimental shares.

So let me review my holding in the context of my original sell criteria.

1. On a profits warning.

I did not really define what I consider to be a “profits warning” actually is, mostly it is obvious.

The interim results statement on 15^th October was not obviously a profits warning :

There was no miss on any of the key metrics.
The share price actually went up on the announcement.
The outlook was arguably slightly more positive than the previous statement.

I had sold my real life holding a few days earlier partially steered by price falls in advance of the announcement and despite the c. 8% rise on the day those falls were not fully reversed.

I did have a quibble about the management-speak but that is really a different subject to this experiment.

I thought I had commented nearer the time that in fact the update DID result in a reduction to the forecasts (I can’t now find my comment so perhaps I just intended to comment on that) – it was pretty marginal – a c. 1% reduction in forecast eps – but I should redefine my “definition” of a profits warning to include anything that causes a forecast downgrade? (That might of course be sensitive to what “phase” in the market cycle were are)

There is maybe an undiscovered trigger here to have sold on a “profits warning”.

2. If the two year forward PE rises above 13.

The tiny forecast reduction has not moved the needle here, on relative valuation basis this still looks good.

3. If it breaches a 10% trailing stop-loss.

My notional trailing stop loss (10%) was actually at 80p and at the time this was crossed I argued that the stop was probably too tight and that there were no company specific warning signs.

I will now however call this out belatedly as my reason to sell my theoretical position at today’s closing price of 71.5p which is a wopping 20% below the trailing high of 89p.

Had I been more attentive I probably should have ‘sold’ on Monday when the share price fell to below 85% of the trailing high - having ‘rejected’ the 10% stop loss , 15% was the next natural level.

Remember, as per post #13 I actually sold my real money position on the 9^th of October (closing price that day of 76p) but as my reason for actually selling was slightly outside the criteria I laid out here I chose to retain my theoretical position. Now that my real and theoretical positions are back aligned I will attempt not to deviate again.

4. 52 week price change

Not relevant as my holding period never reached a year.

Other : StockRanks

I realise that I missed out on reporting on the StockRank movements in October. I have included below the figures from the 26^th October archive, but I do not have the full detail of the factors that contributed.

The fall in the Momentum Rank is partly driven by the price weakness, but I think more so by the forecast downgrades even though they were small. The fall in QR is a bit more curious and I will perhaps look at that when I have more time at the weekend.

It is worth noting that although I dismissed SR as a sell indicator, because it will tend to lag events; there was a fall in SR before my sell decision on the theoretical position, albeit only from 99 to 95 and still with the label “SuperStock”

So is that game over for the experiment?

Not at all.

First off the point of this experiment was to see how effective the sell decision was; so I always intended to review post event performance on a ongoing basis.

Secondly, this was not what I would call a “conviction sell”. With my traditional Value Investor mindset I would still be holding here as I retain a reasonable degree of confidence that shareholders will do well over the medium term. So maybe my “tinkering” here will prove to be ill advised, particularly if the UK market has a sudden positive reaction to any particular political developments. We shall see.

In the meantime – all comment welcome and I’ll be back in a few days with a view on the development of the StockRank components.

19th Jun '20

I'm Back!

Anyone who follows my witterings elsewhere may be aware that I recently bought back into Walker Greenbank (LON:WGB) .

In short, I think their market will rebound pretty quickly (indeed they have been servicing some demand during the lockdown - not disclosed how much). And that the 50%+ fall in the share price significantly overstates the amount that the crisis has cost them.

It would probably be more prudent to await their results and outlook statement due on 30th June where we will get a clear view. However I am making the play here that we are seeing some sharp moves either up or down as companies give fuller updates on prospects. My research lead me to think that there is a strong probability will be positively received.

So in light of me buying back in I will also restart the experiment.

The Rules

Based on my original criteria (in the opening post) I am likely to sell if any of these conditions are met :

1. If the forward PE rises above 13. Based on the current 2021 forecasts of 8.8p this would imply a share-price of 114p . However caution is needed as I don't think these forecasts have really been updated yet, but probably will be after the results.

2. On a profits warning . I am effectively suspending this rule until after the 30th June announcement. I will effectively suspend this rule until after the 30th June statement as even if I have divined wrongly what they will tell us, any price fall would probably look more like a buying opportunity than a selling warning.

3. On a 10% trailing stop loss. As above, I will suspend this rule until after 30th June.

4.If the 52 week price change falls below -5%. As before this rule will be suspended for the first year (or perhaps 9 months as that is roughly when the bottom - hopefully - came in)

StockRank

As before, although the StockRank will play no part in my sell decision, I will be tracking it. I do however think that the StockRanks will need to be treated with a large degree of caution for the next 18 months or so, given that there will be big swings dependent on whether a given company has reported on the lockdown period or not at any point in time.

FWIW the StockRank today is similar to when I bought a few days ago

SR : 91

QR :78

VR: 98

MR : 40

Style : Contrarian

The low MR and the fact that this is no longer a "super-stock" relate mostly to the fact that the share-price has fallen more sharply than the wider market.

Retireyoung

I bought Walker Greenbank (LON:WGB) shares about a week ago as my most speculative buy. Apart from the financials, and seeming good long-term value, they make really amazing quality products. I believe many rich people (especially women) who have been confined to their houses and apartments for weeks will be splashing out on some new decor after being inspired to change their wallpaper etc. These are upmarket products and the rich have been much less affected by Corona than others.

That said, I wish they would modernise in the digital era, e.g. with an App for visualising changes to rooms, furniture etc with a selected wallpaper/fabric etc- a bit like Dulux do.

Anyway, let's see what the share price does over the next few weeks.

That's a very good point Retireyoung, they potentially could supercharge their appeal with some kind of visualisation software/app . I'm not sure though it is on their radar.

I remember somewhere (maybe even on this thread) ranting about the fact that they describer themselves as B2B - whilst I believe some of their end users might be businesses (hotels etc) they offer essentially a retail product, but they just use third parties to sell to the punters.

Not really what I do, but there could be an opportunity for shareholders to challenge them on that point.

17th Jul '20

It felt like I had made my old mistake of buying to soon.

The share closed on the 29th of June at 38.5p and after the results and outlook on the 30th were as I hoped I was a bit disappointed with the meagre 5% gain to close at 40.5p, scarcely above the price I paid earlier in the month.

Skip ahead to Friday’s close at 52.5p and I am feeling somewhat better about my decision!

So just a quick skip therefore through my ‘should I sell’ tests :

1. If the forward PE rises above 13

Whilst the current year forecast could be anything (I think the Stocko figures are an average of one updated forecast for a small loss and one pre-covid forecast) there is no reason for me to think the forecast for year ending Jan-22 should be much less reliable than at any other time. That’s for 7.75p eps , which would set my sell threshold at 100p so plenty of headroom there.

2. On a profits warning

Nope

3. On a 10% trailing stop loss

Well as we are at the high point since I bought then this clearly not triggered. The trailing stop loss would now sit at 47p. NB as per the original article this test (as indeed the others) is not firm., just a trigger to review if there are any reasons not to sell.

4. If the 52 week price change falls below -5%

As usual this does not apply for the first year of ownership.

The StockRank

The StockRanks are not part of my sell decision anyway, but I do keep track of them. In any case, I think the StockRanks in general are going to be all over the place for the next 18 months or so, dependent on whether or not any given company has posted Covid results or not.

The sharp fall in the StockRank here is a point in case.

The sharp fall in the Momentum Rank might seem odd. I think the key reason for the change is the broker “downgrades”. (The MR includes the 3 month change in the current year forecast and the 1 month change in the following years forecast).

That’s invalid.

The truth is that the forecasts should have been slashed back in March, but nobody updated forecasts as they just didn’t have a scooby how bad they should be.

In reality, the current broker forecasts are an upgrade from “we cannot even quess how bad this will be” to “a small profit this year and a bigger one next”.

In fact though, as I mentioned above, I think the Stocko quoted consensus is an average of one updated forecast for a small loss and one pre-covid forecast.)

So, the consensus and the Momentum Rank will fall further when the other analyst updates. I will continue to track the SRs here out of interest, but they are not going to be a good guide.

Well that's it for now. I will hopefully update again after the AGM statement on 29th July.

20th Aug '20

20th August 2020 update

I didn’t actually get around to writing an update here following the AGM trading statement or the subsequent 11^th August trading update.

As we are a month on from my last post, I will give a quick update on selling rules.

A month ago I noted that only one of the two forecasts picked up by Stocko had been updated to reflect the coronavirus crisis. As of today (I think) Stocko has updated to include only the up to date broker forecast and in fact I think this may have been upgraded as the broker was previously forecasting a loss for the current year.

So that is 1p EPS for the current year (in the ball park of my view) and 6.3p for next year.

6.3p puts the 13x price ‘target’ at 81.9p, well ahead of the current share price of 56p.

I noted above that this level was 47p (10% below the then peak price of 52.5p). In fact, the price closed on 4^th August at 46p and fell to 45p on the 11^th. I did not sell!

Firstly, the “stop loss” I am using here is merely a trigger to consider my position and I find myself somewhat more tolerant of volatility in the current market.

Secondly, I had been mulling over this stop level for a few days as the share-price was flirting with the level. I concluded that I was uncomfortable with setting the stop based on the 52.5p peak as this was effectively a ‘spike’ not fully reflective of the share price trend.

Instead therefore I have shifted to using the 5-day moving average to set the “stop” (at 10% below the highest 5 day MA). Remember that I am using the stop to try to catch the start of any downtrend as opposed to protecting capital. I will update this rule in the main piece above. On this revised basis the stop was 45p and whilst the share price came close it didn’t breach. Time will tell whether this modification makes sense or not.

Based on today’s close, the ‘stop’ has risen to 48p.

4. If the 52-week price change falls below -5>#/h3###

Not part of my decision-making process, but I am tracking them.

Very little change here then and for the reasons I mentioned previously I think the MR is questionable, in fact MR will probably drop further as I don’t think the latest broker forecasts change is factored into the number yet – and the SR algorithm will, I think, treat it as a forecast reduction.

In conclusion.

No sale and indeed one doesn't look imminent. As another poster mentioned earlier today, it does perhaps look as though the market (with something of a delayed reaction) is waking up to the fact that WGB has not been badly damaged by the Covid-19 crisis.

It is somewhat troubling that the stop loss rule came close to indicating a sell at 45p 9 days ago, the share-price is up some 28% since then and that is exactly the kind of pattern that make me so reluctant about stop-losses. (Of course a loser stop may be the answer, but as I am only using this as a trigger to make a reasoned decision, I will stick with 10% for now).

19th Sep '20

19-sep-20 - Monthly Update

I will be brief with month's review of my should I sell metrics as there is not much to say.

Despite the price rise, the Year 2 PE ratio remains below 9, well below the threshold of 13.

There has been no trading update, therefore no profit warning.

The "stop-loss" (check) sits at 51.93p r, 10% below the highest 5 day moving average share-price of 57.7p

So nothing really to review.

However a quick check on the StockRank is interesting.

A marked but surprising (to me at least) improvement to the Momentum Rank has has seen Walkers Greenbank repromoted to the status of "Superstock".

I have explained previously why I think the earnings momentum part of the MR does not accurately reflect when opinions changed on WGB's earnings. Perhaps though this is one of those things that "comes out in the wash" and the effect impacts other companies too.

Certainly the underlying momentum factors shown for WGB would not ordinarily see them in the top half of the market.

I would still argue that WGB's Momentum "should" probably be more than 55 and that the SR in general will be less reliable over the next 18-24 months than it is in normal circumstances.

In case it is not obvious, I still hold shares in Walker Greenbank (LON:WGB) .

5th Dec '20

5-Dec Update

I am somewhat overdue updating on my ‘when should I sell’ tracking here. It is not that I have not been monitoring the situation, more that there was not anything sufficiently profound to report to push it to the top of my to do list.

Just a quick run through of what has happened since my last review.

The company issued their interim result (6 months to 31^st July) on 14^th October. Prior to that the share price had risen by 12% since my last review, so although the results were I think ahead of market expectations, it wasn’t too surprising that the share price “only” rose by 6% on the day.

The company also announced that it was renaming itself to Sanderson Design Group plc “to better convey the activities of the Group.”

Coming up to date the share-price closed on Friday 4^th December at 79p, up a further 20% since results day.

Just as an aside, Friday’s close was actually down 7% on the previous day’s close (and recent high) of 84p. That is an unusually large single day move, but I cannot see any particular significance and the traded volume was not especially high.

So, let’s have a quick check on my selling criteria.

2022 EPS forecasts are currently showing as 7.14p / share which puts the forward PE on 11x . This actually then feels quite close to my target so in reality something to keep an eye on. The sell trigger here would therefore be a share price of 93p which is only 17% above the current level.

This is the Important test to understand if the perceived value has been ‘outted’. However, I am a little uncomfortable now with this. The forecasts for the year ending 31 Jan 2022 have been reduced by c. 20% since the pandemic and this seems overly cautious to me, if anything I think there is a case to say they should be higher.

On the other hand, perhaps I am being a little greedy, a share price of 93p would be a profit of over 130% (for six months holding so far).

I the share price were to appreciate by 17% without any further forecast upgrades, I would have a challenging decision to make – for now I will park it.

There was nothing in the interims that could be regarded as a profits warning in my view, and as the share-price went up rather than down, the market appeared to agree.

This is quite a tight stop loss for a share that Stockopedia rates as “speculative”, I discussed in the main article the fact that I do not actually think the real volatility here is as high as Stocko suggests, although currently the market in general is somewhat more volatile than usual.

Here is the recent tracking of share price vs “Stop Loss” (90% of the highest level of 5 day share price moving average).

It tracked very close (within 15) at the beginning of November and following Friday’s pullback there is only a 7% leeway above the current “Stop” of 73.5p.

Just as a reminder this “Stop loss” level is not an automatic sell, but it is a trigger for me to fully review and document reasons for holding or selling.

I will not comment further at this point as I think there is a danger of starting to create “Strawman” arguments that may or may not be relevant. I will however, be keeping a close eye on this so that I am ready to do a fuller review in the event this is triggered.

4. If the 52-week price change falls below -5%.

This does not kick in for a year from purchase and the primary reason is to get out of positions that have started to go nowhere – that is not the case currently.

Not part of the decision-making process, but useful to keep score; here is the tracking.

I have mentioned previously that I am uncomfortable that StockRanks are flapping around in the current market, with significant changes happening when companies announce results incorporating the lockdown period. In this context the Sanderson StockRank seems quite serene.

Wrapping Up

Clearly I still hold shares here and as none of my flags have flashed red, there has not been a decision to make.

Both the forward PE measure and the “stop loss” are closer to a potential sell than I would have instinctively thought. This I think is the real value of this exercise ; without these measures I do not think I would even be contemplating selling – especially as the current share-price is only around the level at which I first became interested pre-pandemic.

As ever any thoughts, observations, suggestions, questions would be most welcome- this really is an experiment, so it is is entirely possible I may have overlooked something obvious.

17th Dec '20

I came on yesterday to give a brief update on the "stop-loss" test of my holding, but got distracted in updating the synopsis at the top of the main article.

So here is the stop loss update.

I noted in my last update on the 5th of December that the share-price had flirted with the stop level around the start of November and the rise later in the month together with the pullback in early December meant that it was again "on watch".

Here is the updated chart to yesterday.

The price actually breached the 'stop' level on the 11th closing at 73,0p (stop at 73.5p).

I did nothing and I had several thoughts behind that.

Gut Feel.

Firstly it didn't "feel" to me like the start of a decline - this probably best indicates that I haven't quite got the test right, but I am struggling to know how to codify it better.

The purpose of my stop here is not so much capital preservation but rather to make me think before I end up holding through a sustained decline (because each day's individual decline is small). I have been there and worn that T-shirt too often, in this respect perhaps the test worked; at least it prompted me to think.

Perhaps to better codify my test I should look for the stop to be broken and the price to continue to decline (or maybe even just fail to recover) for a few days? I honest don't know; I am ~~making this up as I go along~~ dynamically assessing and modifying my rules.

Technicality

The other thought on my mind was a bit more technical. The price "spike" (84p) on the 3rd December was a bit odd. Normal trading finished with a spread of 78-81 (so a mid-price of 79.5p).

However the closing auction saw 3,800 shares transacted at 84 pence, which became the official closing price.

I've seen this happen quite often and I really struggle to understand the closing auction. Why would someone place an order to buy at 84p in the auction if they could have bought the same quantity earlier at 81p? If anyone has an answer to this mystery, I would be really interested, this was not just a one off freak occurrence.

Anyway, why did this influence my thinking? Simply put, the 4:30pm mid price of 79.5p would have meant the stop level was actually a shade below 73p - so there is an argument to say that the stop was never breached. This probably belongs in the file titled "obscure self-justifications for action/inaction".

Someone asked me a while back why I used the closing price as my measure and the main reason is that it is an easily accessible data point. I am not inclined to routinely plough through each days trading record to determine whether the closing auction distorted the recorded closing price. Any suggestions though for an (easily accessible) alternative measure would be welcome.

Onwards and Upwards (hopefully)

Obviously I am still holding here and about 7% better off than if I had sold.

I won't of course know whether this approach works or not until it is spectacularly successful or a spectacular failure and probably over a significant number of occasions.

As I mention in the pre-amble I am actually using a similar review approach across most of my holdings and whilst I'm, not about to publish a diary on all of them, I may well write up if there are any major successes or failures.

18th Jan '21

18-jan-2021 Update

So I am due a monthly update on my hold or sell decision and as luck would have it there is a notable event in terms of my objectives.

The share price today is up 5.7% to 101.5p - compared with the YE 2022 EPS forecast of 7.2p - this is a forward PE of 14x. This is a potential sell signal (in fact the 13x threshold was breached on Friday, prior to today's rise).

So should I, will I; sell?

Not currently - for two reasons :

1. I do not trust the forecasts. Prior to Covid the 2022 forecast was for c, 9p EPS, which would leave Sanderson on a forward PE of around 11x. Not a unique factor to this stock, but my observation is that in general analysts reduced their current and future year forecasts without much thought, so I need to form my own judgement of what the forecasts should be.

With Sanderson's FY ending at the end of January, it is of course fair to note that pandemic restrictions will be in place for at least the first quarter of FY2022. However, given the progress that SDG have made it is my view that their 'underlying' post pandemic performance will be at least at the level of earlier estimates.

Until the analysts conduct a proper reanalysis of prospects I am inclined to factor in "run-rate" eps of 10p; that might be a tad optimistic, but I genuinely think it is closer than the current estimates.

2. My sell signals are signals for consideration rather than being absolute. Oftentimes I have sold stocks once they became (in my view) fully valued; but the price has gone on rising. Just as shareprices over-react to the downside, they also over-react to the upside. So once I do think the stock has become overvalued, I will track it closely and sell any sustained pull-back, rather than sell immediately.

Nothing to report.

Nothing new to report here; but going back to my review of a month ago, I feel vindicated here for being somewhat flexible. Had I applied my criteria totally mechanically I would have sold at around 75p - forgoing a further 35% gain.

The 52 week high rule does not apply yet.

So it is still a hold for me at this time. More generally I think the market (and more specifically it's view on Covid-19 recovery is quite fractious at the moment and it could be a turn in broader market sentiment that ultimately drives my decision here.

That is not where I would expect to be with a somewhat contrarian position, nor is it necessarily where I would 'want' to be. However, you have to adapt to the game you are currently playing. If you think you have been challenged to a game of marbles but turn up to find everyone kitted out for Rugby - you need to put your marble bag away.

30th Mar '21

I’m a little overdue updating my sell or hold review on this board. I’ve been a little distracted by other things over recent weeks.

I have, of course, though being keeping my position under review, I just hadn’t found the space to write it up.

I’ll keep my review of my 4 (3) tests relatively brief.

Since I last wrote on the 18^th of Jan; there was a trading update (21^st Jan) and a notification of some brand / website developments and the share-price has fluctuated between 98p & 133.5p

So, reviewing the reasons I might sell.

The current 2022 consensus forecast is 7.21p which would have me selling if the price went about 94p. However, as I noted in the last post, I think the analyst’s forecasts are a nonsense currently.

Even though using my own finger in the air here of 10p we are close to (and have been above) that sell point. Sanderson is looking expensive by historical standards.

I am not selling at this time, but it is now under very close observation for any less than positive news. Which brings me nicely on to:

The January trading statement was not a profits warning.

How do I know? Firstly, the price went up 9% on the day – that might seem a daft measure, but it is a useful first consideration because sometimes wording can be inexact; in this case there were a lot of positive words, but also the phrase “ongoing uncertainty in the trading outlook in the current calendar year”.

Coming back to the analyst’s forecasts I am pretty sure that they are at (or below) the bottom of that corridor of uncertainty.

No profit warning, no sale!

Remember, I amended this so that the stop loss is on a 10% stop against the 5 (trading) day average of the high.

Here is the share price performance during 2021.

You will immediately see that the share-price actually breached the “stop” towards the end of February.

Falling 4% below the “stop” level and staying there for three days. So why did I not sell when the mid-price was 98p?

There were two considerations for me here.

Firstly, this was around the time that IG Group (LON:IGG) that they were essentially withdrawing from trading a large range of small caps on leverage. Sanderson was not one of those stocks, but I felt that it would cause a degree of volatility across the small cap arena so in advance I decided to be more forgiving with my “stops”. Indeed, Sanderson was one of a number stocks that breeched their stops. I held them all and thus far have been proven correct.

Secondly, and more generically, when the share-price also breeched the stop loss in December, I started to formulate a “rule change” to the effect that the stop needed to be “confirm” (as the chartists would say), by either accelerating away in the wrong direction or stay below for a period of time. I have formed no firm conclusions on that yet.

Frankly I am feeling a little “smug” on my judgement here.

Had I slavishly followed my stop level in December I would have checked out with a gain of around 90%.

Had I slavishly followed my stop level in February I would have checked out with a gain of around 150%.

Having held on both occasions, I am now sitting on a (paper) gain of around 250%! However, I definitely need to engage some humility here; all I have managed to do so far is ‘not twitch’. The very purpose of this ‘stop-loss’ rule was to ensure that I do twitch if it is appropriate to do so, rather than adopt the familiar Rabbit in the headlights pose. So, to borrow from Scottish law, this is very much case not proven at this stage.

Full year results will presumably be in the next 2/3 weeks and that will be the next key checkpoint here.

I will shortly be migrating this 'blog' elsewhere, so I will put a link into the main post before I do so.

In the meantime, comments / suggestions / questions are always welcome.

jonno

Hi Gromley

Thank you for the update. As you will likely know I am a long term holder of Sanderson Design (LON:SDG), formerly Walker Greenbank. My average purchase price is 62p, so at present my quid is well in, so to speak, but not a patch on your performance. I owe this to following the principles described in 'The Art of Execution', in that I added significantly to my holding at 39p, early in the pandemic. I could and should have bought at 29p had I got my act together, but nonetheless it has to date turned out well. Similarly I added significantly to Itv (LON:ITV) at 59p, around the same time.

My thinking in both cases was simplistic. What is the intrinsic value of the company's assets. In both cases my view was that despite the challenging trading conditions, somewhat of an understatement perhaps, the assets of both companies were being significantly undervalued. Clearly there was the risk that the pandemic would continue unabated, but the development of the vaccines saved my proverbial bacon and no doubt that of many others.

It was also reassuring that neither company has sought to raise funds.

Getting back to Sanderson Design (LON:SDG) my approach again is very simplistic; to adopt the principle of running one's winners, while keeping a vigilant eye on share price, volume and direction of travel in relation to the 50 and 20 day moving averages. I would however caveat this approach by saying that should the share price of Sanderson Design (LON:SDG) or for that matter Itv (LON:ITV) become too exuberant I will sell. A profit warning or persistent share price weakness will also cause me to hit the sell button

Incidentally despite the recovery in share prices I think that both companies are likely takeover candidates, but that is just the potential icing on the cake, should it ever happen. Once again thank you for excellent write up.

All the best

Thanks jonno,

Of course I know your interest in Sanderson Design (LON:SDG) . I would be writing this piece about a completely different (and less profitable thus far) company were it not for one of your posts a couple of years back. So I owe you thanks here, if you come to a face to face Mello, once allowed, I will buy you a pint.

Interestingly though it appears we are on quite similar wavelengths. Your penultimate paragraph appears very close to most (if not all) of my tests.

The difference though would appear to be that I have (attempted to) codify my criteria. Who knows which of us will fare best here? It would be great though to compare notes if/when we get to a strong sell/hold dichotomy.

ATB

1st Apr '21

Thank you for the kind words Gromley. I look forward to having a beer and chat when we are able. Perhaps at the live Mello event in November that has been tentatively floated by David.

Keep well.

5th May '21

Just as a quick and 'final' update on this experiment, here is my latest review.

In truth there is not a lot to report at this time.

There have been no updates on trading since the last review, so no "profits warning".

The price has edged up so the forward PE ratio still appears to be above my limit but as there still has not been any rational update to the analysts forecasts I'll continue to waive this for the time being. Hopefully the analyst forecasts will be updated shortly after the FY to Jan-21 results are unveiled on 18th May.

There has been no challenge to the "stop loss" in the last month.

I discussed the previous "wobble" back at the end of February further up the thread.

So no news is, well no news to be honest.

Anyway as I alluded to previously, my time as a Stocko subscriber is nearly at it's end (at least for now).

However, I will be continuing this experiment and I will be continuing a 'blog' on the subject at this link

I will have content up over there by Monday and may also add some additional case studies to which I have been applying this approach. So if you want to see how this all pans out, please follow me there. I will probably also shout out any updates from my (somewhat dusty) twitter account @Gromley20

Ciao

Sorry to see you leave Stockopedia, but I shall follow your insightful narratives on the new link you have provided and on Twitter. For what it is worth I continue to hold £SDG. I very much like how the company has evolved under Lisa Montague and her team and think, as I believe you do that the current estimates in the market are too conservative.

Hopefully we can meet at the next physical Mello event, in the meantime keep well.

All the Best

bryans1311

I’m also sorry to see you go, Gromley. You’re one of the best thinkers and posters on here. I follow you on Twitter, so please remember to post links whenever you update your blog!

Why I will be selling Walker Greenbank (Now Sanderson Design Group)

Update

Given that I only just bought my Walker Greenbank (LON:WGB) shares today, this may seem a little premature.

Why I bought

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About the Author

Gromley

36 comments

1. On a profits warning.

2. If the two year forward PE rises above 13.

3. If it breaches a 10% trailing stop-loss.

4. 52 week price change

Other : StockRanks

So is that game over for the experiment?

I'm Back!

The Rules

StockRank

It felt like I had made my old mistake of buying to soon.

So just a quick skip therefore through my ‘should I sell’ tests :

1. If the forward PE rises above 13

2. On a profits warning

3. On a 10% trailing stop loss

4. If the 52 week price change falls below -5%

The StockRank

20th August 2020 update

1. If the forward PE rises above 13

2. On a profits warning

3. On a 10% trailing stop loss

4. If the 52-week price change falls below -5>#/h3###

The StockRank

In conclusion.

19-sep-20 - Monthly Update

5-Dec Update

1. If the forward PE rises above 13

2. On a profits warning

3. On a 10% trailing stop loss

4. If the 52-week price change falls below -5%.

The StockRank

Wrapping Up

Gut Feel.

Technicality

Onwards and Upwards (hopefully)

18-jan-2021 Update

1. If the forward PE rises above 13

2. On a profits warning

3. On a 10% trailing stop loss

1. If the forward PE rises above 13

2. On a profits warning

3. On a 10% trailing stop loss

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