Hi Gromley

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

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

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.

1. If the forward PE rises above 13

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:

2. On a profits warning 

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!

3. On a 10% trailing stop loss

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.

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.

1. If the forward PE rises above 13

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.

2. On a profits warning 

Nothing to report.

3. On a 10% trailing stop loss

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.

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.

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.

1. If the forward PE rises above 13

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.

2. On a profits warning 

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.

3. On a 10% trailing stop loss

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.

The StockRank

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.

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) .

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.

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.

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.

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.

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'.

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.

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’...

It's ironic, given all the hard thought you have put into this, that ultimately you have effectively bought when the price rose above the 250-day SMA and sold when it fell below the same SMA.

Perhaps we are all creatures of habit deep down. Does free will even exist? :-)

(And it has now peeked back above the 250-day SMA so no wonder you were tempted again!)

So this morning we had the interim results and most importantly from my perspective the update outlook view. It was not a profits warning.

At this stage of the year as we enter the autumn selling period, we continue to expect the full year out-turn to meet the Board's expectations.

If anything that might  be a little more positive than the previous outlook, no mention of uncertainty or limited visibility, although “continue to expect” reads to me as no change to I suspect that degree of uncertainty is still there.

So by reacting to the earlierprice fall I TWITCHED , in a more certain market I would not have done so, but given the current market’s reaction to anything approaching bad news I am not feeling bad about playing safe.

When I looked in first thing the price had not moved at all, so I was very tempted  to buy back. (I would have lost about 2p/share on the round trip). I didn’t and the share-price rose later in the day to finish up 8% on the day and narrowly above my notional stop loss.

It was a finely balanced decision whether to buyback or not and there were three factors that contributed to my decision :

• The level of near term uncertainty remains and since my original purchase I have become (rightly or wrongly) more cautious.
• One of my self-diagnosed weaknesses is the tendency to “buy too soon” and there were no real triggers In today’s announcement to make me think that a substantial re-rating is imminent. (My gut feel is that the price may show further gains for the next few days, but then tail off – whilst I still think there is substantial value it is very boring.
• I was a little disappointed by the strategy update.

Nothing that was said on strategy indicates that they are in fact doing a comprehensive strategy review at all. Rather it reads like the new(ish) CEO is getting to know the business and working out whether it is fundamentally broken. A strategy review does not have to recommend radical change, but it does have to consider it. (IMHO).

The only thing strategic that was said was wrong!

Walker Greenbank is a business-to-business company

Unless I have fundamentally misunderstood what they do then NO NO NO it is not a “B2B” company; it is a consumer brand that sells through third party retailers.

I may just be over-reacting and advertising my position on “the spectrum”, but for me personally that statement gives me pause for thought over whether I trust the management.

Of course that was not one of my criteria for my sell (or re-buy) decisions – but maybe it should be?

Anyway for now, I continue to watch closely and I will update further once the new broker forecasts and updated StockRanks are out.

I had not expected to be writing any more about this until next week's results statement.

However, with the falls in the share-price on Monday & Tuesday, totalling 5% and therefore being c.5% below my notional 10% stop loss, I have sold (for now).

This might seem something of a volte face from my previous tolerance on the "stop loss", so it is worth recording my reasoning.

As I have mentioned before, I do no actually think the share-price is especially volatile, so such a fall over two day is notable.

Excluding 'fluctuations' there are two potential explanations for such a move a few days in advance of the results (and more critically update to the outlook) :

1. General market nervousness ahead of results,

or

2. "Informed opinion" on what might be said in the outlook statement.

I should stress I absolutely do not mean to imply "insider trading" , but I have come to realise that, for each and every stock I invest in, there are market participants who have their ear closer to the ground than I do and whose actions may influence the price. (To give a recent example , the 9 month weakness in the £ZTF  share-price I, in retrospect , conclude was a predictor of the likelihood of the recent profits warning.)

Ordinarily I would probably conclude that the share price moves are option 1.

If this is the case I might have "twitched" and will bear the cost of over-trading. (I may well buy back next week).

However,in the current market my risk vs reward thinking goes like this :

The best case announcement next week would be "although market conditions remain challenging we remain confident of our full year expectations". In the current market I suspect the best reaction to such a statement would be to retest recent highs. This would be +17% on the current price, add in the spread and that is a 20% cost of "twitching".

A conservative  "worst case" might be : "since our last announcement market conditions have deteriorated .... [and there are a few pointers to this possibility] " it is guess work how the market might react to that,but -30% or worse is not beyond the realms of reason.

So I have sold, is that not experiment over?

Not at all, there is nothing here to dent my views about the long term valuation of WGB and in fact unless there is something in next weeks statement that dents my view of the longer term I may well be buyer on either a perceived positive or negative update.

It was always my view that I should extend the experiment beyond any sell decisions, but this is more-so the case given that (in the absence of new facts) I consider myself as being only temporarily having no position in WGB.

Tune in for the next "thrilling instalment" next Tuesday.

If it breaches a 10% trailing stop-loss.

This is the rule that I feel most uncomfortable with, and therefore the one I am most likely to break.
For the’ types’ of portfolios I look at I have shown time and again that stop-losses reduce performance overall. Nevertheless they are not entirely without merit, so I will retain this ‘rule’; but in this case the presumption that I will sell will be somewhat weaker.

Stops are such a complex topic (and inseparable from risk management) and I've been musing your statement since reading it in June (I'm a slow thinker!). I have examined many baskets of shares, bought on various criteria and agree that stops usually reduce performance overall, although this might be a price worth paying for piece of mind. 

You touch on and I agree with, that they can't be examined in isolation from the buy criteria - and I'd add the ongoing market conditions. If you have a portfolio of shares based on a positive expectancy strategy, then sufficient positions should take care of risk management given time - except  when everything goes south together. Then you know that sentiment has changed. So it would be a basket of shares bought on the same basis that would need monitoring and when the basket falls by X% then sell everything.

Stops do have a redeeming feature - they get you out when everything starts going south. However, having got out you need an additional rule to get you back in (eventually). With this assumption volatility might be considered when setting the level or you might go further down the dark side and look at support and resistance.

You indicated 10%, but an unquantified likelihood to break this. At what point would you be happier selling rather than holding on? It has been as low as 55p relatively recently. What would you do if it fell 15% or 20% ? If you were stopped out would you consider getting back in later? Under what conditions?

So I am somewhat overdue my monthly recheck on how Walker Greenbank stand against my sell criteria.

In truth there is not too much too say at this stage

Test 1 On a Profits Warning

Results will be on 15^th October so there is nothing directly to report currently. The 6^th August trading statement gave enough detail to suggest there should not be any material surprises in the results themselves, the key information however will be the updated outlook; the latest view was “The Board's expectations for the full year remain unchanged although visibility is limited by Brexit and continuing wider macro-economic uncertainties.”

Close peer Colefax (LON:CFX) issued a profit warning in their AGM statement on 18^th September, but I cannot really divine how much one should read across from that. The key statement for me was “Since we announced our year end results in July, trading conditions have remained challenging in most of our major markets.”

Maybe I am being over optimistic here, but I do not think WGB’s current forecasts are predicated on any near term improvement in the economy, so for conditions to “remain challenging” does not sound too problematic.

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

No material change here, the 2Y PE sits at 9.16.

Test 3. 10% trailing “stop-loss.” (closing prices)

No new highs have been hit during the last month, so the trailing “stop loss” remains at 80.1p.

The share price has flirted with this level, but not actually broken it on closing prices.

In fact, I had half made up my mind to be forgiving of any minor breach of that level in the short term, given the poor sentiment in the overall market.

My reasoning being essentially that the current (comparative) weakness in the share price does not look like being the result of market participants with a more forensic view of WGB’s prospects than I have. Of course, this could be false thinking; if the market drops 30% on macro concerns, it will be no consolation whatsoever if WGB “only” falls by 20%.

Looking at the chart more generally, if I had bought in as a short term “momentum play”, then I might be concluding that the price is no longer going up, so time to move. That was not the reason for my buying.

4. 52 week price change

Does not apply in the first year of ownership.

StockRank

Virtually unchanged on the month.

Conclusions and next review

I continue to hold.

The next test will be the interim results statement on 15^th October and I am somewhat nervous about what the outlook will show.

We are also promised and update on the strategy review. If this is at all exciting (no guarantees) I think/hope it is more likely to be positive rather than negative.

We’ll see.

Update 6-Aug-19 : Trading Statement (scheduled)

Today WGB issued their Half Year Trading Update  prompting the next review of my sell criteria.

Not a lot to report here, so I will make this brief.

1. On  profits warning.

At the time of writing the share price is down nearly 3% on the day. Whilst this indicates the market is not delighted with the update, it is certainly not a profits warning. The update includes the go to phrases  “performance in the half year was in line with the Board's expectations ”and  “The Board's expectations for the full year remain unchanged”

There is a caveat that “visibility is limited by Brexit and continuing wider macro-economic uncertainties” Can anyone tell me what religion the Pope practises?

I will not delve any further into the update here.

2. If the two year PE rises above 13.

Up slightly at  9.83x on the StockReport (8.99x initially 9.66 last month ), reflecting the steady rise in the share price.

3. 10% trailing “stop-loss.” (closing prices)

The share price closed at a high of 89p on 30^th / 31^st July*, setting the “stop loss” level at 80.1p, the current price of 85p still provides a reasonable clearance (6% above).

(* The share price is now ex-dividend for the 2.55p final dividend, so the 89.5p close on 17^th July is in effect not the high point)

4. 52 week price change

This does not come into play during the first year of ownership.

 Other Factors

Not part of my sell criteria, but as noted above I am tracking the StockRank movements.

Another significant rise in the MomentumRank brings the SR up to a super 99 and the superstock label is retained.

Last month the earnings element of the MR improved, this month the share-price element has shot up. This was entirely as predicted as the sharp fall in the SP in July 2018 now drops out of the 52-week comparatives.

I have nothing really to say on other macro considerations at this time.

Conclusions and next review

It is still obviously a hold.

I will do the next monthly check in early/mid September and then we expect the half year results in mid October, which might provide the first material challenge to my rules.

Really interested to see how this goes Gromley!

That is a valid point Paxti - In fact did look at the SR before I bought, but by the time it occurred to me to record it here Stocko had updated (checking back though to the position at 1st June there was actually no material change).

Even though so far this experiment has been quite boring, I am invigorated by the added disciple of recording everything and I was musing this morning that if I had applied the same disipline to my holding in A.G.Barr (LON:BAG) I might have sold before today's 30% fall.

Every day is a school day and all the students are teachers, as they say.

Some interesting points you make Gromley. In your edit you record the SR after you purchased. I make a habit of recording all the SR details along with my reasons for purchase and initial source of info that switched me on the the stock in question in the notes of the purchase record when adding it to my portfolio. Where applicable I also add a target price to sell, either upside or down. I find this information really useful when reflecting back on a purchase at a later date. This is the type of info which I hope will make me a better investor in the long run.

Time for the one month review of my holding against the “sell criteria” set. There is nothing too interesting to report at this stage to be honest.

Sell Criteria.

No profits warning, The closest to a trading update thus far was the announcement of change of distributor in the US, the market viewed this neutrally and I know no better.

The mood music for discretionary retail in the UK has remained poor, although the main story in the past month has been poor early spring weather impacting fashion retailers, little read across there to wallpaper.

9.66x vs an initial 8.99x. This simply reflects the rising share price, still a long way off a sell trigger

This is based purely on closing prices and the largest pull-back thus far has been 2.4% (from the 26-Jun close of 82p to the 27-Jun 80p)

It was noted at the outset that 10% seemed quite tight for a smallish cap prone to volatility, Stocko rates WGB as “adventurous”.

In fact though looking at the chart over a year or so , I am not convinced that the share price is particularly volatile in the sense that is important here. There have been some significant zigs and zags, but these were in response to news and trend changes – exactly what this stop trigger should be looking for. In the absence of news  is not especially wobbly. For the time being therefore I will persist with this 10% threshold.

In true Murphy’s law fashion, I wrote that earlier today before finding that the share-price was up 2.9% today on the back of a modest maiden share purchase by the Chairman – I don’t believe the purchase itself was sufficient to drive the price up, so I suspect it was the reaction to it. That together with the 2.4% rise on Friday might be creating a “mini-spike” that could come to test my resolve on the stop loss issue.

This will not come into play until one year of ownership.

These do not represent a “trigger” for me (I would expect the other factors above to trigger before any SR change). I am though keeping track in case there is anything to be learned.

A slight fall in the Value Rank, reflects the share price change.

A significant improvement in the Momentum Rank (and therefore a change in “style”) came a little earlier than I expected.

The main change has been in earnings momentum – the three month change in current year forecasts is now positive having been negative one month ago. The fact that earnings downgrades may have bottomed out was part of the buy case.

All being equal, the share price element of MR will improve by next months review (it has ticked up slightly already). The share price fell by 22% on the 23-Jul-18 so once the 22-Jul price drops out of the 52 week number next week, the share price will be trading substantially closer to its 52 week high. It is rather banal that the investment case should be apparently stronger just by the passage of one day; however proximity to 52week high is a well published measure, said to have some power, anyone using this measure for screening will automatically see WGB in a better light at the end of next week.

Conclusions and next review

Overall therefore (unsurprisingly) I continue to hold here. I am due to be on vacation at the time of the next monthly review, however I will probably instead take an update at the next trading statement in “early August”.

A really useful exercise. 10% would seem to be quite a tight stop loss on such an illiquid share though? the spread alone could be 5% and 10-20% daily noise on small caps.