Taking a step back…

October 6th, 2018 | Posted by shauniekent in Personal - (0 Comments)

This post started as an introduction to the portfolios I’m planning to track on this blog from now until some far away point in the future thereby demonstrating my stock picking credentials ūüėČ But it seemed like a good idea to reflect on how I arrived at this point in my investing career.

I’ve been interested in the stock market and investing my own money since 2012. I enjoy the challenge of beating the market and the mental work required to assess potential investments. The macro environment is fascinating (and terrifying). The underlying aim has always been to¬†build wealth to give myself greater freedom,¬†security and to¬†improve¬†my life and also those around me.

Since beginning down this road in my late twenties, investing any disposable income I had, I’ve¬†learn’t¬†a great deal. It’s (hopefully) true that making mistakes earlier is cheaper than making mistakes later in your investment career when you might be managing larger amounts of money. I’ll know for sure in another 25 years whether i’ve had a cheap or expensive education!

Perhaps in another blog post I’ll talk about some of the painful lessons I’ve learnt along the journey:

  • How anchoring your investment thesis to an idea or belief about the market/company can trip you up when that anchor magically dissolves.
  • How you can be right (about a company) but still lose money.
  • You can be wrong, lucky and over confident.
  • How portfolio management is more important than individual stock selection.
  • The market can be irrational. Combine this with shorting and you can¬†potentially¬†expose yourself to a lot of risk.
  • Assuming others know more than I do. Assuming others know less than I do.

I am intelligent, numerate and curious¬†but¬†we¬†all know these things don’t guarantee investing success. Human emotions and behaviour play an¬†outsized¬†role and luck plays her part. I’ve gained a large amount of knowledge since 2012 reading and exploring investing alongside¬†my full time job. I’ve read in¬†the evenings and weekends. Books, blog posts, videos,¬†company¬†results…. the occasional annual company report ūüôā I’ve googled a thousand questions from economic history to technical analysis terminology. I feel I have a solid grounding in the investing landscape and have sufficient experience to make me competent. I realise¬†i haven’t been through a real bear market yet for all stocks but i have been invested in gold and oil through their prolonged bear markets. The reason I outline all this¬†is because¬†I am now at a point where i want to take a small step back from what has consumed a large part of my spare mental capacity and time since starting…..

I began it all began to help improve my lot in life.¬†However,¬†I have become more aware over the past few years that my time and mental energy are finite. I do not want to continue to spend these precious things essentially thinking about how to make money and increase wealth. These are worthy goals but I feel I have let them crowd out other arenas which are also important to which I’d like to give more time and energy.

  • Are you distracted checking twitter or live¬†prices on your phone when you could be¬†engaged with your partner?
  • Reading stock market RNS’s when you could be attending fully to your children?
  • Nighttime wandering mind on recent market events when you should be winding down and relaxing?
  • Maybe you don’t¬†find¬†time¬†for music nowadays due to those finance podcasts?
  • Never ending analysis, rational thought, mental arithmetic…. do you get time to just ‘feel’?

It’s not divorced from the¬†addiction¬†attraction us humans have with social media/electonic devices where we spend countless hours for no obvious benefit. In fact it is probably making us less happy.

So i’m taking a step back, but only a medium sized step…. I’m organising and diarising my investing¬†activities¬†into quarterly and annual reviews. I will spend my energy on investing during these diarised periods and reduce time spent¬†on the markets otherwise. At¬†the¬†very¬†least, my¬†daily or weekly interest will be more casual and i will not be making portfolio changes or re-thinking strategy. It will be tricky as i enjoy the constant newsflow and excitement of the markets.

To support this aim I will be moving towards a¬†Stockopedia¬†Stock Ranks¬†style portfolio with annual rebalancing. I believe this will not only save me time but also improve my returns. I intend to publish my annual returns along with my annual selections and picks on my blog. I also want¬†to have¬†some¬†fun¬†with¬†¬†a couple¬†of ‘model portfolios’ which i’ll reveal and track on a future post.

Ps. If you are new to stockopedia and want to signup for a free trial, please use my referral link 

I haven’t posted in a long time and have neglected to post a 2018 NAPS style model portfolio. I explained in my 2017 NAPSesque post that i was nervous about the market and wanted to stay partly in cash. The FTSE 350 actually ended the year c. 8% up whereas my portfolio which was 50% cash ended the year about 1% up! So ultimately¬† ayear of lost potential gains.

The truth is that i continued to feel nervous at the start of 2018 and didn’t pick a 2018 NAPS portfolio….. but sitting here bearish indefinately is unsatisfactory….

2018 is showing a decline in the FTSE 350 so far. Perhaps a NAPS style portfolio would have outperformed. My wider market nervousness has led me to increase holdings of cash in my personal portfolio and to buy some put options on certain overpvied US stocks (Netflix, Tesla, Shopify, Snapchat) but what i really want to explore is the idea of a more systematic Stockopedia NAPS style long/short portfolio whereby we pair the highest ranking stocks in a portfolio with some short positions in the lowest ranking. Watch out for future blog posts on this…

 

So i wrote a post with my NAPs for 2017 but being short of time, and on the whole nervous about the markets i didnt post it. I then resolved to post my NAPS on the basis that i’d be notionally 50% invested, holding the other 50% as cash until a point in the year where i wanted to invest the remainder.

But i still haven’t posted. I just feel too nervous with Brexit, Trump, recession risk in the US etc etc. I know there are alwys things to be worried about and i have no long term experience – i just think i want to to sit out for a while. ¬†I’ve decided to remain ‘in cash’ for the foreseeable future. I may publish my NAPS at some point in the year – else if i dont, my performance should be judged as holding cash against the market.

 

Here are the NAPS i thought about posting for 2017 (as it happens, i would have been up 5%). It’s also worth noting that in my real world portfolio i am still invested, but may well go towards cash at any point. Obviously NAPS are meant to be a but then forget until the period end.
BLVN Bowleven
CAPD Capital Drilling
CRAW Crawshaw
EMR Empresaria
FLYB Flybe
GENL Genel Energy
GYM GYM
HAT H & T
IGG IG Group
ITQ Interquest
NTBR Northern Bear
NTG Northgate
OPHR Ophir Energy
REC Record
RBG Revolution Bars
SAND Sandstorm Gold
SLW Silver Wheaton
SLW Silver Wheaton
STM STM
WTM Waterman
ZMNO Zamano

Time for a brief review of my 2016 NAPS performance ‚Ķ ¬†overall a 17.8% gain. Not bad at all ‚Äď not quite last years 24.2% gain but respectable nonetheless. Looking through the individual companies ¬†a stop loss at circa 20% would have saved me from Genel and Fairpoint big losses but on the other hand would have triggered for Empresaria which subsequently recovered.

 

Genel is one of the only oil stocks not to benefit from my correct call that oil wouldn’t stay at $33/barrel. Fairpoint reminded me of the danger in buying into a story. In truth the numbers didn’t match the story – i assumed they would catch up – ie i trusted management. That’s something i’ve learnt not to do without very good reason.

BooHoo had a barnstorming year and personally I sold out at around 80p. Unbelievably its continued onto 130p to my dismay ‚Äď but the NAPS rule based process meant it was not sold and so contributed nicely to the 17.8% gain.

I’m slightly puzzled why Capital Drilling wasn’t included – it has been my top pick for over a year now and scores highly in the stock ranks. I’ll make sure to include it this year..

2017 NAPS to be published shortly…

Out of interest ‚Äď if I had kept with my 2015 NAPS I‚Äôd have made a 13% loss! The 2016 Naps heatmap looks similar to at the start of the year ¬†-so it’ll be interesting to see how it does in a years time.

I informally keep track of short calls I make on various companies over the last 2 years. I post them all on my own ADVFN thread and log the opening and closing prices in the header. I post in the message box when I open and close a position so the dates and prices can be verified.

So far I’ve done outstandingly well.

32 short calls initiated in 2015 closed. 6 short calls initiated in 2016 closed. Overall i have got 32 correct and 5 where i’ve made a loss. That’s an 86% correct call track record!

43 total slots closed since inception with average profit of 36.8%. For those opened in 2015, average gain was 41.2% and for those opened in 2016 average profit was 32.4%. This ignores positions still open (24 of them)

If anyone else is interested in potential sort calls, do come and discuss them. This thread is a record of my ‘conviction’ shorts -ass opposed to my watchlist which i store in a stockopedia portfolio to keep tabs on.

Note this is a ‚Äėfantasy‚Äô short portfolio. I may have real life positions or may not. I wish they matched exactly as my real world performance has fallen far short of the fantasy portfolio‚Ķ. More to be revealed in a separate post but safe to say I have learnt much about the art of shorting the last 2 years including sizing positions correctly and trying to second guess the market!

I’ve chosen a selection¬†of ‘NAPS’ for 2016. To recap the idea being to see if my choice of companies (no changes allowed during the year) beats my personal portfolio by the end of the year and how it compares to¬†the Stockopedia mechanical NAPS¬†and FTSE/AIM indexes. I’m also hoping to establish over a long time frame whether i can successfully pick stocks.

I’m also hoping that my personal knowledge and insight might help to boost performance against a mechanical selection…. or ultimately will my over confidence be shown for what it is. I think the latter may be proved correct but i can’t help but hope otherwise ūüôā

This years selection:

2016Naps

 

And using the Stockopedia value vs quality ranks bubble chart we get the following picture:

valuevsquality2016naps

This gives me confidence i’ve chosen generally better value & higher quality companies. The outliers are the oil¬†stocks, a gold miner and BooHoo who i believe has potential to be a long term star.

These selected ‘low stock rank’ companies are the key differences between a Stockopedia stock rank selected portfolio and my NAPS where i use a bit of personal judgement.

Oil, which i may do a separate post on if i have time, cannot i believe stay at $33 a barrel for much longer – its below the cost of production for large parts¬†of the world, capex is being cut leading to lower future supply and ultimately current supply is only 1 – 1.5mmbl/day greater than demand. Total supply is about 95mmbl so the margin is actually quite small. Figures show global oil demand is continuing to rise something like 1.5mmbl/day each year and supply i’m sure will be showing signs of decreasing imminently – due to natural oil field decline rates which are anywhere between 8% and 3% annually (this is where¬†if companies do not invest in their producing oil fields, production actually falls away – it needs continuous investment to maintain, let alone increase). Hence i think supply will fall¬†below demand within the next 2 years with potential for a price spike. Oil in this sense is perhaps unlike other commodities eg copper where mine production does not drop away with¬†significant capex cuts, whereas oil field production does. Anyway – i think ignoring the media headlines and doing ¬†a little research of the fundamentals suggests that this may be a once in a generation buying opportunity. For some good discussion on this see here.

BooHoo looks like an excellent GARP stock and as most of us know, growth stocks rarely look cheap and investors often over pay for growth, however i thin with BooHoo at 36p you are not. Paulypilot has done plenty of analysis and i agree with it. You can find some of it here, here and here.

Oh and Randgold Resources. Im not a gold bull, i’ve researched it and there are so many divided opinions from end of the world as we know it survivalists advocating stockpiling of gold coins so those who look at gold as nothing more than a pet rock. I’m neither, but if the price falls below global costs of production i’m interested. Assuming demand remains unchanged, supply must decline in the medium term. Gold is not far from this point globally by some reports. Many gold miners will be high grading and cutting back on exploration. If the price remains as it is at levels that discourage exploration then at some future point supply will fall below demand as mines around the world are depleted. No-one knows when this will be but i’m certain there will be another great gold bull run again at some point in the future. This could be 5 years from now so i’ll keep watching and waiting for clues, with only a modest exposure through one of the best gold miners there is.

Further posts if time allows will give some detail on why i think each of the selected companies will do well.

All the best,

Shaun