An idea rooted in StockopediaUntil now, this blog has been laying the groundwork for my investment philosophy. In this post I will provide the nuts and bolts of my investment method. In essence it is very simple. However, it will be very difficult to understand without reference to some particular features of the Stockopedia website. So if you haven't already please read the following post.
As I have mentioned, there are two features about the Stockopedia website that I find particularly intriguing. The first is their idea of the 'Screen of screens'. This takes the 60 or so 'guru' screens and counts the number of times a particular stock appears in each screen. The idea is that a stock that appears across multiple screens is displaying strengths across a number of criteria. These stocks are interesting because they may be considered by investors with very different investment approaches.
The second feature is their recently introduced StockRanksTM. This is calculated by first ranking stocks in terms of quality, value, and momentum using a number of different metrics. These ranks are then compiled into a composite rank of these three factors. As I have mentioned previously, I believe that this kind of approach is better than screening, because a screen will sift out stocks that are weak on only one criteria, whereas rankings are more forgiving of any particular weakness.
The 'Superscreen'It seems to me that both approaches are using different methods to achieve the same basic objective, that is, to find stocks that are attractive from a number of different angles. This got me thinking about an approach for combining the Screen of screens with the Stockranks to produce some kind of 'Superscreen'. Where you get a similar answer following two different methods, you should have more confidence in your results than if you only follow one.
My method for doing this is childishly simple. The Screen of screens is a simple count with the highest count typically between 8 and 10. StockRanks give each stock a composite value of between 0 and 100. There is only stock with a value of 100, about 20 with 99, about 20 with 98 and so on. My method for combining the two approaches is to to simply add the two value together. Here are the results all those with a 'Superscreen' score of over 100 as at 8 December 2013:
|Ticker||Name||# Screens (Long)||Stock Rank™||Superscreen score|
|JD.||JD Sports Fashion||5||98||103|
Effectively, what I am doing is using the Screen of screens to sift out the most promising Stockrank candidates in the high 90s.
Trading RulesIn terms of translating this screen into an executable strategy. The buy./sell rules are as follows:
1. New buys are restricted to the top half dozen or so stocks. If I were starting form scratch at this moment I would buy equal amounts of all stocks with scores of over 103.
2. Accumulate for any existing stocks with a scores of over 100.
3. Hold for any stocks with scores 90-100.
4. Sell when score drops below 90.
5. Look to hold between 15 and 20 stocks.
I generally look to make all my trades on the same day about once a month. The precise day varies for practical reasons that have to do with taking advantage of reduces trading commissions. I do not try to time my trades with any trends in either particular stocks or the broader market. This is all part of a deliberate strategy of 'strategic ignorance'.