Monday, 1 September 2014

Mechanical Bull Portfolio - August Review

The Mechanical Bull portfolio increased by 3.3% over the month. This compares with 1.3% for the FTSE 100 and 2.5% for the FTSE 250. This continued the trend of the last six months where the portfolio has been tracking the main indices. Renew was the standout performer gaining 22 per cent.

It was a busy month with VP, Dart and Staffline being sold and replaced by Amec, Wincanton and James Latham.

Dart Group was sold at 208p on the 11 August for a small profit of 4.5%. This was very disappointing considering the share price topped out at over 300p in April. The Stockopedia StockRank had dropped in to the 80s and it was only coming up in one Stockopedia screen and so according to my rules it had to go. It was replaced by Wincanton, which had a MB score of 105 (100 StockRank, + 5 Screens).

VP was also sold on the 11 August at 635p for a loss of 6.5%. This was bought in January this year has more or less just moved sideways. The StockRank dipped into the 80s with just one Stockopedia screen. It was replaced by Amec, which had a MB score of 103 (96 StockRank + 7 screens).

Things went much better with Staffline, which was sold on 29 August for 880p, more than double the buy price. Staffline's StockRank dropped sharply in the last week of August, down into the mid-70s. In fact, Staffline was the worst performing stock during August and I would have got 100p more if this had been sold one month earlier. The profits were used to purchase a stake in James Latham which has a MB score of 103 (98 StockRank score + 1 screens).

When buying into a new stock I select a position size by dividing the entire value of the portfolio by fifteen, which is the number of stocks held in the portfolio. However, since I don't bother with rebalancing, there isn't always enough cash achieve the desired position. This happened earlier in the month when buying into Wincanton and Amec, and so those positions had to be scaled back.

However the returns from the sale of Staffline means the portfolio now has larger than normal cash balance (£1300). I've decided to just hold this in cash to provide a bit of a buffer for when the cash from a sale does not cover the desired position size for the incoming stock.

So here is how the MB Portfolio looks as at the end of August:

A Tweak of the Rules

I have said before that I have not really convinced about the MB portfolio sell rules and in real life I have not been keeping to them. Dart seems oversold and it is now showing some signs of recovery. It also has a very good QV rank of 97.  However, profits have been taken in Staffline. It seems to have run out of steam and it has a fairly unimpressive QV rank of 48.

Its time then to tweak the buy/sell rules. Instead of selling when the MB score falls under 90, I am lowering automatic sell threshold to 80. But I will also implementing an automatic buy rule when a stock hits 105. These buys would be funded by selling the lowest scoring stock at the time.

Going back through my old spreadsheet suggests that this would have allowed me to run profits longer with WH Smith and Jarvis Securities while I would have avoided some of my less successful investments like Alumasc and Aberdeen Asset Management. Also, it would have allowed me to keep Dart which is now entering a recovery phase.

Overall, it wouldn't have a huge difference in performance, but its enough to warrant a change.

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