We have now reached the first full half year of the Passive v Reactive Whittler portfolios so it’s time for a quick review to see how my meddling ;has done compared to Mr Cool who simply sits on his hands and lets time do the work. I have again restated the basic rules for the management of the portfolios; see the last section of this article. All of the ten stocks common to the three portfolios were identified via my routine free cash flow+ returns on capital screen i.e. they all exist within my whittled down universe from which I make the majority of my real life share purchases. At the time of this six month update, I hold positions in four of the ten companies: SOM, CCT, NFC & PSN. I also held Hikma as a spread bet so that’s a financial interest in 50% of the stocks within this exercise.
Update & Trading in Half Year (Feb to July 2016):
Of course following the rules of the exercise no trading took place in the 3YL (three year life portfolio) or the ASH (annual sit on hands) portfolios. Trading did take place in the Tinker portfolio and these are listed below:
1/2/2016: sale of 60% of position in Bodycote following a broker downgrade and the funds used to purchase further shares in Dignity.
1/3/2016: sale of 50% of position in Amino Technologies & the reinvesting of the proceeds in Somero following excellent preliminary results.
As you can see there has been no additional alteration to the Tinker portfolio since the first quarters reported performance. My intention is to not just trade for the sake of it but to only trade as I would within my real-life portfolio.
How are the three Portfolios doing? Well as 3YL & ASH are identical composition and allocation in the first year, they are identical with the original £100k now reaching £114.7k, a 14.7% increase in the first 6 months of the exercise. The Tinker with its two trades sits at £113.8k an increase of 13.8%. The comparator for “how are we doing” is the FTSE ASTR (ASX.TR) which rose by 14.6% in a generally volatile February to July period that included the once in a lifetime Brexit event and the following market turbulence.
Overall, all of the three portfolios are performing well enough at this early stage: the five best performing stocks over the first half year of investment were:-
Hikma Pharmaceuticals, Next Fifteen Communications, Amino Technologies, Somero Enterprises and Dignity
The full performance of the 10 stocks is listed in the table below
Only two of the stocks so far are showing a loss as both Character Group (-5.1%) and house builder Persimmon (-9.65) took Brexit hits from which they are still hopefully recovering. Persimmon was particularly hard hit following the referendum and at one time was down by over 40%. Personally I took advantage of the Persimmon opportunity and added to my real life portfolio once the stock had started to recover.
Six Month Verdict
In conclusion at the six month stage all portfolios are performing very well with the passive marginally ahead of the Tinker but such are the weekly movements, this is not really significant at this early stage. It will be interesting to see how the gap(s) show themselves as time moves on over the three years of the exercise.
As an aside, I normally set a trailing stop loss on my stocks but never an automated one. Had I set an automated one i.e. one that reacts to any movement regardless of stock specific or general market turbulence effecting all stocks, the performance would have looked appreciably less favourable. With stop losses I set an initial 15-20% to allow the stock to breath and then as it hopefully appreciated in price convert to a trailing stop loss of 12-15% but NOT automated with my broker, the trailing stop losses are treated as advisory events that force me to take a reasoned decision. The original 15-20% stop loss set at the time of purchase are often acted upon in practice as a coldly admit I may have not got a particular trade right.
Rule No1 limit your losses; rule No2 is simply remembering rule No1 and live by it.
Reminder Of The exercise Rules.
The three portfolios will be firstly a buy and hold for three years, ploughing on regardless through economic conditions, profit warning and any other news either good or bad. I will call this the three year life portfolio (3YL). The only time a change to the portfolio will be permitted is if a business is de-listed for any reason: the funds liberated would then be discretionally invested between the remaining stocks in the portfolio.
The second portfolio will start out with exactly the same holdings as the 3YL but each January the same cash flow screens/returns on assets screen will be run and a revised set of ten stocks nominated. This revised set of stocks will have the proceeds of the sale of the previous years stocks equally divided between them i.e after one year we have £110k of funds then a purchase of £11k will be made for each of the ten stocks. I will call this the annual sit on your hands portfolio (ASH).
The third portfolio will again start the same as the 3YL & ASH portfolios but I will alter the percentage invested in each position within the portfolio in reaction to RNS announcements from the companies, economic conditions or any other reason that seem valid for altering, reducing or increasing a position. I will call this portfolio the managed annual tinker portfolio or simply the TINKER. All 10 stocks will remain within the portfolio throughout the year although the investment in each stock may vary. For example one stock, let’s say Hattersville Dream Co. may issue a particularly bullish RNS “results will be appreciably ahead of market expectations”. The Tinker may sell down one or more of the other holdings to invest more in Hattersville but still retain a position, although not equal positions, in the same 10 stocks that we started within January each year. In January 2017, 2018 & 2019, this portfolio would be treated in the exact same way as the ASH and funds equally balanced across the each of the ten stocks starting that year.
The common rules for all three portfolios:
Welcome to my Blog Page - I hope you find my whittling on to be of some interest. I am a private investor who is happy to share thoughts on the market and individual stocks. Please remember that I am definitely not offering tips or investment advice.