Tuesday, April 01, 2014

April Fool's Stock Portfolio to watch.

There is no better day than April Fool's Day to launch a non-dividend portfolio for all you readers here.

This portfolio was the result of days experimenting with the Bloomberg machine in the Central library.

What I've done is look go through the universe of Singapore stocks to find which strategies can dramatically outperform the market.

Here is how the stocks were selected :

a) We search for stocks which have a Net current asset value per share which is is higher than the price. This filter searches for value stocks with assets in the balance sheet that exceed market capitalization after deducting for all liabilities. This is a powerful value-filter inspired by Benjamin Graham.

( Current Assets - Liabilities ) / Outstanding Shares > Market price

b) Within this universe, I then back-tested the portfolio based on cherry picking the best investment ratios which result in out-performance within this set of stocks. I tried many ratios which include P/B, P/E, P/S amd dividend yields in my back-test.

It was discovered that lowest PS ratios gave me the best results over the past 10 years. So the filter only takes the lowest 25% percentile in price to sales ratio.

The resulting portfolio was found to return 75% per year ( Yeah ! ) over the past 10 years. This intuitively makes sense as we are not just buying stocks with have a value in the balance sheet way above the market prices but we are also choosing the stocks with the highest business revenues within this set.

But now I have a problem, the filters gave me a lot of China stocks which have a very wide bid-ask rate. Imagine buying a stock with a 10-20% sales charge since these stocks are so disliked by the market and the fund managers would not touch them with a ten foot pole. ( eg. China Haida was selling at 0.22 but buying only at 0.17 )

So investing in this portfolio will cause me to lose money  from day 1.

So I had to make a compromise. I ranked the resulting portfolio by market capitalization and buy only 5 of the largest companies in this list, sacrificing $5,000 of hard-earned blood money for the benefit of my beloved readers.

The result is as follows :

ISIN CODENAMEPRICESHARESTotal ValuePrice PaidOriginal Value
E18ECS Holdings0.652000$1,300.000.65$1,300.00
KI3Hu An Cable0.110000$1,000.000.102$1,020.00

This portfolio is less than 0.5% of my net worth. This should be misconstrued as stock advice,  please do not attempt to mirror this portfolio on your own unless you really have money to lose. I am just sharing my approach of filtering the right stocks based on the proper fundamentals.

I will be updating the results every month and may add a deeper later of analysis to these 5 ultra-value stocks.

1 comment:

temperament said...

Good Try!
You are experimenting to find out
What Yogi Berra said about Theory & Practice.