Ted Sturgeon was a sci-fi author who claims that "90% of everything is crap" and this chapter proposes that the same applies for the stock market.
This is useful when you decide what kind of media to indulge in. 90% of all fiction is crap. 90% of all Netflix shows are crap. In a moment of self-reflection, perhaps 90% of investment training is crap so I need to constantly improve my training slides.
While preparing stock screens for this weekend's class to demonstrate this concept, I wanted to see how many stocks fall into this category in SGX :
a) Cannot be a ADR, GDR, China Stock or a REIT.
b) Cannot have a market capitalisation below $50M.
c) Must have revenue above 150% of the average of the remaining counters after step (b).
d) Must have an operating cash flow above the average of the remaining counters after step (b).
e) Must have number of shares outstanding above the average after step (b).
f) Of the universe in (e), choose stocks that give at least 4% dividends last year.
g) All stocks must produce a free cash flow that sustains the dividends.
These set of screens are inspired by O'Shaunessy's What Works on Wall Street so the backtest not just has some utility on Bloomberg, it has a history of working well in US stock markets.
Sadly, Sturgeon's law holds true for Singapore markets
The screens were too stringent to create a working portfolio. Only Jardine C&C, City Developments, Hongkong Land and Dairy Farm made the final cut.
This list is too short to create a diversified portfolio for my students so I need to make adjustments to my model to ensure that a model with more than 10 stocks would result. After relaxing the model, I was still able to backtest 18%+ with a larger set of large cap equities.
Still, the Final Four may be useful in my personal portfolio to anchor my REIT portfolio with some bluechips as we dive into what is possibly a bearish work economy with Brexit and a trade war looming in the horizon.