Is Stockopedia's NAPS portfolio worthy of further investigation?

[OLTB]

Morning all, first a bit of background:

My pension fund value is too low to support myself in retirement and I need it to grow (no surprise here and many people possibly in the same boat!). I have three portfolio strategies to try and get to the level I'm aiming for which are HYP, passive and IT. Owing to the demands on cash (fairly largish monthly fixed expenses and an expensive wife) I do not have (and will not have for the foreseeable future) spare cash to throw into my pension to boost savings over and above what is being paid into my separate workplace pension (just a standard auto enrolment scheme).

I have been reading the results (and looking at the presentations) from Ed Croft at Stockopedia and their NAPS system and was wondering whether any of my portfolio should be managed with this strategy. I'm worrying that I'm being sucked in slowly and convincing myself through desperation, or, perhaps, it might be a good option.

It looks to be a strategy similar to Joel Greenblatt's 'Magic Formula' and Stockopedia have stated that although the performances have been good, it isn't a formula for success which is guaranteed, simply a 'prescription'.

I'm not sure if the strategy would eventually revert to average returns, and the end result will be what I would get if I just leave things as they are.

In a nutshell, the strategy (if I remember correctly) is buying the two highest ranked shares (above £50m with <5% spread) per sector. There are 10 sectors so 20 shares overall. That's it. Then, on the anniversary a rebalance is made and any new shares that have topped the rankings of the sectors take the place of the existing shares. The rankings are calculated using Stockopedia's proprietary ranking tool based on quality, value, momentum.

The portfolio's have done well as far as I can see over the last few years, but yet (as far as I am aware) haven't experienced performance during a downturn in the market.

Does anyone use this system (or perhaps the 'Magic Formula") and if so, what have your experiences been please?

I'm not doubting Stockopedia, or Ed Croft, I just want to do a bit more checking before taking any next steps.

Should I just forget it and stick with the normal strategies I have - am I chasing a rainbow?

Cheers all, OLTB.

[tjh290633]

As you will know, I am an advocate of the HYP approach and would use a selection of ITs as an alternative.

My question about the Stockopedia approach is the validity of their criteria. Has it been run for 10 or 20 years, as opposed to backtesting? Hindsight is marvellous, but what were they saying 10 years ago?

It reminds me of the "Beat the FTSE" system, which did not succeed. Be sceptical.

TJH

[OZYU]

We have always encouraged our children, now approaching retirement, and grandchildren, to save as much as sensibly possible, this is IMHO the cornerstone of long term investing.

Therefore I would say that if one's partner is unwilling to reduced their expenditure('expensive wife' mentioned by he OP), half the battle is lost, and if this leads the OP to chase higher returns to compensate, the battle might indeed be lost, because to my mind the bulk of one's long term investments should be in steady stocks/ITs, and screen based racier choices a peripheral activity, once the required pot is basically secured or well under way.

Ozyu

[OLTB]

Thanks all for your replies and I shall leave alone.

You are all far more experienced than I am and the last thing I want to have to do is chase returns as Ozyu alludes to - I can see a strong possibility that my position may indeed worsen. I shall stick to the slowly slowly method and have a heart to heart with Mrs OLTB (perhaps I painted an unfair picture of her spending habits). I shall get into the habit of 'paying ourselves first' on payday and then working out our budget for the rest of the month.

Cheers, OLTB.

[TimR]

Oh, and personally I would not now add new money to a HYP. I had a stellar 2017, but my HYP was relatively poor and demanded more attention than the alternatives.

I agree with ap8889 regarding Living below you means and saving but what 'alternatives' are better than a HYP for retirement income ?

[Blagdon]

Hi OTLB

My suggestions would be...
* Split your money into 2 very separate pots - spending and long-term saving for retirement
* Within the spending pot you will probably need some separation to budget for holidays & cars etc
* Every salary increase work it out into cash value and split 50%:50% spending increase and long-term saving increase
* Keep going for a couple of decades

[Umentatko]

Hi OLTB,

I tried the free month with Stockopedia back in June. The reason was, I was a bit miffed that my HYP was performing rather lack lustre regarding Capital performance. It was constantly failing to keep pace with the FTSE 100, which I used as a benchmark. It seemed that many of the usual HYP suspects were 'eating themselves' to maintain their dividends. I don't think I was alone in this feeling. Several HYPers seem to have been expressing concern on the HYP board. Capital does matter.

Anyway, I wanted to see if the additional information and analysis on Stockopedia would help me pick better HPY candidates. I also looked at SimplyWallStreet, and considered the REFs page, but this seemed similar to Stockopedia, but without the Guru's screens, blogs, etc. (There is even a PYAD screen, and PYAD

Looking at the Stockopedia ranking and data for Carillion persuded me to bail out - at around £2.00 per share, I then decided that as Stockopedia had saved me from that debacle I would continue with a years subscription.

Pretty soon I had sold all of my HYP folio - and replaced them with shares ranked in the top decile by Stockrank. I still was looking for a high yield and managed to achieve 5% for the portfolio. So basically a NAPS portfolio with the added criteria of a yield above the average for each sector.

Like NAPS, I tried to choose two shares per sector, but actually had a few more financials ( not banks though), and my portfolio was mid way between being weighted as per the market weightings of the sectors and a straight 10% for each sector. I was happy with this level of diversification.

Since then, I can only report that the turnaround to my capital growth has been very satisfactory. From falling 5% below the FTSE 100 in about one year, I am now 14% ahead in 8 months - , not counting dividends. Further the portfolio has performed very consistently with less volatility than the FTSE. And of course I still have my high yielding dividends. Of course 8 months is a ridiculously short time frame to draw any real conclusions, and although I have not tracked the performance of my pre-Stockopedia selection, I have noted many of them continue to track southwards, or meander about aimlessly. I do believe that my original HYP would not have suddenly began to perform better anywhere near the extent that my new choices have.

So, in short I would say that a NAPS style approach is certainly worth considering as an aid to running a HYP - or possibly even abandoning the HY aspect of a HYP.

Remember, many of the NAPS rules (guidelines?) echo the HYP principals, e.g. diversified portfolio, solid company (high Quality Rank), good value (high Value Rank). You can add your own criteria, such as high yield and manageable levels of debt, and you end up with a portfolio that would be accepted as a HYP even by the most fervent radical PYADist!

Perhaps the only bone of contention is the NAPS principle of rebalancing the portfolio regularly, which also involves selling completely those shares which have fallen in ranking and replacing them with higher ranking shares.

I have not kept all the shares purchased - I have bailed out when the Stockrank fell to 80 on a few stocks - sometimes banking a profit, sometimes taking a loss - and replacing the share with another choice from the same secto- or another if the diversification and spread permits. When to sell is currently my biggest issue. I dislike the thought of racking up trading costs, but an exit strategy needs to be worked out.

The NAPS selection utilises the Stockranking - which as you say is a combination of the Value, Quality and Momentum ranks. However Ed Croft does say it would be OK to create a NAPS on only the combined Value and Quality Ranks, and Stockopedia provides this data also.

In conclusion - I stumbled across Stockopedia, and find it useful. However there are other sources giving similar data and analysis, e.g. SimplywallStreet and Jim Slaters REFS. I am a bit surprised that there has not been more discussion about the merits of such data providers - I am sure there must be others also.

Cheers
Umentatko