Halfords is pick of Nifty Thrifty screen

Days of crisis The first and second working days of the month are days of crisis for me, regardless of the state of the market. I spend them opening and closing spreadsheets, copying and pasting data and inserting it into articles I write for Money Observer, and producing performance tables and charts. When the deadline for my monthly Share Sleuth column coincides with the quarterly Nifty Thrifty column, I’m caught up in a double witching that leaves me blind to numbers by the end of the first day. So I sleep on them, and check everything again on the second day of the month. That’s where I am today. And the end result of that inelegant (but improving) process is something elegant like this Nifty Thrifty screen:

The Nifty Thrifty portfolio is the Magic Formula inspired, Piotroski augmented screen I described earlier in the week, and the Nifty Thrifty column is the only place you’ll find me targeting large companies. I get the data straight out of Sharelockholmes but rank it in a spreadsheet, a process that sometimes causes confusion among readers who want to do something similar entirely in screening software. You can see how I do the ranking in the last four columns of the data tab in my Nifty Thrifty screen spreadsheet.  The Nifty Thrifty is a mechanical portfolio, so I don’t know much about the companies in it. But as the algorithm grinds its way through the months I’m getting to know some of the better and if I weren’t such a poor judge of retailers I’d say Halfords looks particularly interesting at these levels. You can follow the performance of the Nifty Thrifty here, and the magazine, with two pages of niftyness included is out nearer the end of the month.

Comments

Your shares seem to be holding up pretty well against the FTSE all share.

Hi Richard,

What is the exit strategy for the nifty shares and do you have a fixed F_score that the selections must exceed?

At the moment I'm considering holding for 2 years and using an F_score of 7 or greater but Edmund Ng uses 5. I must admit that when I tested this 7 was a number plucked out of the air but nonetheless it seems to produce plenty of qualifiers.

Thanks,

Tom.

Hi Tom.

The Nifty Thrifty is inspired by Joel Greenblatt's Magic Formula (links above). The variables, of which the F_Score is one, are combined and ranked so there is no fixed F_Score, just the higher the better.

Shares are sold after one year and replaced by the new top ranking shares. There is only one kind of exception, when a share to be sold is also one of the top ranking shares due to come in, then I just hold it in the portfolio.

I've archived older Nifty Thrifty articles here, so you can see how the strategy works, and has developed (at first I did use an arbitrary F_Score of 5). The latest article "Yell hell prompts portfolio revamp" explains why I changed the approach.

All of my screens rank shares rather than use absolute values, but the top ranking shares tend to have an F_Score of 7 or more so I'm in a similar place to you by different means.

Ng focused on larger companies, for which high F_Scores are less predictive of high returns. Maybe he was using the F_Score as a way of avoiding weak companies and smoothing returns so a score of 5 was sufficient.

If you're looking at smaller companies high F_Scores are predictive of higher returns so there is logic to raising the F_Score threshold.

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