Introducing the Human Screen
Until a couple of weeks ago, the first stage of my investment process was to screen the market for statistically cheap and financially strong companies. Over the years I've tinkered with the screens so they snare an increasingly wide range of companies and now I've abandoned traditional screening altogether for the Thrifty 30* portfolio.
Inspired by stories of Warren Buffett dredging through the Moody's Manual starting at the companies with names beginning with 'A' and finishing at 'Z', I've decided to tackle the whole market in date order. Over the course of a year I will have looked at every company in the stock market as soon after it published its full-year results as I could.
Already I'm two days behind, so today I'm looking at Tuesday's full-year results.
It's a millstone, so why not let the computer do the donkey-work and pick out only the most promising candidates? Maybe that is the best way, but I want to do it myself for a number of reasons:
- The same old companies come up in screens month after month. I've looked at most of them, and added those I want to the Thrifty 30.
- Statistics only get you so far. In the long run, basic value and strength screens beat the market, if you have discipline and patience, but I'm attempting to improve on that by appraising the company's market value, management and the competitiveness of its business, which are difficult to screen for.
- Statistics are imperfect. Debt metrics in screeners only account for debts listed on the balance sheet, so screens that emphasise financial strength bring up weak retailers with no bank debt that can't afford the rent (because lease obligations are hidden in the notes). A screener can tell you a company was highly profitable last year, but it can't tell you it was highly profitable in previous years.
- Statistics can be misinterpreted. A turnaround can have a modestly high PE and still be good value if its earnings were low last year and/or the market has started to anticipate recovery. I think it's better to identify the situation first, and then decide how to measure it.
Screens catch enough bad companies, and let enough good companies escape, to make it worth my while experimenting to see if I can do better. They also exclude the rest of the market, including companies that I might one day add to the portfolio when the price, or fundamentals, are right.
At the moment I'm scanning full-year results announcements, checking the six-year record of promising company using the excellent Stockopedia stock reports (the modern equivalent to the Moody's Manual), and finding out about the survivors' businesses from their websites. Then I'm filing a snapshot of candidates I've identified for proper research on this blog under the category 'The Human Screen', or just sending a 140 character tweet into Twitter.
If the 'Human Screen' sounds vaguely heroic to you, like the 'Human Torch', it should. This torch is a lot less efficient than a computer, and instinct tells me that, weighed down by ambition, it may crash and burn. If I make it through results season in the first half of next year, on the other hand, I'll go supernova and achieve immortality.
This is the output of the Human Screen since the end of May:
120611 Latchways L:LTC; taunting me again with its fy results; flaunting its balance sheet; and its fancy market valuation:
120611 I like the look of pipe and tube manufacturer Tricorn L:TCN. It’s small; profitable; confident; and investing
120608 Synergy Health L:SYR Provides services and consumables to hospitals. 4y into plan to internationalise by acquis'n. Profit and debt up at FY.
120608 Confident Johnson Matthey L:JMAT inc. divi 20%; proposes special divi 2*annual and increases investment at FY. Catalysts? It makes them :-)
120606 Nate @oddballstocks tackles Guinness Peat L:GPG I lost interest b/c it's so complicated; which is probably why the shares are so cheap!
120606 Like bad news? Nature L:NGR profits -66%. Loss of business in Gibraltar after oil tank explodes; license withdrawn; insurer refuses to pay
120601 Prime People's flat FY results seem good when you consider the recruitment agency focusses on real estate; commercial prop; infrastructure.
120601 Petards; one; of numerous surveillance equipm't cos on the LSE is profitable at FY; cheap but distressed according to @Stockopedia data
120601 Caffyns in profit again at FY due to restructuring around premier cars. From memory ownership structure of dealership is offputting.
Tate & Lyle
120531 Surprised to discover (belatedly) in Tate & Lyle L:TATE FY results it no longer makes sugar. Speciality and bulk ingredients look sweet 'tho
120531 Quite like Halfords FY blather (and cashflow; PE). Ppl not repairing cars but Halfords will do it for you. Sell you a bike; travel equipm't.
120531 Business and language school AEC Education L:AEC emerges from losses at FY with no debt. Could be a classic Piotroski punt.
120529 Volex L:VLX recovery seems to have momentum judging by results; unlike sp. Strategy is to 'add value for costumers' = hidden champ strategy
120529 Quite like the look of API L:API. Results today underline recovery. Packaging doesn't really do business justice...
120529 Like Scapa's style L:SCPA. Describes strategy as 'self-help' in today's results. Makes adhesive tape (medical; industrial; even ice hockey)
120529 intriguing. Electronics supplier. Strong cash flows; hoovering up smaller rivals
All the companies are interesting, and I've previously investigated few of them, so already the screen is proving its worth.
*I run a mechanical Nifty Thrifty portfolio for Money Observer Magazine, which blindly follows a screen. The outcome of the battle between the Nifty Thrifty and the Thirfty 30 portfolios in the long term will decide whether I have any skill as an active investor, or I should just let the computer grind out its soulless predictions.
Richard Beddard's tweets
- Any mechanical investor shld read: MT @Stockopedia: And this is just classic - Mining Fool's Gold - http://t.co/XnYbNXYzga — 26 weeks 14 hours ago
- @MrContrarian :-) — 26 weeks 3 days ago
- Mervyn King on Desert Island Discs now :-) — 26 weeks 3 days ago
- MT @Stockopedia Another newish UK investing blog: http://t.co/KacB5XFF1P < Uses residual income model, not seen that b4 regularly on a blog — 27 weeks 15 hours ago
- @Thevalueteam I agree, but its hard to go to cash... — 27 weeks 4 days ago
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