Introducing the Human Screen
Going supernova
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:
Name
Tweet
Latchways
120611 Latchways L:LTC; taunting me again with its fy results; flaunting its balance sheet; and its fancy market valuation:
Tricorn
120611 I like the look of pipe and tube manufacturer Tricorn L:TCN. It’s small; profitable; confident; and investing
Synergy Health
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.
Johnson Matthey
120608 Confident Johnson Matthey L:JMAT inc. divi 20%; proposes special divi 2*annual and increases investment at FY. Catalysts? It makes them :-)
Guinness Peat
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!
Nature
120606 Like bad news? Nature L:NGR profits -66%. Loss of business in Gibraltar after oil tank explodes; license withdrawn; insurer refuses to pay
Prime People
120601 Prime People's flat FY results seem good when you consider the recruitment agency focusses on real estate; commercial prop; infrastructure.
1Spatial Holdings
120601 Petards; one; of numerous surveillance equipm't cos on the LSE is profitable at FY; cheap but distressed according to @Stockopedia data
Caffyns
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
Halfords
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.
AEC Education
120531 Business and language school AEC Education L:AEC emerges from losses at FY with no debt. Could be a classic Piotroski punt.
Volex
120529 Volex L:VLX recovery seems to have momentum judging by results; unlike sp. Strategy is to 'add value for costumers' = hidden champ strategy
API
120529 Quite like the look of API L:API. Results today underline recovery. Packaging doesn't really do business justice...
Scapa
120529 Like Scapa's style L:SCPA. Describes strategy as 'self-help' in today's results. Makes adhesive tape (medical; industrial; even ice hockey)
Acal
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.
Comments
Richard - welcome to the dark (bright?) side! So, now I know: I'm the Human Screener - I knew I felt funny... Good luck - you will definitely find just as good a selection (and probably better) of stocks this way, and no matter how much you know now, you'll know a hell of a lot more in a year's time.
I spend most of my time reading, not actually thinking. Perhaps thinking is just a little too hard for me...but the more I read the more ideas, opportunities, metrics, facts, patterns etc. that seem to pop up fully formed in my consciousness.
And it's never a chore. In fact, I had to give up on reading annual reports in bed - too exciting, I couldn't sleep..! :-)
Hey Wexboy, get your own super-hero moniker! Actually, a thousand things have driven me to this point and one of them is your blog and the flexibility with which you approach a company. I really enjoy the posts even though I often end up thinking I wouldn't invest, precisely because they feel unshackled by dogma and preconceptions. So now I think about it you partly inspired my conversion and if it all goes tits up I'm going to blame you entirely :-)
Light side? Dark side. I'll tell you what I think in a year.
And I don't think I'd get very far reading annual reports in bed. I can only manage about a page of pulp sci-fi before my eyes start to close.
Thanks!
But Wexboy is a super-hero moniker... ;-)
But it sounds like a sidekick. Who's Batman, Robin? :-)
[...] From the Human Screen [...]
Hmm, yes - but with my moniker I'd have fit right in on the 60s Batman show. Um, not sure that's such a good thing....
http://bit.ly/OQsRjJ
[...] many businesses and ideas as possible. In a similar vein, Richard Beddard has taken the principle one step further - and is trying to take a look at the whole market, in date order. A gargantuan effort, but maybe [...]
@Richard -- I started investing life with a focus on value shares initially highlighted by mechanical screens, and it did me not much good. One issue I think is that you really do have to buy a whole slew of them, because an awful lot blow up. Difficult for a private investor to buy and monitor 100 odd companies. Then I personally believe you have to hold them for years longer than you'd like to, whereas the temptation with value investors is always to let it go ASAP relieved that it didn't blow up like the last crock. Well, that was my experience anyway. I've done a lot better since I gave it up, which is a good seven or eight years ago now.
@Wexboy -- Been there, been thrown out of bed by the girlfriend, too. ;)
Hi Monevator, well as you know I'm mixing and matching turnarounds with stalwarts. Hopefully that will keep me positive. But reading United Carpet's profit warning earlier in the week just reminded how precarious it could be. I owned it years ago, and have been watching it through the recession. It seemed to be doing OK, hasn't made a loss yet. And then wham! The whole business seems in jeopardy. French Connection could go that way (though it has made losses). Then you've got other companies being taken over at lower prices than you paid, I'm in that position with Autologic at the moment (looks like Stobart will make an offer). At the moment its the stalwarts in the portfolio, Games Workshop, Castings etc. keeping it afloat.
So that's Wexboy. You need to get a better disguise!
@Richard -- If you get a moment, try diving into the archives of The Motley Fool board called "The Value List". This was a fascinating crowd-sourced collection of value picks... generally small cap companies of the sort you invest in during the early years of the list (it's since been discontinued).
After about 6-7 years, someone crunched the performance of all the lists. It revealed that generally the lists (which nearly all beat the market handsomely) did best a couple of years after purchase -- from memory it was in year 3 or 4 that they really outdelivered.
This isn't definitive proof of anything I know, though I seem to remember someone else writing similar (Dreyfuss?) But my point is I'm talking here about value shares, not Buffett-y stalwarts, fwiw, which may be nothing. ;)
Thanks for the tip off, I will. Montier did research on this generally. It's why I have in mind a holding period of 3-5 years for turnarounds. What that means is I intend to hold on that long even if things don't go well, unless it really starts to show a high bankruptcy risk.
[...] Investor is tired of “mechanical screening” and wants to analyse UK companies one by [...]
[...] Full-year results from the Human Screen [...]
[...] Full-year results from the Human Screen [...]
[...] Two people have reminded me that process trumps outcome, and there may be implications for some of the companies identified by the Human Screen. [...]
I meant Dreman above, of course. The other being the famous Hollywood actor of course.
(I blame this new brand of coffee!)
I thought he must have been filling the long hours in the open ocean between sharp kills that prompted him to investigate the financial returns from investment strategies :-)
[...] again welcome Richard Beddard to the dark (light?) side – he’s swearing off screening here, and opting for a gigantic brute force/reading challenge. Make sure to read the [...]
[...] Full-year results from the Human Screen [...]
[...] Full-year results from the Human Screen [...]
[...] Full-year results from the Human Screen [...]
[...] reasons I gave for starting the Human Screen over a week ago sound so calculating. Actually it was a gut feeling that inspired me to investigate [...]
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