I am trying to test a multi factor system that is simple to operate, to see whether I can get above market returns and if I can live with the emotional requirements of a buy shares you do not like and hold for a set period.
I am screening for;
EV/EBITDA - Minimum of 0.1 and max of 10
Price to turnover Max of 4
Relative to Index (6 months) momentum of 5%
Mkt Cap minimum £10m
I then sort for the lowest EV/EBITDA and buy the lowest 5.
I hold these for 6 months and then sell the shares and buy an different 5.
I have also decided that if a share is still in the bottom 5 I will not sell it and rebuy but will just buy another tranche. That is double my holding.
I have done it for 2 previous periods (broadly 6 months each) and was on a return of 14.3% against the FTSE small cap of 14.6%.
Please note that one wrinkle I have discovered is that Patrick O’Shaughnessy does not recommend rebasing at the end of the month. As I understand it there is an amount of buying and selling at month end that in theory is volatility outside the metrics I am trying to use so a few days after period end is the best time to buy and sell. This works well for me as it makes a feature out of not being obsessed by the diary.
Results for the period are;
Company |
Revenue |
Cost |
Profit/Loss |
Shanta Gold |
£2,788.05 |
£2,777.45 |
£10.6 |
Anglo Asian |
£3,200.50 |
£2,988.74 |
£211.76 |
SCS |
£3,017.65 |
£2,945.26 |
£72.39 |
Sylvania Platinum |
£9,212,50 |
£6,207.10 |
£3,005.40-£72.2 |
Dewhurst |
£3,838.05 |
£2,986.95 |
£851.10 |
Total |
£22,056.75 |
£17,905.50 |
£4,079.05 |
This gives a gain of 18.5%. In the same period the FTSE Small Cap returned 1.4%
This is very impressive out perfomance. As such I will continue the experiment. Though there will be a temporary hiatus as I currently need the funds for something else.
So average FTSE return over the 3 periods (9.3 + 5.3 + 1.4) = 5.3%. O'Shaugnessy (22-7.7+18.5) = 10.9%.