We looked at a quick snapshot of the Win / Loss data a recent You Tube video (24/11/22 The Win/Loss Truth) but today for members I want to expand on that concept for you and discuss why it is important to not just look at Wins and Losses but also how important it is to relate the data to a type of strategy and what the important underlying facets of the Stockradar data are so we can understand the significance of it and how we can better understand what it tells us.

I will use two of our portfolios as an example which have been running in somewhat difficult conditions as the market has rotated wildly over the last few years. Firstly, the Covid collapse and then the last 12 months has delivered a extraordinary period of a slow erosion of market value as measured by the ASX/200. This is not my benchmark normally, but such has been the breadth of this weakness it is relevant to that low amount of Stock Picks generated. During this period, and in an environment of weak cash returns, the market has proved tough and challenging for the best of us which places enormous emphasis on understanding then importance of capital management at certain stages of the market cycle. Remembering we never know what’s ahead and that always makes things a little tricky. But forge ahead we must.

The next point I want to make is how we build our Energiser portfolios and why they can succeed during difficult times even where then are so few trends. Finding the right balance of capital management while allowing the portfolios to generate profits is always a challenge. As long as there are some trends in the market from our defined universe of top stocks, returns can still be exceptional.

In essence the high conviction Energiser portfolios leverage our stock picks by having an absolute focus on potentially building trends and quickly weeding out the weak and running the strong. This sometimes generates many losses in the challenge to locate, identify and maximise the potential of big trends. The nature of how these portfolios are built ensures his ensures a high equity component for these portfolios and under most market conditions they are 100% full. What we also know is trends occur regularly and they often exceed expectations. Two recent examples are CPU and WHC. In an environment where most stocks are going down such stocks deliver vital wins that nullify many losses. This has a lot to do with the very few stocks we carry in a portfolio.

Let’s see how it is done and what to look for in the Win/Loss data. As stated above the portfolio are built by trading developing trends of which some will go on to deliver huge profits and some will fail, and our risk management strategy ensure any losses are small.  Why? Look at the table below.

This is done in a controlled environment of holding only 5 stocks at any one time. If the portfolio is full with 5 stocks, one stock must drop out to allow room for a new stock to be entered. This allows a good allocation to each share of 1/5 of the portfolio value. i.e. each stock is 20% of the value of the entire portfolio. Thus, it is vital to manage out losers and carry winners. Our risk management policy ensures any loss is restricted to 3% of portfolio value. An acceptable level where under the aggressive Energiser strategy it is more than compensated by the wins.

PORTFOLIO BEGUN AUGUST 2020

Start Value $100,000

Current Value $131,644

CAGR 14.7%

Wins 11, Losses 17 = Win / Loss 39% to 61%

$ Value of Wins $61,218 divided by 11 Wins = $5,565 average win

$ Value of Losses $36,563 divided by 17 Losses = $2,150 average loss

Dividends received $6,189

PORTFOLIO BEGUN MARCH 2021

Start Value $100,000

Current Value $126,116

CAGR 16.8%

Wins 7 , Losses 14 = Win / Loss 33% to 67%

$ Value of Wins $40,235 divided by 17 Wins = $5,747 average win

$ Value of Losses $20,600 divided by 14 Losses = $1,471 average loss

Dividends received $6,481

Clearly few winning stocks are necessary to ensure profitability using this strategy so the win loss ratio on its own is not a good benchmark. It is not only the risk management strategy that maintains profitability but how the strategy is controlled to capitalise on the wins that makes it so powerful. Some of you might find it boring that I harp on about a few stocks such as CPU and WHC but especially in the current environment they are essential to our winning strategy and profitability. We don’t need many trending stocks to win and there are always some. There are more in bull markets than bear markets which makes it easier to generate profits but even so just a couple in a bear market are enough.

What do we learn and how do we make a portfolio approach a success?

Always Lock in Big Wins

When you lose, lose small

Don’t be afraid of taking a loss

Be disciplined in following the process

Basic members who want to consider upgrading to the portfolio service please give me a call and we can discuss your situation and how we can transition it. The portfolios are simple to manage (15 minutes a week) easy to use, low cost and if managed correctly, profitable. We are currently in the process of upgrading our existing service into a much more simplified and streamlined SMS, mobile phone and web based functionality. Easier to use, easier to view.