In the second half of 2016, I looked back at the the potential superstocks that I blogged in the first half of 2016. With the data, I develo...

Recap of 2nd Half 2016 Picks - Trading Resumed

In the second half of 2016, I looked back at the the potential superstocks that I blogged in the first half of 2016. With the data, I developed an entry and exit strategy for trading superstocks. With the optimised strategy, the results were encouraging. The average return of the stocks is 25%, largely pulled up by two multi-baggers. 

Even though the results were encouraging, I took the decision to suspend trading superstocks. Firstly, my sample size was 17, too small for the results to be conclusive. Next, it is always easy to produce a good result when your entry and exit were optimised to produce the best results based on the list of stocks on hand. I wanted to do a forward testing based on new picks to make sure that my strategy will work beyond that 17 picks.

In the second half of 2016, I shortlisted a total of 14 stocks. 3 of them were actually 1H 2016 picks but they were not covered in the first half review as these trades were not closed at the time of review. These 14 picks included 10 US stocks and 4 stocks listed in Singapore.

The table below summarises the returns of the 14 stocks. The stocks produced an average return of 4.7%, or a total return of 66%. The winners outnumbered the losers slightly by a margin of 8-6. RBPAA was the biggest return with 31% return while BOSC was the greatest loser with -19% return.

Comparing with First Half 2016

The second half results were definitely not as good as the first half results. It is not just the lack of multi-baggers that lead to the poorer performance. Overall, my hit rate declined from 63% in the first half to 57% in the second half. I am also seeing bigger losers in my portfolio. In the first half, the biggest loser produced a loss of just 7%, but in the second half I have 3 stocks that produced losses of 10% or more. 

To have good returns, I need to have both good picks and good strategy. For the second half, the issue appeared to be the picks. Even if I am able to capture the top of the moves, only EMMS will give me a return of more than 100%. 

For the large losers (10%), the strategy helped me to avoid greater loss for Nordic Group and ELMD as the breakouts turned out to be fakeouts. For BOSC it was unfortunate that the stock broke down strongly after holding its 10wMA for weeks.

Comparing with the Index

Even though my second half performance was a far cry from the first half performance, the true benchmark is still the index. For stocks listed in the US, I used the S&P index as the benchmark, and for stocks listed in Singapore, I used the Straits Times Index as a benchmark.

For the comparison, I recorded down the value of the respective indices at the time of posting, time of closing the trade and at the end of year.

The table below compares the returns of the superstock and the indexes. The return of the index based on the end of year value is closer and yet still lower than the return of the superstocks. This is calculated by assuming that I bought into the index at the time I bought the superstock and held it till December 31, 2017. It sure is comforting to know that my superstocks still outperforms the index despite the strong Trump rally at the end of the year. On top of that, this is not a fair comparison as this would take much more capital since I would need to need to hold 14 full positions at the end of the year. 

A more comparable analysis will be to assume that I bought the index at the point I bought the superstock and sold the index at the point I sold the superstock. Under this method, the average return of the index is just 0.6%, far below that of the superstocks.

Resume Trading

2016 is a transition year for my superstock trading. At the beginning of the year, I understood the characteristics of a superstock and how to identify one. However, I had no idea when to enter and exit a stock. As a result, I missed out on many good trades and executed the bad ones. Worse still, I do not know when to exit a losing trade.

My mid year review revealed that there were a couple of multi-baggers among the stocks I identified and due to poor (or lack of) strategy, my first half was a losing half. 

Now with backtesting and forward testing to ascertain my newly developed strategy does give me an edge, I am ready to resume trading of superstocks. Time will tell if my model is robust enough to work in various market conditions.

Stay tuned to my upcoming superstock picks on this blog!

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