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Do you have a pension? If so, are you happy with the returns it has given you lately? As investors, we all love to make money, and we want to make the most effective decisions possible.
If you’ve been investing for a while or are new to the world of finance, this article is for you! I want to show you 12-month performance over two different periods of 12 months, just to show you how big a difference even a couple of months can make if you start a couple of months late or early.
I want to show you 12-month performance over two different periods of 12 months, just to show you how big a difference even a couple of months can make if you start a couple of months late or early.
Now you’ll be familiar with what I’m going to show you first and foremost, which is this one, our 12-month approved list performance to the 12 months to November 2021, because I’ve shown this before.
And as a 53% return of the stocks, which are on our approved list to be on the approved list, they’d have to be value, growth, income, cash flow, all the things that I always mention, momentum, dividend deals, consist outperformance of the market. Okay. So we get that that was 12 months to November. What did 12 months to October look like? What if you started one month earlier as it were and finished, therefore, one month earlier?
Detailed Analysis
There’s a two-month difference between the 12 months to October and 12 months to November. How much of a performance difference was there? Would it have been 53.4%? Remember, you would’ve picked a different list of stocks. Some of them might have overlapped, but you would’ve chosen the October list, which will be slightly different from November because time progresses, and we update the data and the information each month.
So how would that have looked? Well, you’d expect me to do some big grand reveal of that. And I will, and you’d probably expect me to say, it’s even better. Well, actually, is it even better? So that’s 12 months to October 2021 from our approved list of stocks. What indeed happened? Was it exciting or wasn’t it?
It was 35.9%. It wasn’t as great, actually. Hang on, Alpesh; what you are saying is if you started one month earlier and finished one month earlier, IE. 12 months to October, there’s a two-month difference. Yeah? One month earlier. Started one month earlier, finish. There’s a 35.9% return, but it was 53%, and that’s just a month’s difference.
Yes. That’s why I tell people when they say, “Oh, it’s only a month.” Well, it can be a 20% difference. That’s massive. Why was that? Well, earnings, figures, companies, all sorts of reasons. So let’s break that down, shall we? Let’s break that down into what that numbers composed of.
These were some of the best performers, and that’s the easy bit.
Well, great Alpesh, tell us the best performance, 179%. Why didn’t I just pick those then? Well, I didn’t know they’d be the best ones. I knew they were part of that approved list, but I didn’t know they’d turn out to be the best in the case of M&C Saatchi. If I did, I would’ve just picked that and nothing else.
What about the ones that were all up over a hundred percent.
So you got the names over there. Do they have something in common? Not really, a mixture of sectors. Okay, there’s some in construction, but there’s also oil and gas and media. You can’t say it was sectoral. You wouldn’t know its market cap.
If I knew those things, I would’ve just picked those, the ones that generated 50 to a hundred percent. You might say, oh, construction’s coming in a bit. Okay, fine. But that’s not the thesis.
Remember, these were all picked on the approval list based on value, growth, income, cash flow, momentum – all of those factors.
If you look at the distribution of all the ones we picked, including those that went down, there were very few. You can sort of see them over here on that side of the bar. But the whole point of picking any filtered list is that we filter from 10,000 stocks down to the top hundred-odd, the top, what is that? 1%.
What we’re trying to get to is make sure, and you do end up funnily enough, always with a bell curve distribution is that we get a right-hand tail. In other words, a lot of big movers. I wish we only picked those and nothing else, but that you can’t get that level of resolution.
It’s why Warren Buffet doesn’t just have one stock. And that’s why people say diversify, just in case you don’t get that one and you end up here. Now the odds are in your favor to get a good return. Because look at the way that distribution of stocks and their returns are distributed. So the odds are in your favor to pick any number out.
Imagine putting your hand into a bag, and it’s got stocks out of this list. Well, you’re bound to get, well, not bound to, you’re not guaranteed. And that’s why people say there’s no guarantee in the stock market, but you’ve got a high probability of getting a good return, but you don’t want to risk it on just one pick. You want to try and get 15 so that you hopefully get a good mixture of these. And should you have been unlucky and picked just one, it’ll get diversified away. That’s the reason why.
If we break down all those stocks – that’s our entire approved list on the 1st of October, 2020, for 12 months to the end of September. So it’s 12 months up there. And that was the price-performance.
That’s what happened. Right? There were some, relatively few, which were negative. And there were some, well, a lot which were positive there. You can see it there, were positive over there. And that’s what you’re after.
Investing and Filtering
That is the whole point of investing and filtering. What you’re trying to do is to get the smallest possible group you can, ideally one, but that won’t happen—the highest probability of getting an outsized return by removing all the bad stuff. There are things you should do before starting a renovation and it’s best to learn them from bathroom design experts of Massachusetts. And even then, one or two bad eggs get in there because you can filter, filter, filter, filter, but you’ll still get something getting in. However, you use the same criteria for all valuation, revenue, growth, cash flow growth, dividend yields, consistent outperformance, low volatility, etc.
I just wanted to explain that’s my process. I’m on a campaign to teach a million people how to be better investors, understand the markets better. Have a look at mycampaignforamillion.com too, follow me on Telegram and see some of the free resources, download a copy of my book, all those kinds of lovely things, which I suggest you ought to do.
After all, it’s your pension, your retirement, your children’s inheritance, which is all dependent on the stock market because that’s where your pension is invested.
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Alpesh Patel OBE