I write to you from India. On the flight from the UK I watched the movie ‘MoneyBall’ in which the Brad Pitt character turns around a baseball team by picking players based on a variety of mathematical factors and by mining for data on all professional baseball players across the US. He looks for exactly the right mix of batters, fielders, runners to make a team which in composite will beat the baseball teams with far more money. Brad knows if they are to beat the best baseball teams, they cannot do so by simply trying to outspend them or mimic what they are doing.
His sidekick, a Yale economist, develops a computer programme to score all players. They scout and then hire a team. The uproar by the fans and the other colleagues is outrageous. They complain you cannot pick players based on the characteristics Pitt chooses. You have to use conventional wisdom they say. Yet, the team goes on to equal the record for number of consecutive winning games. This is a true story.
Before I knew anything about this story, I had asked the UK’s largest seller of private investor software, if they would create a piece of software for me based on my investing criteria. They could market it licensing my name and call it the ‘Alpesh Patel Special Edition’ of their main software. I knew if I was to beat the biggest fund managers, with their dozens of analysts, I could not do so by simply trying to outspend them. I could not do so by replicating their strategy. I had to look for their perceived strengths and outsmart them, turning those strengths into weaknesses.
You see the biggest fund managers are not now, nor have they ever been, very good. They are marketing machines. Statics show they rarely outperform putting your money in a passive index fund. The reason is they have so much money under management, because that’s how they earn money, not based on their performance. With so much money they can only invest in the UK’s largest companies. Moreover, with so much money, they have to spread those funds across so many of these big companies that they end up replicating an index like the FTSE 100. And then they turn that into a virtue, by measuring their performance relative to such an index.
So how do I compete with that? How do I compete without the analysts, and doing something other than investing in the biggest and best British companies?
So I developed some formulas, based on years of experience and eons of analysis. Not for me evenings out and holidays. Even on rare vacations I would be perfecting the formulae I would eventually use. My magnificent obsession. My nickname among my closest friends became ‘Alpy the Obsessed’.
No one stock I picked would be the best, but in composite my team of stocks, would outperform the biggest managers picking their BPs and Shells. I would ignore some of the criteria for picking stocks that conventional wisdom thought important, and add ones which my research showed would be good predictors. After all, I may not be a Yale economist, but I am an Oxford one. I would turn the perceived strengths of the big managers against them, and my perceived weaknesses in my favour.
I would not outspend them with an army of analysts, instead I would use computing power. The great leveller. I’ve been investing since the age of 12, so would use my experience in knowing what to look for – I had in my blood, what they were paid to do. I saw as a vocation, what they saw as a job. I live and sleep this stuff, they clock off. I would X-ray and dissect thousands of stocks. I would use my weakness of being small as my strength to slay giants. I would not have billions under management, so I could pick smaller companies, and fewer stocks. My performance would then not simply track an index.
I did not have a brigade of assistant managers to meet the companies and the Boards I would invest in, so I would have to make sure I analysed their financials in great depth.
The result? In 2004, we launched the Alpesh Patel Special Edition of Sharescope. It has since then year on year beaten the biggest and best fund managers in the UK. It has trounced them in fact. Not every stock has been brilliant. But in aggregate, the portfolio as a whole won.
How does the story end? In the film ‘Moneyball’ the Brad Pitt character is offered a multi-million pound contract to play for one of the big teams. He turns it down. He wants to change the game of big money baseball management forever. How does my story end.? You can watch the movie Moneyball in the cinemas. A ticket costs around 10 pounds. You can buy my software from http://www.sharescope.co.uk/alpesh – it costs around 100 pounds a month. You can see on there my annual performance track record. I could have worked for Goldman Sachs. I prefer not to. I do not charge you 2% to manage your money. You have the software and the power in your own hands. Has the game of big money management changed forever? You decide.
I’m still waiting for Brad Pitt to play me in the story of my Moneyball.
* WACKER CHEMIE: MISS on FY numbers, 2% on sales, 5% on EBITDA and 20% on EPS (mainly due to one offs). FY sales were €4.91bn +3% y/y and EBITDA €1.1bn -8% y/y. Clear negative was on demand (poly and semi divisions both down c30% y/y. However margins in polysilicon (clean EBITDA margin of 40% in Q4 2011) is reassuring.
* SANTANDER: According to Expansion, the Bank could be planning to IPO its US consumption division. Their stake in the company is 65% after they sold the other 35% in October with gains of €1000m. (ElEconomista)
* H&M: full year results are small miss at PBT level, in line EPS with lower tax rate. Current trade has improved but there will be additional markdowns. Q4 PBT was SEK 6.8bn vs UBS SEK 7.3bn. Gross margin was 61.9% vs 62.7%.
* BANKIA: The Spanish lender said in a filing it sold Tasamadrid for 10.8 million euros ($14.2 million), making a capital gain of 5 million euros. (BBG)
* TECHNIP: The oil services company won a turnkey contract worth more than 900 million euros from a subsidiary of OAO Lukoil (LKOH RX) for the engineering, procurement and construction of a hydrocracking complex in Burgas, Bulgaria. Technip’s share of the contract is worth about 600 million euros. (BBG)
* UPGRADES: Ternium, Dr Pepper, McBride (Goldman). Lufthansa (Nomura). KBC, Natixis, Fraport, Smiths Group (MS). Netflix (Citi). Daily Mail & General, UBM, Spirit Put, Equity Residential (Barclays). (BBG)
* DOWNGRADES: Orascom (DB). Gold Fields, Randgold Resources, Chesapeake, Grupo Catalana (JPM). Givaudan, Lanxess, Linde, BASF, Clariant, Umicore, Oma (HSBC). Covance (Goldman). Aeroports de Paris, AP Moller Maersk, Firstgroup, Panalpina, TNT Express, PostNL, Ryanair (Nomura). SocGen, Credit Agricole, Aeroports de Paris (MS). Xstrata, MDC Holdings, ADP, Meredith (Citi). Antofagasta (SocGen). Melia Hotels International (Exane). Chemring (Credit Suisse). BSkyB, Vivendi, Apollo Commercial, British Sky, Excel Trust, Macerich (Barclays). Cooper Industries (UBS). Mersen (BofA). Novartis (Natixis). (BBG)
* CORPORATE DIARY: H & M Q4 Results, Anglo American Q4 Production Results, Nokia Q4 Results, Kone Q4 Results, Svenska Cellulosa Q4 Results, SKF B Q4 Results, Kazakhmys Plc Q4 Production Results, Smith & Nephew Read-through from US peers, Getinge AB Q4 Results, JCDecaux Q4 Sales, Banco de Sabadell Q4 Results, Lonmin AGM, Straumann, Nobel Biocare Read-through from Zimmer results, easyJet Q1 Results, Mitchells & Butlers AGM, Misys H1 Results, Logitech Q3 Results, Euromoney Institutional Investor AGM, BPI Q4 Results
* MACRO DIARY: FR – Consumer Confidence Indicator (7:45), IT – Consumer Confidence Indicator (9:00), UK – CBI Reported Sales (11:00), US – Chicago Fed Nat Activity Index, Durable Goods, Jobless Claims (13:30), Bloomberg Consumer Comfort (14:45), New Home Sales (15:00).
The above is the IBEX (Spanish index). What was supposed to happen was a fall following on from the triangle pattern. Instead, typical of all patterns today across all asset classes, there is no follow through. You should do the opposite of what is being extrapolated today.
The chart below tells me that when the currency starts faltering at these levels, see ‘a’, it falls sharply, then recovers, but not as high as it was immediately before the fall, then really falls, see point ‘b’. So my best estimate is GBP/INR to 75, then back to 79, then to 70. (I’ve done this chart using www.sharescope.co.uk/alpesh . To learn more about MACD and Stochastic see http://www.investingbetter.com)
I like to analyse forex currencies based on the daily, weekly, monthly charts. The daily chart below shows some slow down in upward momentum (ie Euro is becoming stronger, pound strength is slowing). This you can see by the MACD and Stochastic indicators. (if you want to learn more about them I explain that below).
In the weekly chart of the above, where each bar is a week’s worth of price movement not a day. You see this more clearly which is why I always look at the weekly chart – albeit it is very early.
But the monthly chart tells us that longer term any falls in the pound and strengthing of the Euro is short lived because the momentum indicators are strongly pointing up.
The initial forecast was 1.5531. That has been achieved. The next target is 1.4997. Once that is reached even lower is probable.
For education if you want to learn more about how to forecast: www.investingbetter.com