--------- Systematic portfolio for the Mobius Investment Club Strategy: Growth Started May 2006 Initial Investment 5000 UK Pounds for total portfolio Portfolio size maximum 5 stocks Run 09/08/2006 @ 12:30pm for August 2006 - Mourad Kara mourad@mobiusclub.co.uk --------- A Systematic portfolio also commonly called a mechanical portfolio (but also known as programmatic or automated) relies on a specific set of criteria to select shares from a set of markets and sectors. The criteria used (also called filters) should be clear, explicit and repeatable. --------- Policy for share selection version 1.0 07/05/2006 Policy for share exit version 1.0 07/05/2006 --------- Policy for Share selection v1.0 has 2 phases and 8 steps Phase 1: Compulsory criteria: Scope: UK stock market - all sectors (1). market cap greater than £50 Mil (> 0.01 of allshare marketcap) (2). PSR (Price to Sales Ratio) within the lowest 3 deciles (1/3rd) (3a). Forecast 1st year normalised EPS > 0 (3b). Forecast 2nd year normalised EPS >0 (4). Forecast EPS growth over 2 years within the highest 3 deciles (top 30%) (5). PEG between 0 and 1.5 AND logical operator applied for (1)..(5) Phase 2: Optional criteria (if applicable) for final selection (6). PE within the lowest 3 deciles (1/3rd) (7). Net Gearing within the lowest 3 deciles AND logical operator applied for (6)(7). (8). Additional criteria to select one company (if applicable, i.e. If there is still more than one company): MIN ["(RSI) AND (% off of 52 week low)"]. We pick the company with the lowest value. --------- Policy for Share exit - A trailing S/L of 15% of purchase price converted in pence. - An investment will be sold after 12 months (unless SP passed the target price and has not dropped by trailing S/L yet). - Target price is 150% of the purchase price. --------- Tools used: Stock screener We use the stock screener from DigitaLook (and ADVFN for validation). --------- --------- AUGUST 2006 --------- Current Portfolio: Delta; BetonSport, Robert Walters This month's selection: "Land of Leather" --------- Stock filters applied on the 09/08/2006 ~ 12:30pm Phase 1 provided 20 stocks (see details below in the execution of the stock screener tool). Land of leather : General Retailers Sector; FTSE-SmallCap. Next Yr EPS Growth +29.68% Next Yr+1 EPS Growth +17.65% Market Cap (m) £123.76m Net Gearing 110.40% P/E 11.8 (Sector 34 by average - distorted with stocks in Sector with ~300 and ~500) PEG 0.4 Price Sales 0.64 Price 243.50p 3 Brokers: 1SB + 2B --------- --------- --------- --------- Stock screener tool Operating the Digital Look PHASE 1: To implement the criteria in phase 1; multiple operations are required: That is because we have two filters that are relative: i.e. to obtain the top 30%, we need to have the number of companies making up the first few filters. In other words, there is no way of entering filters in Digital Look asking for the top 30%, so we need to establish threshold equivalent. Steps 1, 3a, 3b, 5 are all "absolute" filters and can be entered directly into the stock screener. Step 2 and 4 are relative and we need to work out the PSR and EPS growth thresholds. Establish PSR threshold: ** Enter the Steps 1,3a,3b and 5 into stock screener. ** Output results in 274 companies. 1/3rd of 274 stocks is ~ 91 stocks. We sort the table by PSR value and pick the lowest 91 stocks. The highest PSR within the lowest 91 stocks is 1.03. So now, we enter 019% and EPS (n.Y+1)>10% leading to 87 stocks. So now, we combine all filters with 019% and EPS (n.Y+1)>10% Phase 1 provided the following 20 stocks Caterpillar Connaught Dimension Data Elementis Fenner First Choice GSH Group Invensys John Wood Group Land of Leather Laura Ashley Logica CMG Lookers Mcinerney Holdings NWF Group Prudential Psion Robert Walters Sainsbury United Drug PHASE 2: The filters for phase 2 are also relative filters (top 1/3rd), so 1/3rd of 20 stocks: ~ 7 stocks. A similar exercise to the one above where we try to find the PE threshold (step 6) ; then the Net Gearing threshold (step 7) and then combine them: 0