New Year NAPS – Top Stocks For 2016 And A Few Revelations
My 11-year-old son turned to me a few days ago and asked the most wonderful question… “Dad, have you got any New Year’s Revelations?” Aside from the sheer pleasure of the phrase, his comment really has got me thinking. What indeed did 2015 reveal? And what should we resolve to take forwards through 2016? For those who are new to the Stockopedia site, we’ve been on something of a journey in the last 12 months. Back on January 1st, 2015, I selected the two highest-ranking stocks in each sector according to their StockRank. This set of 20 stocks we titled the ” New Year Naps ” for reasons you can read up on in the original article . It was essentially my way of using a rules-based process to select some high-expected return stocks without relying on any subjective decision making. Amazing as it may seem, this very much mechanically selected set of stocks returned 43.4% in a year in which the major stock market indices sagged. As we’ve followed the strategy in various posts, the interest in the process has grown, which nudged me to run an hour-long webinar last month reviewing the results and the impact of diversification and rebalancing. You can catch up with the video here , transcript & performance results here and community discussion here . So, I now find myself in the rather precarious position of having set a precedent, and I feel a duty to publish a similar set of 2016 NAPS. But, before I do, I’d like to invite readers to spend some time pondering with me about the nature of performance, process, skill and luck. A Brief 2015 Performance Review Let’s put the 43% NAPS performance in perspective. The FTSE Small Cap Index returned 5.8% while the top 10% highest-rated UK shares by StockRank returned 22%. Our selections have beaten the small-cap benchmark and the general high StockRank peer group by a substantial margin. As to individual stock performances, the following chart shows that two of the stocks more than doubled; International Greetings [LON:IGR] and Dart [LON:DTG] ( OTC:KESAY ); four others returned more than 50%, Adept Telecom [LON:ADT], Character [LON:CCT] ( OTC:CGROF ), Cohort [LON:CHRT] and NWF [LON:NWF]; and only one stock fell, Lamprell ( OTCPK:LMPRF ) [LON:LAM] with a -17.8% decline. Click to enlarge So last year’s New Year NAPS have done exceedingly well. In fact, they’ve done far too well for my own liking. It’s at this point that I feel the need to throw some cold water on the fire as I think the exceptional performance may be sending out the wrong signals to subscribers. We need to recognise that a lot of this outperformance may have been driven by luck… and luck is unsustainable. The Difference Between Skill And Luck One of my favourite investment writers is Michael Mauboussin , Head of Global Investment Strategies at Credit Suisse. I own several of his books and especially recommend ” More than You Know ” for any serious investor’s bookshelf. Chapter 1 discusses the difference between skill and luck by considering the interplay between process and outcomes. Have a look at this matrix: Mauboussin states that “in too many cases, investors dwell solely on outcomes without appropriate consideration of process.” Blindly copying last year’s NAPS process just because it did well is not necessarily wise. We need to think very critically whether the positive outcome was really down to a good process (and therefore deserved success), or down to a risky process (and therefore just dumb luck). Recognising The Good Risks And Bad Risks Taken Let’s take a closer look at last year’s selections and see if we can find the hidden risks in our process that may not be immediately evident just looking at the rules. A useful framework for understanding any portfolio is to break the selections down by style, sector, size and geography, so here goes. 1. Styles – Quality, Value and Momentum – Good Risks To Take? The core of the selection process was to use our proprietary Stockopedia StockRanks. We’ve had a lot of new subscribers since Christmas, so it’s worth reiterating how they are constructed. Every day, we score every share in the market against every other across three major dimensions: Quality – How profitable, cash generative and stable the company is. Value – How cheap the stock is across six common price ratios. Momentum – Whether the share price and sentiment is improving. Now, our methodology is certainly not foolproof, but it’s built on the shoulders of giants. Decades of academic research into the factors that have paid off in stock markets have helped to clarify “what works,” and we’ve aligned our process with these findings. If the future rhymes with the past, then groups of high-ranking shares should have a good chance of beating the market (on average over the long term) while groups of low-ranking shares may well underperform. Since we launched the StockRanks nearly three years ago, we’ve certainly observed this behaviour, as can be displayed in the quite beautifully fanning performance charts below. The top-ranked decile of shares (green) has dramatically beaten the bottom-ranked shares (red). Click to enlarge But this performance trend shouldn’t be expected to continue indefinitely. The so-called “factor investing” across these quality, value and momentum traits doesn’t always work. Professor Andrew Ang explains in his book ” Asset Management – a systematic approach to factor investing ” that these factor risk premiums are a long-term reward for the possibility of short-term losses in bad times . And bad times always come. They should be expected. Strategies based on each of these QVM factors have underperformed for significant periods of time in the past. Value investing famously didn’t work at all well in the 1990s and deep value investing has been a disaster in the last year, meanwhile momentum investing has had a tougher time lately for many hedge funds and has famously “crashed” at the bottom of bear markets. But research teaches us that one of the best ways to mitigate these risks is not to fall in love with either value or momentum investing on their own but use a blended value and momentum approach . The QVM StockRank is designed to do this, but of course by publishing it so cheaply, we may be helping to kill the golden goose. Crowded trades around small-cap value shares could be painful when bad times come. Ultimately though investing is about taking on risks and earning a reward for it. Personally, I believe buying good, cheap, improving shares is a good risk to take, and I’m willing to suffer through the occasions that it underperforms. To me it’s a sound approach and certainly better than speculating on the alternative. 2. Sectors – Spreading The Risk The diversification approach last year was to select two shares from each of our 10 major economic sectors. This was a blunt tool and has been somewhat criticised but has been very effective. The chart below shows that we’ve made solid gains across every sector, with notably strong gains in consumer cyclicals, industrials and basic materials. In a year when energy and basic materials stocks have generally been crushed, our selection process somehow managed to generate strong gains in both those sectors. Click to enlarge We can also see in the following “super-sector” chart that defensive sectors have underperformed sensitives and cyclicals. An argument could be made that there is little need for investors seeking capital growth to invest in utilities, but this exposure didn’t hurt us in 2015 and will be maintained in 2016. Click to enlarge The risk we took by diversifying so broadly is that we’d miss out on the frenzy in some “hot” sectors like biotechnology or cloud computing. But majority of private investors get sucked into and stuck in hot sectors at precisely the wrong time. There are hundreds of thousands of private investors licking their wounds due to their overexposure to the energy sector right now. The “super-cycle” myth drew them in and bottom fishing has burnt them further. We are all human beings, hard-wired to be suckers to a good story, and let’s be clear, the media and those that pay them know this. By diversifying consciously across sectors our aim was to mitigate some of these risks, and I think we did it successfully. Can we push our sector diversification further though? It’s worth noting that selecting two stocks in each sector can often select both from the same industry group. Dart Group and Wizz Air [LON:WIZZ] are both ranking highly right now, and we don’t want to be overexposed to airlines. There’s the old joke – “How do you become a millionaire? Become a billionaire then buy an airline.” Every sector contains lots of industries, so this year, we’re going to ensure there is only a single stock selected from any one industry group. 3. Size – Micro Caps A Risk Too Far? The biggest risk I believe was taken in the last year was selecting so many micro caps. In the original rules, I put a market-cap floor of £20m on the selections, refusing to include any companies smaller than this mark. My experience with sub-£20m stocks has not been pretty as liquidity can dry up so fast amongst the tiddlers in the market. But that was the only constraint I added; 10 of last year’s selections had market capitalisations below £150m, and a quarter of them were below £50m. The chart below shows just how much of the performance to date has been driven by the micro-cap tiddlers from the original set: Click to enlarge There’s a saying in micro caps “they’ll let you in but they’ll never let you out.” You can almost guarantee that when you want to sell them will be the same day as everyone else. Investors in DX Group [LON:DX] this year found out what happens when everyone wants to sell on the same day, with the stock dropping 75%. So, in 2015, the sub-£50m-cap stocks have powered our returns. But was this a naive and foolish risk to have taken? It’s been a reasonably good period for solid small caps, so the wind has been in our sails, but what if it hadn’t been? If small and micro caps had suffered, the picture could have been very different. Some will say ” if it ain’t broke don’t fix it, ” but if we can recognise the risks in our process, then surely we can create a better design. In 2016, a key change has to be to diversify more evenly across capitalisation bands and ensure broader exposure to small-, mid- and large-cap stocks. 4. Geography – Is The UK The biggest Risk Of All? We’re an international stock market analysis site, but the NAPS list was completely focused on UK shares. Is this really wise? Frankly, no, it’s not. The UK is poised for a referendum on Europe, and macro uncertainty looms large. Diversifying across geographies is something we are constantly advised to do, but so few of us seem to do it. It’s a fact that most investors stick to the stock exchanges closer to home due to familiarity, but it’s now easier than ever to invest in equities on foreign exchanges. Brokers are getting cheaper, with broader coverage, and Stockopedia now offers coverage across all European and US markets (with Asia and Australasia coming soon). In my own portfolio, I’ve invested across European and US equities to considerably boost performance, and it’s something I’ve been considering for the NAPS portfolio. But, given we’ve been benchmarking to the FTSE indices and the majority of subscribers are on UK-only subscription plans, I’m not going to spread the 2016 selections internationally. But we’ve clocked this as a hidden risk, and we may though follow up with the US and European NAPS portfolios in due course. A Brief Interlude – Were NAPS An Unrepresentative Sample? The best way to consider if we got lucky is to compare our hit rate in selecting winners in the NAPS versus the underlying hit rate of selecting winners in the high StockRank bucket. The NAPS last year somehow managed to select 19 winners out of 20 stocks, which is a 95% hit rate. But, over the last three years, the hit rate for picking winners amongst 90+ StockRank stocks has been 70%, as illustrated in the following chart: Click to enlarge We can only therefore conclude that the NAPS got lucky. They were not a representative sample from the underlying population. So luck and good timing has definitely played its part. This 95% winner hit rate I can almost guarantee won’t be achieved again in the next year… so let’s keep our confidence in check. A Good Process Or Dumb Luck? So, to return to our original Mauboussin-inspired prompt, was our good outcome down to a good process, or just dumb luck? I think if we’re really honest, we can admit that there’s been a great element of luck, but that luck has come through at least part of the process being solid. The StockRanks, as the core of our selection process, has driven much of the return, and the sector diversification has helped to find stocks we’d otherwise never have considered. But our micro cap bias was either brave or downright foolish. Reducing micro-cap risks further could make the portfolio more robust. While this may be at the expense of the kind of massive, eye-catching outperformance we’ve seen in 2015, it may help us to avoid catastrophic error if markets turn. “Elephants may not gallop,” but they don’t get squashed either! The 2016 NAPS Process So, in the light of the above investigation, for 2016, I’ve decided to diversify the selections across size and industries more broadly. The core of the process is very similar to the 2015 selection process, but there are several significant changes. Rank Size No micro caps – At least a £50m market capitalisation. At least six small caps, six mid caps and six large caps – To spread the size risk, we’ll select a third of the portfolio from each of three size buckets – small caps (£50m to £200m), mid caps (£200m-1000m) and large caps (£1,000m + ). Sectors Liquidity Now these seemingly simple rule changes have actually caused me a huge headache. We can’t simply just select the top two stocks from each sector as I did last year. The top-ranked stock in most sectors tends to be a small cap. If we select 10 small caps, we’re way over our allocation to small caps. So the process I’ve taken is to start with a list of all qualifying stocks in descending StockRank and move down the list filling up my sector, industry and size buckets as we go. An example NAPS stock screen is set up here, and I’ve also set up various sector specific screens. The construction has been a lot more time consuming than last year. N.B. We’re planning on building a portfolio automator this year to do a lot of this work more quickly. Finally, we have taken a brief look at the latest news announcements for each share to ensure there has been no major corporate or M&A activity in the last month. Last year, we selected Catlin, which was in the middle of buyout negotiations, which was a bit of a waste as it was delisted in April. Pure Wafer [LON:PUR] is currently one of the highest-ranking shares in the system, but the company has just announced it is disposing of all its operations and becoming an investment company. Given the change in business, it’s prudent to avoid as the historic numbers will now be meaningless for the future direction. The 2016 NAPS Selections Before I start, I must reiterate from last year that these are not “tips,” in fact they are anything but. The following list is solely the output of the above rules-based process, with one fiddle at the end as you’ll see. We hope our process is sensible, but there are always unknown unknowns. We have not performed any more analysis on these shares other than what the Stockopedia algorithms have performed and a cursory look at recent announcements. That will likely scare the living daylights out of any sensible investor, so please DYOR in your own investing and treat this as educational and informational only. I’ve added links to Paul Scott’s archives where available for those wanting some community insights, and thanks to Ben Hobson and Alex Naamani for their help with the data and company briefs. Industrials Dart Group – Airline and logistics business Dart Group was a major success for the NAPS portfolio in 2015. But, despite nearly doubling in price through the year, it continues to be one of the highest-ranking companies in the market for its combined quality, value and momentum. The shares have seen a particularly strong run over the past year, which, of course, implies the possibility of a consolidation period. We’ll be hoping for a continuation of current momentum. Latest report said ” the Board is optimistic that current market expectations for the full year will be achieved.” Mkt Cap: £869.6m, StockRank: 99. (Paul Scott archive) Alumasc [LON:ALU] – The second industrial selection is Alumasc, which makes building and precision engineering products. It produces specialist roofing, walling, waterproofing and energy management systems. Its shares went on a blistering run late last summer, but then gave up those gains on a fairly mixed trading update. It scores well on some very strong quality and momentum characteristics, though Paul Scott doesn’t like the potential negatives of the pension deficit at all. Trading statement: “We have seen some evidence that capacity constraints within the construction industry generally have caused delay to some projects. While this may have an impact on timing, we continue to believe that management’s expectations for the group’s full year financial performance will be achieved.” Mkt Cap: £63.3m, StockRank: 99 (Paul Scott archive) Financials H&T Group [LON:HAT] – High street pawnbroker H&T Group was a latecomer to the NAPS portfolio last year because it was brought in after the original selection Catlin was delisted. H&T continues to be one of the highest-ranked stocks in the Financials sector. The shares traded in a narrow range through much of 2015, but brokers are forecasting an improving profit trends over the coming year. Latest statement: ” Allowing for the recent reduction in gold price, we currently expect the full year results to be broadly in line with current market expectations.” Mkt Cap: £72.6m, StockRank: 99. (Paul Scott archive) Inland Homes [LON:INL] is a new entrant to the NAPS portfolio for 2016. This housebuilder and brownfield developer has been the focus of attention of many small-cap investors in recent years. As a result, the shares have seen some strong price momentum. Yet, Inland also boasts some robust quality characteristics and its shares don’t appear to be overpriced. Latest Statement: ” We have every confidence in delivering further significant progress in the current financial year.” Mkt Cap: £175.4m, StockRank: 98. (Paul Scott archive) Consumer Cyclicals Character Group – A selection in the first NAPS portfolio, children’s toy-maker Character once again qualifies as the top-ranking consumer cyclical this year. Its quality and momentum rating are exceptionally strong. Character saw its profitability jump last year, with margins and cash generation improving noticeably. Latest statement: ” The profit before tax in 2015 is ahead of results previously anticipated and we are pleased to report that current trading remains encouraging and in line with management expectations.” Mkt Cap: £100.1m, StockRank 99. (Paul Scott archive) Cambria Automobiles [LON:CAMB] – The past three years have been very good to auto dealers. Low interest rates, higher employment and signs of rising incomes have all been a boost to new car sales. It’s a highly cyclical sector, but the macro picture doesn’t show any signs of worsening, even if rates were to edge up. Cambria has strong asset backing and has seen its earnings forecasts consistently upgraded through 2015 as it beat expectations. Trading statement: ” The Board has been very pleased with the manner in which this business has integrated and is confident that it will continue to deliver results in line with expectations. ” Mkt Cap: £82.5m, StockRank: 98. (Paul Scott archive) Energy NWF – With oil trading at less than $40 a barrel at the turn of the year, the near-term prospects for energy stocks seem hardly appealing. Yet, some shares in this sector have performed well over the past year despite macro challenges. One of them is NWF, which got an honourable mention in last year’s NAPS. This agricultural and distribution business supplies feed, food and fuel across the UK. Last year, it showed all the signs of being a contrarian value play. Since then, an improving financial performance has reshaped its profile as a high-quality, strong-momentum small cap. Latest trading statement: ” The Group reports that trading for the half year ended 30 November 2015 was in line with the prior year and the Board maintains its full year expectations. ” Mkt Cap: £93.9m, StockRank: 99. (Paul Scott archive) John Wood [LON:WG] – Oilfield engineering firms are some of the first to feel the effects of energy industry budget cuts, but John Wood has fared better than others. Internal cost savings look set to keep earnings guidance on track for this year while acquisitions continue. The group claims a strong balance sheet and resilient cash flow generation that should fund a double-digit percentage dividend increase. Latest trading statement: ” Our overall outlook for 2015 remains unchanged and we anticipate full year performance in line with previous guidance. ” Mkt Cap: £2.32bn, StockRank: 94 . Technology Computacenter ( OTC:CUUCY ) – IT infrastructure company Computacenter was another addition to the SNAPS portfolio when it launched in the middle of last year. Back then, its ranking factor made it very much a quality + value play, but a strong price trend and improving earnings forecasts as a result of a refocusing within the business have driven this towards momentum investors. Latest statement: ” The outlook for the Group’s trading result for the whole of 2015 remains in line with the Board’s expectations which were upgraded at the time of our interim results, despite continuing significant currency headwinds. ” Mkt Cap: £1.05bn, StockRank: 98 . TT Electronics ( OTC:TTGPF ) – This company makes hi-tech electronics that are used in precision engineering and manufacturing industries. Early last year, it launched a project to improve its efficiency and build profitable growth. Although brokers are still to make earnings forecast upgrades, TT’s StockRank has risen from 78 to 91, suggesting that the turnaround is working. Certainly, the shares have recovered well from a sharp dip last autumn. Latest statement: ” General industrial markets have become weaker in recent months, and we therefore remain cautious about market conditions. Our outlook for the full year is unchanged. ” Mkt Cap: £256.7m, StockRank: 91. (Paul Scott archive) Basic Materials International Greetings – The gift packaging and stationery supplier saw its price more than double in 2015. As an honourable mention in the inaugural NAPS portfolio, it now takes the main position in the Basic Materials sector for 2016. High quality and strong momentum are its strongest suits, but the valuation remains reasonable, particularly if the growth trends continue. The company hasn’t seen any major upward earnings forecast revisions since early last summer, but a modest recent uptrend in expectations may signal increasing confidence that the company has more to deliver. Latest report: ” We have experienced continued improvement in performance in the key US market, whilst all other regions are also trading fully in line with expectations. ” Mkt Cap: £109.6m, StockRank: 98. (Paul Scott archive) Castings [LON:CGS] – Our own small-cap expert Paul Scott is a big fan of this West Midlands engineering and machining company. After a strong performance in 2014, the shares lost ground in the first half of last year but later recovered. The company produces generally consistent and predictable results and has a strong balance sheet that should help withstand economic fluctuations. Latest statement: ” It is anticipated that the profits for the full year will meet market expectations, unless there is a sudden and unexpected change in the economic climate that would affect the outcome. ” Mkt Cap: £208.1m, StockRank: 93. (Paul Scott archive) Telecoms Manx Telecom [LON:MANX] – Last year’s main telecoms selection for the NAPS portfolio was Adept Telecom, which performed exceptionally well. Of course, a rising price has driven Adept’s Value Rank down to the point where it no longer qualifies. In its place comes Manx Telecom, a communications firm based in the Isle of Man. Its shares enjoyed a re-rating last autumn as brokers upped their earnings forecasts. Trading statement: ” Current trading remains on course to deliver a result for the full year in line with the Board’s expectations. ” Mkt Cap: £237.2m, StockRank: 95 . (Paul Scott archive) Alternative Networks [LON:AN] supplies IT systems and networks to business customers. The shares fell sharply last autumn on a trading update but quickly recovered. At the time, brokers did cut their earnings growth forecasts, but this a growth stock where expectations are that profitability will leap ahead again in 2016. The stock doesn’t rank as particularly cheap but the quality and momentum scores remain high. Trading statement: “The first weeks of 2016 show signs that the momentum carried through from the fourth quarter is continuing and provides sound encouragement .” Mkt Cap: £234.8m, StockRank: 86 . Consumer Defensives J Sainsbury ( OTCQX:JSAIY ) – Last year, the big beast defensive stock in the NAPS portfolio was Imperial Tobacco ( OTCQX:ITYBY ) which did wonderfully, but that changes in 2016 to supermarket group J Sainsbury. The past three years have undoubtedly been difficult for the UK’s biggest grocery chains, and Sainsbury hasn’t been immune. Tough competition has dented profitability, forced a reduction in dividends and sparked a group-wide strategy review. Latest statement: ” Full year underlying profit before tax now expected to be moderately ahead of published consensus. ” Mkt Cap: £4.98bn, StockRank: 95 . Hilton Food Group [LON:HFG] – A meat packaging company that saw a strong performance in its shares right through 2015. The stand out feature in the company’s StockRank is the strength of its Quality (96), where consistent, robust profitability appears to be underpinned by strong margins and return on capital employed. Paired with strong price momentum, Hilton is a highflyer, where the valuation appears full but not necessarily stretched. Latest statement: ” Overall, trading has been slightly above the Board’s expectations. ” Mkt Cap: £388.0m, StockRank: 93 . Utilities Drax ( OTC:DRXGF ) – The energy production group was on the wrong end of changes to government regulation last year, and its shares slumped as a result. Overall, the company scores well for its valuation despite slashed earnings forecasts and the balance sheet on face value remaining strong. But the business is facing major issues, and is one that most investors will be giving the bargepole treatment. This is very much a contrarian stock and current difficulties are noted in its latest trading statement. “EBITDA outlook for 2015 reduced to reflect LEC removal announcement on 8 July 2015”, On the other hand, there’s one very successful investor we all know who’s a big holder – Neil Woodford . Mkt Cap: £993.0m, StockRank: 88 . National Grid ( OTCPK:NGGTF ) is obviously a household name in domestic electricity and gas supply. Given that it’s a hugely followed large-cap FTSE 100 corporation, surging growth it unlikely. But brokers did edge up their earnings forecasts on the stock last November in response to news on cost savings initiatives and a potential sale of a majority stake in its gas distribution business. The role this stock will play in the NAPS team is as a solid defender, spitting off dividends and providing some spine (we hope). Mkt Cap: £34.66bn, StockRank: 84 . Healthcare Indivior ( OTCPK:INVVY ) , the pharmaceuticals spin-out from Reckitt Benckiser ( OTCPK:RBGLY ), was absorbed into the “SNAPS” portfolio in the middle of last year. Its price momentum has slipped since then, but brokers have been consistently increasing their earnings expectations. As a result, Indivior’s StockRank is underpinned by much stronger value and quality ranks. Though it must be noted that the Value Rank is very backwards looking and Indivior’s business is changing. This is one stock that our gut tells me to avoid… but it remains as we’re sticking ruthlessly to the numbers. Statement: “Our performance in 2015 continues to run well ahead of our plan…this over-delivery against our original planning assumptions allows us both to reward shareholders with higher than expected profits”. Mkt Cap: £1.35bn, StockRank: 87 . GlaxoSmithKline (NYSE: GSK ) – With the lowest StockRank of all this year’s NAPS, GSK just scrapes in. Mega-caps like Glaxo often make me fall asleep, but a presentation by Gary Channon, CIO of Phoenix Asset Management, at the 2013 London Value Investor Conference put GSK at the forefront of many investors’ minds. Gary has become a friend and subscribes to Stockopedia. He gave a presentation which neatly showed how if GSK maintains its market share, and global pharma spend doubles in the next 20 years, the company should be valued at £32 today. He noted in the presentation that: ” A purchase at current levels £15-16 will return 14% per annum compound. We recommend it as a potential long term great. ” It’s now trading under £14. Mkt Cap £66.4bn, StockRank 78. NB – a s a footnote – it’s interesting to note the stocks that would have been selected if we hadn’t made our diversification rules stricter – we will call these the “honourable mentions” this year… they tend to be small or micro caps. Wizz Air , Jersey Electricity [ LON:JEL] , Gamma Communications [ LON:GAMA] , Sanderson [ LON:SND] , Animalcare [ LON:ANCR] , Treatt [ TTTRD] , Games Workshop ( GMWKF) and Robinson [ LON:RBN] . If we have time, we’ll keep track of these stocks over the year and see whether our additional diversification constraints have indeed helped or hindered. You Can Never Remove Yourself Completely From The Process The whole point of the NAPS project was to try to remove our own subjective biases from the stock selection process, to make it completely rules-based, mechanical and passive. But, as we’re seeing, this is almost impossible. Someone has to choose the rules with which to invest by, and there’s a lot of subjectivity involved. There really is no such thing as “passive investing.” Every choice made to create a portfolio is an active one, whether we’re designing a FTSE 100 index tracker or a simple rules based personal portfolio both are active, conscious and therefore subjective processes. All we can do is try our best to stay dispassionate, manage our risks and not fiddle too much. By focusing on the downside, we can leave the upside to the gods, and hope they grace us once again with their gifts in 2016. Safe investing for the year, and do please share your own processes and thoughts in the comments below. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.