Studies of Life

Learning by doing.

Piotroski Portfolio Update Q2 2014

17 July 2014 by Jim

A thorough explanation of the Piotroski stock picking method can be found in a previous post.

pio apr - jul 14

Above you can see the return of my Piotroski Portfolio compared to the two main indexes of the countries I invest in, the US and Germany. As you can see, my performance was close to that of the indexes until I experienced a major lift around the end of June. This single increase now accounts for a huge difference 3 weeks later: I stand at +12% whereas the two national indices average around 5% return.

One lesson from this chart: a very large amount of gain can occur in just a few days in any given portfolio. Since it is impossible to predict which day that will be (otherwise we’d all be millionaires within a few months) you have to stay in the market to take advantage of this. Unfortunately, the opposite is what most beginning investors do; they start investing once they hear about tremendous gains in stocks. By that time, it’s usually too late. Not too late for investing (which is always a good choice if done long-term) but too late to benefit from that particular increase.

Below are the stocks I currently have in my portfolio.

jul 14 piotroski portfolio

All of my stocks have stop orders associated with them at 18% under their current price level. I usually set the stop order at -20%, and when the price rises, the stop order level rises as well (a so-called trailing stop). Since my broker doesn’t offer trailing stops as a feature, I have to adjust the stops manually once every month. That doesn’t bother me, because with an Excel or Mac Numbers spreadsheet it takes literally just 10 minutes to calculate the levels and then manually enter them.

I only track my stocks every two weeks, on the 15th and the 1st of every month, to avoid too much emotional attachment and bad decision making. It’s better to only rarely look at your stocks. Active trading, day trading and other similarly involved stock trading schemes are speculation, not investing. If you know that your system works, you don’t need to look at stock quotes every day. In general I just decide what to set the stop level to. Selling a stock happens either when it reaches its stop level or if I see that over several months the stock hasn’t done anything when all my other stocks generally rose. Buying a stock happens when a new spot has been created because of a sale. I then use the Piotroski methodology I explained previously to get a list of stocks, rank them with my own custom system and then manually check the background story of the Top 5 or 10 stocks to find my next buy. Since I generally keep stocks for 6 months or more, that is far less effort than it may seem. It takes around 30 minutes for me to find the next buy, which is very little since I only do it every few months.

The most important thing about investing, no matter which approach you choose, is to do it in the long-term. Historically, the stock market returns 7 – 8% per year. So if you just buy an index ETF or fund and stick with it for 10+ years, you’ll get about 7 – 8% in ROI. Without any work on your part. However, besides Warren Buffet, no individual fund or manager averages as much as 8% ROI or more over 10 years. I’ll see if, over the next 10 years, my Piotroski portfolio can beat the index reliably. If not, I’ll settle on an index ETF myself. The only reason I believe there is a possibility that I could beat the majority of fund managers is that I don’t invest like they do. Why? Simple:

  • I don’t have to explain my investments to customers, so I can freely choose what I really want to invest in.
  • I use a scientifically established stock picking method, the Piotroski F-Score, instead of relying on my own judgment.
  • I do not have to imitate my peers because nobody gives a s*** what I invest in and my salary does not depend on it.


Leave a comment | Categories: Investing | Tags: , , , , , ,

Leave a Reply