This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
FOOL'S EYE VIEW
By
Just over a year ago, I pitted the FTSE 100 companies with the highest and lowest share price relative strength over the preceding 12 months against each other in a race to the death. I named the respective teams Top Dog and Contraire. Here's the link to that article. Before moving onto the very interesting results, let me first say that this is purely a mechanical investing experiment. I risked no money, because: a. I'm not a huge fan of mechanical investing. This is despite plenty of backtested evidence showing that this type of unemotional investing does in fact work. Instead of concentrating on the "system", I can't help but look at the names of the individual companies, usually muttering to myself "I can't buy THAT one!" b. I prefer to match the market by putting a monthly amount into an index tracking ISA, and use any surplus cash to try and beat the market by choosing my own shares. c. I try to be somewhat of a contrarian investor, buying when others are selling, and selling when others are buying. Mechanical investing is very restrictive, sometimes forcing you to buy when others are also buying, and sell when others are selling. This is most definitely NOT contrarian. Having said that, buying the big losers over the last 12 months is contrarian. But backtesting has shown that winning companies keep on winning, meaning the top dogs of any one year have a good chance of repeating that performance in the following year. The 1999 race went some way to proving the above theory. The Top Dogs rose on average by a stunning 135%, whilst the Contraires returned a respectable but relatively anaemic 10%. The FTSE 100 returned 17% over the same period. What would 2000 bring? Without further ado, here are the results from this year's race. Wow! What a turnaround from 1999. The Top Dogs (with the notable exception of Logica (LSE: LOG)) have been well and truly whacked, whilst the Contraires have had a storming year. Of course measured over two years, the Top Dogs are still well ahead. Could it be that 1999 was a freak year which will never be repeated? Or was 2000 the exception? Only time will tell. Think back a year ago -- would you have imagined such old economy shares like Great Universal Stores (LSE: GUS) and Associated British Foods (LSE: ABF) could have risen over 50% in a 12 month period? I certainly couldn't have predicted that. I did however have this to say last year: "If I were a betting man, I'd be somewhat foolishly plumping for the dogs of 1999 as the prospective winners in 2000." and: "Also, the ratings on some of the Top Dog companies are truly in the stratosphere, and I for one believe that at some stage in the not too distant future, there will have to be some sort of share price shake-out." I don't deserve any medals for making those predictions, because I didn't make any money out of them. I find the stock market fascinating, and enjoy watching its daily, weekly, monthly and yearly machinations. But the bottom line is that as private investors, we're aiming to make money from our investments in the stock market. If you're not ultimately doing that, you are kidding yourself. The Top Dog versus Contraire race is a learning experience. One day, maybe 10 years down the track, we may have learned enough to make some money out of this mechanical system, notwithstanding my own personal dislike for them. The market always looks forward. It values companies by looking at their future prospects. Trying to predict the winner of this little race forces you to look forward, potentially helping you with your individual share selections. It's educational! Onto the 2001 race... Try picking the winner of this one! I'm struggling. The Top Dogs have a couple of high flying yet still relatively small pharmaceutical companies (Celltech (LSE: CCH) and Shire Pharmaceuticals (LSE: SHP) mixed with a couple of old stagers who've had a great 2000 (AMVESCAP (LSE: AVC) and Reckitt Benckiser (LSE: RB.)). The Contraires have three runners from the battered and bruised telecommunications sector (Telewest (LSE: TWT), BT (LSE: BT.A) and Colt (LSE: CTM)). Forced to make a prediction, I'll plump for the Top Dogs in 2001. That's because despite the recent falls in telecoms shares, I still think many of them are overvalued, and that further falls could be on the cards. Although this is negative thinking, my main reasoning behind choosing the Top Dogs is because I think they'll fall less than the Contraires. A weak reason, I know. To counter my weakness, I'll force myself to attempt to pick the biggest winner and loser from the above 10 companies over the next 12 months. These are most definitely not tips, just hunches, and little or no homework has been done. Winner -- Shire Pharmaceuticals, with a saver on Invensys (LSE: ISYS) Loser -- Colt Telecom, with a saver on Celltech Let the race begin. I'll be back in a year's time to re-cap on the race, and to establish the runners and riders for 2002. Where Next? Check out the Fool's official mechanical portfolios -- Beating The Footsie and Relative Strength. Look for stock ideas in 2001? Check out the Motley Fool's Industry Focus 2001 -- 14 sectors and 21 companies in one volume, available now for £23.Top Dog 2000
17/12/99 27/12/00 Change %
ARM Holdings 794p 526p (34%)
Sage 594p 304p (49%)
Colt Telecom 2900p 1450p (50%)
Billiton 377p 264p (30%)
Logica 1412p 1760p 25%
Average (28%)
Contraire 2000
Rentokil Initial 228p 228p 0%
GUS 337p 530p 57%
Assoc British Food 324p 502p 55%
Boots 589p 635p 8%
Powergen 470p 635p 35%
Average 31%
FTSE 100 (8%)
Top Dog 2001 27/12/00
Celltech Group 1090p
AMVESCAP 1360p
Spirent 620p
Shire Pharmaceuticals 1105p
Reckitt Benckiser 939p
Contraire 2001
Telewest 109p
British Telecom 579p
Sage 304p
Colt Telecom 1450p
Invensys 156p
Who do you think will win in 2002? Let us know your thoughts on the Fool's Eye View discussion board.