Investment proposals

A number of investment approaches to encourage best practice and quality investment submissions from members.

 

 

 

 

Over time, Mobius has established five techniques (and some variants). The current strategy in place is based on “proposals and a watchlist”. The club maintains a watchlist. Members submit share proposals to the watchlist (light touch proposals). The watchlist has one entry per member. These shares are then discussed and rated for an eventual buy decision. Often, a  combination of these techniques have been used.  These strategies are:

  1. Full (Proshare) proposals
  2. Light touch proposals
  3. Semi-systematic approach
  4. Systematic approach
  5. Mutual funds

Other sections below:

 

 Full (Proshare toolkit template) proposals

These are prepared and circulated in advance of meetings to members (a minimum period notice is normally in place). The template  is comprehensive with  8 Sections. Mobius has adapted the toolkit for its needs. The template has a strong flavour of fundamental analysis with a touch of technical analysis (charting):

  1. Company activities, details and description
  2. Five-year business and profits growth analysis
  3. Are management doing a good job?
  4. Is the share good value for money today?
  5. Earnings per share graph
  6. Technical Analysis (Charting, timing)
  7. Reasons for past growth (and future)
  8. It’s make your mind up time

Light touch proposals

These are free format investment proposals. They allow for different personal investment profiles. There is a wide variance in the quality of submissions (ranging from a basic downloaded company factsheet or a broker’s review to  a comprehensive analysis and in-depth insight) . These are prepared and circulated in advance of meetings to members (a minimum period notice is normally in place).


The Systematic approach

It 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. Often a stock screener tool is used to filter and provide a shortlist. Mobius voted and agreed on three types of  filters (growth, value and recovery).

  • The filters are run once a month (using a stock screener)
  • The top share (from the shortlist) satisfying the criteria is automatically selected (no consultation)
  • A report is issued to members
  • Dealing team is instructed to buy the share (if a share has met the criteria)

One variant has also been used called “conditional sys”: The share is not automatically bought. Club members are given two working days notice before the selected share is bought. Members can cancel out (using the voting system in place) the decision (but it needs to be completed within the two working days notice period). This allows for exceptional occasions where members feel the share selected is really at odds with the objective of the filters or the club. 

The filters have been revised from time to time: Also, some of the filters can be relaxed if for instance no shares have passed the filters for a few months. For example, a basic rule for PE (Price Earning ratio) could be: 5<PE<12 and then relaxed to 5<PE<20. The systematic approach is also so commonly called  mechanical  (and also known as programmatic or automated).

⇒ Here, you can find a comprehensive report on all facets of the systematic approach, our experience and examples.


Semi-systematic approach

This is a half-way house between a systematic and a light touch proposal approach. Its aim is to boost members' participation in investment selections and decisions in particular during busy periods. Like in the systematic approach, members jointly select a set of criteria for different investment objectives (growth, value and recovery). However, unlike the systematic approach, a shortlist of the 5 best shares satisfying the filters is circulated. Members have a week to respond by selecting and ranking up to three shares. In a nut-shell the key points are:  

  • Run monthly
  • Shortlist 5 shares – report issued
  • One-week turnaround - analysis
  • Members justify selection (using personal investment profile)
  • Select up to 3 shares using a three point (5-3-1) score system
  • Members can issue up to 9 points in total (all selections)
  • Respond to coordinator only
  • Based on members’ response and how the points are distributed between the 5 short-listed candidates, an outright winner might be  declared and an automatic purchase follows
  • Report with all contributions circulated.

One the positive side-effects of a semi-sys run is that further proposals may follow  in meetings. Given that the other four shares (from the short-list)  have been researched by members, it makes an easier and better assessment of proposals.  


Mutual funds

These include unit trusts, OEICs  and ETFs. Two main reasons for these funds: (1) lack of good investment proposals over a period resulted in the club looking at mutual funds rather keeping cash and (2) diversification and access to other (overseas) markets: Previous Mobius investments included  corporate bonds, commodities (e.g. oil, mining), and  country- specific (e.g. India). By and large, Mobius felt that it is itself some sort of a mutual fund and hence no point in investing in other mutual funds (else no point in being a club). This position has received mixed views at AGMs but enough to sell all the mutual funds (AGM 2013). There is currently an unwritten rule that Mobius would not invest in funds. However, if one of the two reasons above are triggered, then it might.


 Shouts & tips approach

Members bring potential share proposals at the meeting (with no prior notice) and sometimes with research (tips) from various investment sources. No investment case is prepared. The meeting will discuss and decide on shares proposed. It was used in the first few years of the club.


Speculative portfolio

In 2005, the club agreed to experiment with a speculative portfolio (around 10% of the club’s NAV was set aside). These would be shares in new energy and mining companies and they would not be subject to the same level of scrutiny as the mainstream candidates. Funnily enough, the portfolio was called “Gambling trio”, as three members were assigned to look after it. In less than a year, this has proven not to be interesting or compatible with the club’s operations and the portfolio was dissolved.


Comparison Table

There is no single right or wrong strategy: Mobius learnt that it really depends on circumstances in the club: If enough members are active and do the work (such as submissions & reviews), then the full toolkit, light touch or semi-sys are good avenues. If proposals start to dry out, then systematic or mutual funds could be another avenue. Other circumstances could also be at macroeconomic level such as a sustained bear market.

 

Schemes

Advantages

Disadvantages

Full Toolkit proposal
  • Comprehensive analysis of shares
  • Rich (in depth) debate about shares
  • Understand “the businesses” and portfolio
  • Takes long time to prepare
  • Too few submissions (poor participation)
  • Frustrated proposers (if reviewers not up to speed)

Light- touch proposals

  • Easier to prepare proposal
  • More submissions made (before meetings)
  • Club has built experience in scrutiny
  • Quality can drop (revert to shouts & tips)
  • Poor selections
  • Wide variance in quality of submissions
  • No incentive to properly research submissions

Systematic proposals

  • Selection made based on collective profile
  • Spill-overs to research the other stocks
  • Collective ownership (refine policy/criteria)
  • Not much participation after setting policies
  • No incentive to do more (rely on systematic)

Semi-systematic 

proposals

  • Short-list made based on collective profile
  • Analysis and submission not onerous
  • Really good participation throughout
  • Spill-overs to research the other stocks
  • Collective ownership (refine policy/criteria)

Sometimes less incentive to do more (rely on semi-sys)

Mutual funds

  • Opportunity to diversity, other markets
  • Allow for top down strategies
  • No incentive to do more
  • Club is about researching equities, why have funds?

shouts & tips

  • Very little preparation or scrutiny
  • Early days
  • Full participation
  • Poor selections (+ submission on the day)
  • No incentive to prepare or improve analysis
Work in Progress: Thank you for your visit. For any feedback, you may contact Mourad Kara.   Last update: September 2021. © Mourad KaraDisclaimers