Video summary

London Investor Show 2017 - VectorVest (David Paul)

Main summary

Key takeaways

Finance

Presenter / Background

  • David Paul (VectorVest)
    • Background: engineer (MSc metallurgy) and PhD in Applied Mathematics.
    • He says he has “taken money out of markets regularly and consistently” and began trading in Oct 1982 (example trade cited: South African Breweries).
    • Emphasis: a “mechanical method” and discipline to wait until all criteria align for an uncommon hit rate.

Core Investing / Trading Goals & Risk Framing

What he’s trying to find

Stocks that are:

  • Undervalued (fundamentals/valuation)
  • Showing rising earnings per share (EPS) (earnings momentum)
  • With a favorable technical trend (market direction and timing)

Risk management (swing trading)

  • Risk per trade: 1% to 1.5% of capital (explicitly stated).
  • Stop-loss concept: adjust share quantity so that if price moves from entry to stop-loss, the loss is approximately ~1% (or 1.5%) of the account.
  • Key behavioral/risk claim: position sizing is the #1 reason many fail (trade too big → a few bad trades → quit).

Performance / hit-rate expectations

  • Mentions a typical trading-firm stat (spread betting framing): 95% lose, 5% win.
  • Claims:
    • A conservative VectorVest method grew capital by 17% per year (excluding dividends) over 20 years.
    • An aggressive approach targets 30%–40% per year (with more time and “testicular fortitude”).

Explicit Methodology: “Tick the Boxes” Framework (VectorVest Indicators)

Paul describes a 3-part evaluation plus a combined “master indicator.”

1) Value (undervaluation)

  • VectorVest assigns a valuation per stock using an algorithm (described as ~28 years old, attributed to Dr. Bark Toledo).
  • Selection criterion: favor shares trading below VectorVest valuation.

Relative Value (RV)

  • Measures earnings upside vs. a corporate bond over the next 3 years.
  • Conceptual interpretation:
    • Projected earnings upside is discounted to estimate expected outperformance vs. bond yield.
  • Paul’s thresholds:
    • RV above 1.3 = “excellent”
    • He prefers RV > 1.3 (later: “greater than 1.3, the bigger the better”).

Examples mentioned

  • Games Workshop: “very high” RV (~1.6 stated).
  • Mentions London-market stocks with RV around ~1.6.

2) Relative Safety (earnings predictability / consistency)

  • Score range: 0 to 3
  • Threshold rule: > 1 is better; higher implies more consistent/predictable earnings.

How he uses it

  • Conservative investors: emphasize higher Relative Safety to reduce surprise risk.
  • More momentum/trading oriented approach: he says he’s “quite happy” as long as Relative Safety is above 1.

3) Relative Timing (trend / momentum)

  • Scale: 0 to 2
  • Rule: > 1 means the share is rising
  • Higher than 1 implies it’s rising faster.

Combined “Master Indicator”: VST (Value, Safety and Trend)

  • Combines Value + Safety + Timing into a unified indicator: VST (Value, Safety and Trend).
  • Purpose: unify fundamental undervaluation + earnings quality + technical timing.

Market Timing Overlay (VectorVest Composite)

Paul argues stock picking needs a market-regime filter.

VectorVest Composite timing

  • “Composite” described as an equally weighted index of ~2200 London/UK shares (discussion mentions Aim/UK listed universe).
  • Paul argues equal weighting better represents sentiment than market-cap weighting.

Inputs described

  • Price movement of the composite
  • Composite momentum / RT (Relative Timing)
  • Breadth using proprietary VectorVest “RS” (breadth ratio):
    • RS = (# of shares on BUY) ÷ (# on SELL)

Regime signals: “UP UP situation”

  • Uses up/down regime indicators:
    • If both short-term and long-term trend = up, he recommends being fully invested.
    • If a red long-term sell signal appears, he urges caution and behavior change.
  • He emphasizes avoiding major drawdowns (example claim: 2007 drawdown 40%–45%).
  • Mentions Mar 9, 2009 as an example of buying too late/too early (capitulation context).

Stop-Loss Framework (inside VectorVest)

  • VectorVest sets a stop loss for every stock daily.
  • Stop-loss distance:
    • linked to a ~65-day moving average
    • “adjusted for fundamentals” (good fundamentals can widen stop-loss to allow “wiggle room”).

Alerts

  • When a stock changes Hold → Buy, the program alerts.
  • When it changes Buy → Sell (or Hold → Sell), the system signals exit risk.

Stock Selection: The “One-Trick” Buy Setup (Explicit Rule)

Paul’s repeatable buy setup includes stocks that are:

  • Undervalued (below valuation)
  • Showing strong EPS rising
  • Breaking up / through highs and receiving a Buy recommendation
  • With the general market trend up (specifically an up/up or “rising” regime)

EPS targets / thresholds he cites

  • “At least 15% clip” (prefers 20%).
  • For the UK market, he says it can be as high as 20%–25%.

“Seven boxes” summary (as listed by Paul)

Key thresholds/requirements include:

  • Undervalued
  • RV > 1.3
  • RV > 1 (also repeated: RS > 1 / Relative Safety > 1)
  • Earnings growth rate > 15% (and notes 20%–25% on UK market)
  • Stock on Buy recommendation
  • Long-term market trend up (green triangle)
  • Short-term market trend up (front-page pointer green)

Companies / Examples Mentioned

  • South African Breweries (example for starting trading)
  • Games Workshop
  • Coats (referred to as “coats”)
  • Countryside Properties
  • Rackham (mentioned “at 11”)
  • Oxford user group (not a ticker)
  • Kazakhstan Minerals (noted as a major shareholder / audience mention)
  • “Rolls/Rolex” referenced as metaphors, not tickers
  • Political/macro framing:
    • Brexit: described as creating “tremendous” UK opportunity
    • North Korea: referenced politically (not as a specific investment instrument)

Shorting / Hedging Views

  • Main edge claim: being on the right side of rising markets.
  • Shorting: considered mainly if the investor has the “stomach” to sell rising (and/or as an opportunity during sell signals).
  • Hedging idea: possible use of an “inverse ETF” (no specific ticker named).

Performance Metrics & “Secret to Success” (Behavioral Risk)

Behavioral claim (with Tom Hogarth)

From a research framing:

  • Of those who lose (95% stated), they tend to:
    • Become pessimistic when they’re in a winner (sell/snap at small profits)
    • Become optimistic when they’re in a loser (“give it another tick”)

“Secret” strategy (mindset)

  • Become an observer of your thoughts (a “silent watcher” concept) to correct emotional bias in winners vs losers.

Reading recommendations for mindset

  • Trading in the Zone — Mark Douglas
  • Zen and the Markets — Eddie Topp (free download suggested)

Disclosures / Compliance (as stated)

  • Financial advice disclaimer:
    • He says he is qualified to give financial advice, but not allowed to give advice without a long detailed fact find.
    • Notes: shares he holds may not be suitable for the audience.
  • Product marketing terms:
    • VectorVest trial: 5-week trial for £5.95
    • After trial: £44/month, billed month-to-month
    • Cancellation: can stop within terms if not satisfied / if it can’t make money (as claimed)

Presenters / Sources Mentioned

  • David Paul (presenter)
  • Dr. Bark Toledo (valuation algorithm attribution)
  • George Lane (stochastic indicator mentioned; designer referenced)
  • Tom Hogarth (behavioral research partner)
  • Zack Muir (interview context: “Core Finance” / TipTV)
  • Bruce Lee (quotation used)
  • Benjamin Graham (referenced via The Intelligent Investor)
  • Warren Buffett (mentor reference)
  • Edwin Lefebvre / Jesse Livermore (Reminiscences of a Stock Operator referenced)
  • Mark Douglas (Trading in the Zone)
  • Eddie Topp (Zen and the Markets)
  • Thomson Reuters (data/earnings forecast provider mentioned)
  • Audience/source mentions:
    • Victor Smith (VectorVest user group lead, Birmingham)
    • Neal Woodford (fund manager mentioned regarding compliance/scale)
    • “Kaz” / Kazakhstan Minerals (major shareholder mentioned)

Original video