Backtested Lazy Strategy—It Destroyed the Index!

FinancialWisdom
Jun 28
4 min read

Updated: Sep 7

Stockopedia’s Smart Ranking System: A Revolutionary Approach to Investing

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Stockopedia platform (NAPS)

Video Transcript Below:

What if I told you there's a stock-picking strategy so simple that it takes less than one hour per year to manage? This system has beaten every single UK fund manager over the past decade. Imagine turning £100,000 into over £340,000 while the FTSE All-Share only managed £127,000. In this video, we will explore a system so effective that it has outperformed the S&P 500, a growth market index, using only value-driven UK stocks. The system is Stockopedia's NAPS portfolio.

The NAPS portfolio is something that challenges everything you think you know about successful investing. While most investors spend hours researching companies, reading annual reports, and following market news, there's a mechanical system quietly crushing the competition. Over ten years, the NAPS portfolio has compounded at 13% annually. The best part? Anyone can replicate it. By the end of this video, you'll understand exactly how this system works and why rules-based investing might be the key to building long-term wealth in the UK market.

What Makes NAPS Different?

Let me start with a story that illustrates why most investors fail. Picture this: you buy a stock because of a compelling story. You watch it double in value and hold on because you "believe in the company." Sound familiar? The NAPS system would have sold that stock after exactly one year, regardless of the narrative. Here's the shocking part: of the top ten biggest NAPS winners over the decade, eight either crashed or went sideways after being sold. Only two continued to rise significantly.

This illustrates the fundamental difference between emotional, story-driven investing and systematic, rules-based investing. The NAPS portfolio doesn’t care about your feelings or market sentiment. It follows a simple set of rules that have been proven effective over decades.

Key Principles Behind NAPS

The NAPS strategy is built on Stockopedia's "3D Framework." This framework consists of three dimensions essential for separating winning portfolios from losing ones:

1. Drivers

This focuses on consistently picking high-potential shares. The system uses Stockopedia's proprietary StockRank, which combines quality, value, and momentum factors. These metrics aren’t random – they are the three most powerful return drivers, proven by academic research over the past century.

2. Diversity

Diversity helps reduce risk while improving returns. Instead of betting everything on a few stocks, NAPS spreads risk across all ten market sectors. This approach ensures you capture the next big winner, wherever it may emerge.

3. Discipline

Discipline is crucial for maintaining your edge over time. Many investors start with good intentions but let emotions drive their decisions. The NAPS strategy eliminates emotional biases entirely.

Understanding the NAPS Methodology

Implementing the NAPS strategy is simple. You can do it in minutes:

Sort the UK stock market: Order by StockRank in descending order.
Exclude small shares: Remove stocks with market caps below £20 million for better liquidity.
Select top stocks: Choose the top two stocks from each of the ten market sectors for diversification.
Buy and hold: Invest in this list and hold for exactly one year.
Repeat: After one year, sell everything and start the process again.

That's it. No complex analysis, no reading annual reports, and no following CEO interviews. The entire process takes less than an hour annually.

But why does this mechanical approach work? The answer lies in human psychology. We tend to make investing mistakes by falling in love with stories, panicking during crashes, chasing hot sectors, and holding onto losers too long.

The NAPS system eliminates these biases. It doesn't care if a company has an exciting new product or if its CEO gave a great interview. It prioritizes data, and data doesn’t lie.

Impact of NAPS on Returns

Consider this: the system picked Games Workshop when it was unfashionable, rode Jet2's incredible run, and captured IQE's 261% gain in 2017. But it also sold stocks like Petropavlovsk and Frontier Developments before they ducked in value by 96% and 94% respectively. A human investor, attached to these "winning" stories, might have held onto them and watched their gains evaporate.

The results of the NAPS portfolio are staggering: a 241% total return over the past decade, compounding at 13% annually. If you had invested £100,000 in 2015, it would be worth over £340,000 today.

This performance was achieved during a tumultuous decade for UK stocks, featuring Brexit uncertainty and a global pandemic. In contrast, the FTSE All Share managed just 27% over the same period. Remarkably, the NAPS portfolio outperformed the S&P 500's return of 193% using only UK stocks.

The Discipline of Investing

Now, let's address the psychological aspect of following a systematic investment approach. It's not easy. The NAPS portfolio has spent seven of the last ten years in drawdown, meaning it was beneath its previous high. During the March 2020 pandemic crash, five years of gains were lost within a week.

Discipline is crucial here. If you check your portfolio daily, you’ll likely be disappointed half the time. The NAPS portfolio rose on only 53% of trading days. However, if you check just once a year, your chances of seeing a gain jump to 80%. That's 364 fewer opportunities to make emotional decisions that could derail your returns.

Conclusion: The Power of Simplicity

The NAPS portfolio proves a fundamental truth: simple, systematic approaches consistently beat complex, discretionary ones. Over the past decade, this one-hour-per-year strategy has outperformed every UK fund manager and major indices while topping the S&P 500.

The three pillars – proven return drivers, sector diversity, and maintaining discipline through systematic rebalancing – create a framework any investor can follow. You don’t need to be a financial genius or have insider information. You need the discipline to follow a proven system and patience to let compounding work.

In a world obsessed with complexity, the most radical approach may just be simplicity. For those seeking long-term wealth creation, NAPS offers a compelling alternative to the stress and underperformance of traditional stock picking.

If you’re interested in a Stockopedia subscription, which grants access to StockRank, the foundation of the NAPS strategy, you can get it at a discount through the link in the description below.

Stockopedia 25% Discount Code - bit.ly/2YIcAIn