As promised in the last weeks’ blog posting here is a detailed look at our smallcase Mi_LT_CNX200. If you have not gone through that blog post I suggest you do that to better understand the framework that we are building upon in this post.
As the name suggests this smallcase is a “Momentum Investing” strategy for “Long term trends” for the stock universe of “CNX200 stocks” only.
An up-to 20 stock portfolio with equal weights for each component has been selected from the CNX200 universe (which is made up of the largest 200 companies listed on the NSE based on market capitalization) based on their Momentum ranking. Momentum ranking is quantitative list of relative out-performance of each stock with respect to its peer group over the last many periods subject to some minimum qualifications. Every week the portfolio is reviewed and stocks which do not hold up the momentum ranks are shelved while new ones enter. At times, when new momentum picks are not available the portfolio will sit in cash (in interest bearing instruments like LIQUIDBEES).
The core advantage of such strategies are:
1. Survival of the Fittest : You are are always with the strength in the market
2. Letting Winners Run : No case for early profit booking if stock is performing well
3. Cutting your Losers early : No case for allowing your holding to go into deep losses from where recoveries are usually difficult
4. Portfolio diversification : Moderate diversification across 20 stocks ensures no high risk pertaining to any one exposure
5. Noise cancellation : Once a week decision cuts out a lot of market noise which conventionally causes bad decision making
6. Low Time spent : Under a few minutes a week on Monday morning to press a button and getting your portfolio to auto execute and mirror the model portfolio. No backoffice hassles, no exposure calculations, simply peace.
7. Playing the Casino Math : The central theme is to compensate low number of winners with much larger on average winners than losers. In the past, we have had about 45% winning trades but each winning bet made more than avg of 50% vs an avg of losing 7.5 for a loser.
8. Prevents large shocks : The portfolios go into cash if draw-downs start to get very deep and earn risk free returns till blue skies appear again. Prevents deep agonizing periods for the investor.
9. Low churn and Long term Trends : Here we are giving enough room for the price to play around seeking larger up trends. The average hold for this strategy is upwards of 45 weeks and the churn is less than one time a year.
The results of this strategy from Apr 2016 to Nov 2018 are presented here:
The strategy generated 52 trades in this period and the winner: loser ratio was 44:56. Each winner however was up on average +55% while each loser was down -7.5%. The portfolio max drawdown recorded was -18%. The average holding period for any investment was about 45 weeks.
Updated latest results in comparison:
The max draw-down witnessed so far in this period is 16.2 pct.
The major gainers (booked) during this period have been
Some of the biggest losers have been
YESBANK -13.99% (YES, strategy exited at 323 on 7th Sept 2018 !!)
To know more about how to subscribe to this strategy, you can visit weekendinvesting.smallcase.com or write to me at firstname.lastname@example.org. The recommended portfolio size is 2 lacs or higher. You can also build your portfolio gradually as you gain confidence.
A non emotional rule based approach may not get you the maximum returns in the market by direct investing but it ensures good returns and control over ones’ biases and emotional mid-adventures.
I have been running these and many other momentum strategies for long and most of my money is now into rule-based investing. It is just much more peaceful for me. I hope it can be for you as well.
Next week we will visit our second smallcase Mi_MT_Allcap. Have a great week!