The smallcase Mi_ST_ATH is a concentrated momentum portfolio of up-to 10 stocks. It is designed to chase highly liquid stocks that are hitting new All time highs and then trail the gains till the stocks start to drop off using proprietary exit methodologies. The entries and exits are all non-discretionary and the portfolio is provided as an advisory smallcase at weekendinvesting.smallcase.com

In this blog piece I would like to compare a back-test of rolling returns on the strategy as per the existing data set for the last 20 years.

The four sets used are rolling returns of 1 year, 3 years, 5 years and 10 years.
The assumptions are an ideal world with no cap gains tax and no slippages. Charges of brokerage and statutory nature are applied as they exist today for discount brokerage.  A risk free liquid return of 5 pct annualized is assumed when capital is not at play. The data set used is that as it exists today so some survivor-ship bias error can be there.

1 Year rolling CAGR (%) (Calendar year. Last date 17 Nov 2019)
Average CAGR : 27.59%
Max Loss : 43.35% Max Gain : 117.12%

3 Year rolling CAGR (%) (From – To Calendar year / Last date 17 Nov 2019)
Average CAGR : 28.15%
Max Loss : 3.97% Max Gain : 73.25%

5 Year rolling CAGR (%) (From – To Calendar year / Last date 17 Nov 2019)
Average CAGR : 28.87%
Min Gain: 5.4% Max Gain : 60.81%

10 Year rolling CAGR (%) (From – To Calendar year / Last date 17 Nov 2019)
Average CAGR : 25.81%
Min Gain : 17.6% Max Gain : 33.16%

Observations:

What is evident from this study is that over a 5 yr or above period the minimum CAGR in any 5 year period was 5.4% and for 10 year period a minimum of 17.6% CAGR was achievable. Even in 3 years rolling period except one start case of 2000-2002 of -3.97% CAGR, all other 3 year periods were positive and only one of them being in single digit returns.

Over the last 20 years, in 1 year returns the strategy was in the red for 7 of those 20 years, in the 3 years study only one such period and over 5 and 10 year study there were no loss periods. Thus long term continuation of strategy yields positive returns.

Assuming even if one started at the worst time in the last 20 years which was the start of CY 2008 , in one year you would have been at -43%, at end of 3 years at CAGR of +1%, at end of 5 years at CAGR+5.4% and at end of 10 years at CAGR of +32.99% or an investment of INR 100 at start of 2008 would have become INR 1730 by the end of 2017, such can be the power of compounding.

If you stayed long enough with the strategy over 10 years one would have got a minimum return of CAGR 17.6% or a max CAGR of 33.1%

This is just a study to reassure oneself the efficacy of using such systems over time. My own capital is deployed the most in this smallcase and i am awaiting the fruits of this portfolio as much as hundreds of other users.

Thanks for reading. Do share your comments or critique.