DP charges are the lowest with Finvasia among the brokers, I have checked a couple of years ago. But, if the churn is not big and there is a good system in place, charges will not make a big impact, not to mention the fact that if a system is scalable and can handle more funds, the effect of charges will diminish further, also, I don’t think we cannot do anything about the taxes levied by governing bodies, except wishing they collect less.
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Why not just go for momemtum etf instead?
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Momentum etf will take all stocks in that index. But if you select top 10 or 20 it will give superior returns. Also in any momentum startegy, the secret of success depends on two factors
- less number of stocks
- more frequent re-balance. Weekly rebalance will be better than monthly rebalance and monthly will be better than quarterly rebalance.
So ETf will not have these pre-requisites.
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Obviously we cannot do away with govt taxes, but by measuing its impact on returns, we can judge the effectivness of that particular strategy compared to buy and hold , value and other different strategies.
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Points referred by @Mudit.Kushalvardhan, hold true, Momentum ETFs typically include a broad range of stocks in their respective indexes, which may dilute their potential returns compared to a more concentrated portfolio. Studies and practical experiences suggest that selecting the top-performing stocks within an index can lead to superior returns. For instance, focusing on the top 10 or 20 stocks based on momentum criteria can often yield better results than a broader ETF which holds many more stocks.(https://www.etf.com/sections/news/single-factor-focus-ranking-top-momentum-etfs).
Furthermore, the frequency of rebalancing is crucial in momentum strategies. More frequent rebalancing, such as weekly, tends to capture the momentum effect more effectively than monthly or quarterly rebalancing. This is because momentum trends can shift quickly, and frequent rebalancing allows the portfolio to adjust and capitalize on these shifts in a timely manner. ETFs, due to their structure and operational constraints, often do not rebalance as frequently, which can limit their performance relative to a more actively managed or frequently rebalanced strategy.
Therefore, while momentum ETFs can be a convenient way to gain exposure to momentum investing, they may not fully capture the potential returns that a more focused and frequently rebalanced strategy can offer.
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I don’t think such a comparison can be made. As buy and hold, or if we can call that as investing, is different from shorter term/frequently rebalanced trading. With momentum, there could be more churn, there will be some losses, perhaps more drawdowns as per the stop loss employed, and there could be no place for fundamentals too. And, the return expectation, not selling for any reason, adding more to a loss making position, waiting for the turnarounds, no need to be on toes etc, so, I would call them different. So, I think, creating a system, making it better, scaling it up to handle more funds to the level of our comfort is important.
Also, if we have a system, we can create accounts with brokers, just to calculate the returns, charges, and take a decision on whether to continue the accounts or not w.r.t. the features provided by them.
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@visuarchie , Vishwanath ji, I have few questions before I implement this strategy , Kindly help me understand:-
- You are having 5 different portfolios, Niffy 50, Nifty Next 50, Nifty Midcap 150, Smallcap 250 and Microcap 250. You select top 15 stocks with highest momentum ranking in Nifty, top 20 from midcap, top 20 from smallcap and top 25 from microcap.
But can we just select top 25 stocks out of nifty 750 universe, instead of having 5 different portfolio? Are you maintaining these because , you fear that if we select 25 out of 750, you might end up getting all microcap in top 25 and your overall portfolio will tilt towards microcap and smallcap? - In last 18 months, your confidence over this strategy has grown, rightly so, with stellar returns and you have increased the allocation towards momentum portfolio innyour overall equity, which you have mentioned earlier was lower single digit, may be around 5%. So now how much percentage it has reached , among your equity portion of portfolio? Also since the strategy is really good and from the book Quantitative Momentum, even the past data from 1927 supports this strategy, why not give substantial exposure to this strategy atleast around 50?
- I checked some stocks this week and I realised that 4-5 stocks out of 20 are not in stage 2 of momentum. They are in stage 3 consolidation. Currently I am following stage analysis of momentum, I become skeptical of entering into stage 3 stocks, so is it ok to apply this stage criteria and exclude such stocks? Or it would be improper to mix the two strategy?
- Do u also apply upper circuit or lower circuit criteria and exclude those stocks which frequently undergo circuits? U have mentioned earlier that u faced problems while selling Adani stocks during Hindenberg episode.
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@Mudit.Kushalvardhan Answers to your questions.
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I have chosen the number of stocks in the pf based on the market capitalisation and size of the universe. I have 10 stocks in Nifty 50 and Next 50; 15 in Midcap 150; 20 in Smallcap 250 and 25 in Microcap 250. This gives a total of 80 stocks in a Nifty 750 equivalent. Typically, people advocate the top decile (10%) of the universe for inclusion in the pf. Therefore, if I had taken the universe at N750, then I should have gone with 75 stocks (instead I have 80 stocks now). I feel this is fine and with different rebalancing frequencies, I feel more comfortable than having one pf only.
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I keep increasing my contribution and is normally done in a lumpsum manner whenever I have investible surplus. The lower single digit were the size of the microcap and smallcap pfs. While this continues to increase in size, my overall allocation in the momentum pfs that I maintain is close to 10%.
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I do not look at any other strategy - fundamental or technical while investing. I follow the system completely. I feel addition of any other parameter will dilute the returns. Even today, I look at price action and volatility. Some people might suggest just price action is sufficient to set up a momentum pf and the volatility factor (or Sharpe) actually will lower the returns. However, I feel better with the volatility factor in place and that is why I am continuing.
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I have not applied any circuit criteria for entry or exit. I have not been able to buy or sell just about twice in all this time.
One last point. Whatever, system you choose to build (with conviction), follow it thoroughly. Please do not bring in your discretion and keep changing it.
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Isn’t stage analysis for individual positions, and for long term? Here it is a basket of stocks which are based on different criteria, and for shorter term horizons. And, if a stock which is advancing and is in stage 2, it will show up in the list, if it meets the criteria of defined momentum. Also, irrespective of the market conditions, some stocks will be in advancing stage, so one can allot more, but if indices’ performance is taken as criterion with momentum strategies, allocation can have a limit.
Maybe one can create a state analysis system with stocks selected from the list of momentum results.
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Frankly This quantitative momentum strategy is not a basket of stocks and neither its for short term. Because any individual stocks can get dropped anytime, based on its momentum score and that action will not depend upon any basket approach. Basket approach is like you are buying a basket of pharma companies or chemical companies and may be buy them together and also sell them at the same time. That basket approach doesnot apply here. Also its neither short term, nor long term. A stock , if its momentum score keep it in top 20 list for next 3-4 years, it will be hold for that term or if it gets dropped in a week also. There is no pre-determined time horizon to hold any stock here.
My point was that, most stocks which come in top 20 list will be in stage 2 , but some stocks may be in stage 3 but still due to high momentum score may get shortlisted in top 20 list…so whether they can be dropped from selection applying this criteria?
Also allocation , to start with, can be eqqual…and if the stock remains in list and becomes a multibagger, then be it…For additional capital deployment, one can distribute equally or add to weak weights…
Yes. By basket, I mean the focus is on the entire group w.r.t. the returns, allocation, even monitoring. Diversification is what I meant. Yes, a stock can exist for months in the group, until it loses its momentum and is replaced by another stock.
I was trying to convey that, you are mixing two styles, one which I thought was used for long term trades, and the second, which are momentum strategies, which will have churn, additions and exclusions, and no particular analysis on one stock. Perhaps, stage analysis can be used with technofunda approach, wherein businesses with tailwinds, and price breakouts are selected.
Also, I am of the view that one create any model based on any kind of criteria, even if something that is chosen was intended for a different purpose, if it is working consistently. Retail who are participating in options are doing just this, except that majority of them are losing, as it is hard.
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For the additional capital allocation the better approach depends on your confidence in the continued performance of your existing positions versus the potential recovery of weaker positions. If you prefer a more balanced and diversified portfolio, distributing equally may be better. If you are comfortable with a more dynamic and potentially higher-risk strategy, adding to weaker weights might be preferable.
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@visuarchie ,
Sorry sir, but I cant stop myself from asking this…
When I get the top ranking list , first I will check if all stocks are in stage 2 or not. If some stocks are not in stage 2, then I will not select them, I will select the next one, even if it has high ranking.
Similarly , from fundamental angle, I will check if it has consistent sales and earnings in last 5-6 quarters atleast. Also I will check ROE and debt also, alongwith promoter holdings. If any of these parameters are not getting fulfilled, I will ignore it and select the next one.
Afterall, there is no such guarantee that if we keep the momemtum stratgey pure and based on only price, then only we will be rewarded with higher returns. So why not use our already acquired knowledge to finetune this strategy?
Why some people insist on keeping it pure and maintain its sanctity? Is there anything to gain ?
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any names you might have screened based on this, from last weeks list ? I think this can generate alpha ?
IMO, I think it is to “keep the shuffling without baggage”. Just look at the ranking and Sell it/Act upon it. This is helpful to folks who strategise but cant put it in action. someone like me. 
@Mudit.Kushalvardhan I still believe my previous message is appropriate and one should not mix momentum with any other strategy. By doing that, we are diluting the returns only.
In all cases, you will find that price action precedes news. If we look for fundamentals or do stage analysis, you might find that most stocks will not qualify.
In fact, what are we trying to do in a momentum pf. We are trying to get in and out of a stock that has momentum. We want to catch the price action. Why do we want to question why it has gone up? If we believe that market knows better than us, just follow the price action.
You might still want to have another pf that is based on fundamentals or technicals, but it does not make sense to couple it with momentum.
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Update for entry on 1st July 2024
50EMA (16030) > 200EMA (14292); hence, we can continue without any change.
Based on ranking:
- JAIBALAJI
- COCHINSHIP
- ANANDRATHI
- POWERINDIA
- SCHNEIDER
- HUDCO
- JWL
- AEGISLOG
- BLUESTARCO
- GRSE
- MOTILALOFS
- SOBHA
- NBCC
- ARE&M
- TITAGARH
- EXIDEIND
- CENTURYTEX
- SIGNATURE
- GODFRYPHLP
- NCC
Based on A → Z for easy tracking:
- AEGISLOG
- ANANDRATHI
- ARE&M*
- BLUESTARCO
- CENTURYTEX
- COCHINSHIP
- EXIDEIND
- GODFRYPHLP
- GRSE*
- HUDCO
- JAIBALAJI
- JWL
- MOTILALOFS
- NBCC
- NCC*
- POWERINDIA
- SCHNEIDER
- SIGNATURE
- SOBHA
- TITAGARH*
Exit:
APARINDS makes an exit.
EIHOTEL, KPIL and SWSOLAR remain within the top 25 and hence stay.
Entry:
GRSE makes an entry.
ARE&M, NCC and TITAGARH cannot enter as there is no vacancy.
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@Anand_Jain Hello, I have taken reference from a video by Viraj Khatavkar.
Please check out this video and there is a link to a Google Sheet containing the formula for NAV calculation.
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hi sir very interesting .as u said u will select the stocks in stage 2 + some criteria ,could you please give some insight ant how to identify the stocks in stage 2 ,some stocks look like stage 2 but eventually will down .if u give some idea with example it will be very helpful
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@visuarchie , Vishwanath ji, our momentum strategy depends on churning and since we are in discount brokerage platform, our brokerage is zero.
But now the scenario is changing…
How this wi affect our strategy??
On a lighter note, I just started this strategy last week, and this news has come. May be , wherever I go, I bring bear market with me. 
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