@visuarchie , Sir, one off track question.
While re-balancing, when we sell a particular share, we get credit of 80% only during the day, while remaining 20% is made available next day. So invariably the re-balancing ( buying as well as selling) gets divided into 2 consecutive days , instead of one day.
So question is , what if you bought a recent entry stock upto 80% and going to add 20% , next day, but that stock next day goes out of top 25, then what you do? You still buy the remaining 20% or sell the previous day 80%?
Very true. There is nothing fixed or sacrosanct about this strategy. It can be fine tuned to what is comfortable.
I have decided to follow the system completely and hence, I live through these price downs.
Another important aspect is that in momentum investing, we are generally moving away from individual stock to pf level performance.
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This has never happened to me. Invariably, most rebalances have involved more than one scrip and I end up buying most of them on Monday and maybe, one on Tuesday.
Even if the hypothetical situation like what you are describing happens, I will go through with buying the remaining 20% the following day. I check for ranking once a week only.
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Very fascinating approach.
Curious about overall returns percentage it’s generating. Are we tracking it somewhere?
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Possibly people who are maintaining their individual pfs are recording their returns.
Update for entry on 19th August 2024 (look back dates - 18/08/2023 and 16/02/2024)
50EMA (17070) > 200EMA (15188); hence, we can continue without any change.
Based on ranking:
- COCHINSHIP
- GLENMARK
- INOXWIND
- VGUARD
- POWERINDIA
- GRSE
- GRANULES
- KAYNES
- ARE&M
- SIGNATURE
- JAIBALAJI
- TRITURBINE
- HUDCO
- NBCC
- MCX
- BIKAJI
- KFINTECH
- 360ONE
- DEEPAKFERT
- BLUESTARCO
Based on A → Z for easy tracking:
- 360ONE
- ARE&M
- BIKAJI*
- BLUESTARCO
- COCHINSHIP
- DEEPAKFERT
- GLENMARK
- GRANULES
- GRSE
- HUDCO
- INOXWIND
- JAIBALAJI
- KAYNES*
- KFINTECH
- MCX*
- NBCC*
- POWERINDIA
- SIGNATURE
- TRITURBINE*
- VGUARD
Exits:
DOMS, NATCOPHARM and NUVAMA make an exit.
HSCL and SUVENPHAR stay within the top 25 and hence, remain.
Entries:
KAYNES, NBCC and TRITURBINE make an entry.
BIKAJI and MCX cannot enter as there is no vacancy.
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@visuarchie
Sir, Hope doing good. Just to let you know that i have started with NSE 500 universe 4 weeks ago and so far its going on good. I felt the draw down was fairly ok (max -4% and currently -0.5%) despite the index has corrected decently.
At present i’m holding top 20 stocks with WRH as 1.5X (retain until rank 30). In the last 4 weeks one thing i observed was, there are few candidates which keep on going out of 30 rank and coming back within top 20 either next or next to next week (so far exited 10 stocks and 2 of them has come back to the top list).
So wondering does 1.5X WRH is too narrow for 500 universe? (i.e. 6% of the universe). Is there any thumb rule or best practice which we can follow? Thought to get your views/thoughts too here pls.
Cheers!!!
@gpharshas Good to hear that you have started.
This is a typical issue we have when designing the system. Whatever you mentioned has happened to me several times. A stock goes out this week and the following week it is back. I just follow the system.
You have used 1.5x as WRH, whereas I am even more strict. It is less about the universe size and more about churns / returns. For my smallcap pf, for 20 stocks, I exit if it falls below 25.
Many people advocate using 2x as the WRH.
I will give below an illustration using stocks from this pf itself.
| Rank | 1y / 6m | Avg | |
|---|---|---|---|
| 20 | BLUESTARCO | 130% / 39% | 84.5% |
| 25 | GODFRYPHLP | 107% / 78% | 82.50% |
| 30 | NAM-INDIA | 120% / 39% | 79.50% |
| 40 | Exide | 85% / 47% | 66.50% |
If you continue to drop down to 2x, ie 40th rank, the average returns falls down from 84.5% → 66.5%
We are allowing the performance to deteriorate so much before we drop it.
If we allow 1.5x, ie 30th rank, average returns falls from 84.5% → 79.5% before it is dropped.
Of course, I have been very simplistic in my assumption of looking at average returns. We could study the same using recent data also to see the impact of drop in performance before replacement.
However, key factor here is returns and level of churn (+ cost of churn) we are comfortable living with.
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Thanks for the detailed reply sir @visuarchie
you reply has given a clear message, we are not going to loose anything by frequent/strict churning (small brokerage may be and some charges) however we save lot by ensuring the timely exit. I think i would continue with 1.5X. 
thank you.
@visuarchie , hello sir,
I normally use momentum indicator as Average of sharpe returns of 3months, 6 months and 12 months on the small cap and microcap universe.
Instead of using average of these three time periods ,
If for ranking I use only 3 months sharpe returns or just 1 month sharpe returns, what difference it will make? And which one is more desirable from returns point of view?
Some additional information, which you may find helpful.
@ChaitanyaC My question regarding whether to choose average of 12/6/3 months or 1 month and 3 month is more advantageous…is not discussed there.
Yes. I gave the link assuming the information and the view expressed can help in using Sharpe at all.
Until we create a system, that starts delivering returns consistently, every bit of information helps. I guess, systems can be created this way too, along with basing it one particular thing. It appears you are in the middle of it. Do share your learning and findings if you have created one. I am always looking for something that I can understand and use.
I haven’t used any of the aspects of the strategy discussed here, yet, so you may find my views not particularly to the point.
I am currently following average of 12/6/3 months sharpe returns…But when I checked, monthly sharpe returns and 3 month sharpe return based rank list has given better returns. But many momentum investors recommend avearge of 3 periods. I feel that 1 month or 3 month period based rank will catch the stocks at early level, around nearby breakout while averaging of 12 months and 6 months will be late entry after a big move…Thats why Asking it.
Sharpe or anything that is available should align with our objective. We choose what is best for our system, which sometimes can be opposite to the general consensus. And many aspects are subjective, be it entries, allocation, stop loss, profit booking, even brokers.
Any chance you can backtest your choices?
I dont have resources for back testing.
@visuarchie Sir, Many thanks for creating this thread and sharing with the community. I am trying to replicate the calculations from your video. It would be helpful if you could share the recent spreadsheet.
Have a doubt, weekly decision for stock exit or entry is based on the ranking. How is 50DMA and 100 DMA linked to decision making? Thanks again.
@Mudit.Kushalvardhan Many studies done in the past have shown that the optimum period for look back is 6+ months; that is why we have chosen 6m and 1y in our case.
Shorter look back periods can throw up stocks that show sudden spurts that may not be consistent.
I did a quick check on data from 6m. There is difference between pure rate of change (returns) and volatility managed returns (momentum ratio).
| ROC | Momentum ratio | |
|---|---|---|
| 1 | COCHINSHIP | GLENMARK |
| 2 | GRSE | DEEPAKFERT |
| 3 | POWERINDIA | COCHINSHIP |
| 4 | DEEPAKFERT | WHIRLPOOL |
| 5 | GODFRYPHLP | POWERINDIA |
| 6 | GLENMARK | BIKAJI |
| 7 | AEGISLOG | DOMS |
| 8 | ARE&M | ERIS |
| 9 | KAYNES | CHOLAHLDNG |
| 10 | TEJASNET | CROMPTON |
| 11 | CDSL | NATCOPHARM |
| 12 | MOTILALOFS | GRSE |
| 13 | DOMS | SUVENPHAR |
| 14 | PCBL | GODFRYPHLP |
| 15 | CENTURYTEX | VGUARD |
| 16 | CHOLAHLDNG | JUBLPHARMA |
| 17 | BIKAJI | BALRAMCHIN |
| 18 | SUVENPHAR | CDSL |
| 19 | FSL | ARE&M |
| 20 | WHIRLPOOL | FSL |
So even for 6m look back, there is a difference between rate of returns and one that is managed with volatility. I guess this would be more acute for shorter look back periods.
My suggestion would be to remain with longer periods for look back.
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@nil Will share the latest spreadsheet after I update today.
Many people had raised a concern on market falling and what we should do with our pf. One of the suggestions we made at that time was to look at 50EMA and 200EMA to determine state of market. If the market was turning bearish, we could shift from equity to cash or gold.
Update for entry on 26th August 2024 (lookback dates: 25/08/2024 and 23/02/2024)
50EMA (17214) > 200EMA (15319); hence, we can continue without any change.
Based on ranking:
- GLENMARK
- COCHINSHIP
- PCBL
- POWERINDIA
- INOXWIND
- CDSL
- GRANULES
- MOTILALOFS
- DEEPAKFERT
- MCX
- SUVENPHAR
- ARE&M
- BIKAJI
- DOMS
- GODFRYPHLP
- SIGNATURE
- HSCL
- HUDCO
- CHOLAHLDNG
- JAIBALAJI
Based on A → Z for easy tracking:
- ARE&M
- BIKAJI*
- CDSL*
- CHOLAHLDNG*
- COCHINSHIP
- DEEPAKFERT
- DOMS*
- GLENMARK
- GODFRYPHLP*
- GRANULES
- HSCL
- HUDCO
- INOXWIND
- JAIBALAJI
- MCX*
- MOTILALOFS*
- PCBL*
- POWERINDIA
- SIGNATURE
- SUVENPHAR
Exits:
GRSE, KFINTECH, NBCC, TRITURBINE and VGUARD make an exit.
360ONE, BLUESTARCO and KAYNES stay within the top 25 and hence remain.
Entries:
BIKAJI, CDSL, MCX, MOTILALOFS and PCBL make an entry.
CHOLAHLDNG, DOMS and GODFRYPHLP cannot enter as there is no vacancy.
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