Frankly , its not a small thing. We may end up giving all the gains that we have got on the position. The core strategy will remain as rank-based momentum, but this tweaking can be seen as a risk management measure to lock-in the gains.
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@ChaitanyaC If you give a detailed attention towards this rank-based momentum portfolio, you would realise that since Sharpe returns are used, we are trying to avoid high volatility stocks, which can bounce up on some news and come in the list one week and go out of the list the very next week. Volatility is taken care of. Then there is a very high possibility that stocks like Anantraj might come in the list which are in a very secular uptrend and not volatile.
So what do you think? When will such stocks go out of the rank? Mostly they will not have abrupt exit. They will slowly lose momentum over 6 months to 1 year and then go out of worst held rank.
Imagine , it came into your ranking list in July 2023 and till today it has given you upmove of 288% and now its downward spiral has started and suppose it goes out of ranking list in lets say march 2025, by giving out all the gains or substantial gains back…That would be very unfortunate, after seeing such high gains. And this will be the story for all the Sharpe-curated secular stocks. They will behave like good boys while going up as well as going down.
So to avoid giving out all the gains and to protect these profits, its more sensible to have a trailing stop-loss. This strategy is not written in Bible Or Gita or Kuran that we cant change it to protect our profits. We need not be at the mercy of stock price behaviour if we could protect the gains by just implementing a risk minimising feature. Also if you see it in that way, Worst held rank , meaning we are selecting top 20 stocks but not selling till it crosses 25th rank, is also a risk minimization feature only to avoid whipsaw…
Obviously when we sell the stocks , then can again re-bound and come into top list, but thats not a cause of concern. What I should be happy with is, I tried to protect my gains and I am able to do it.
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A few weeks back I developed a backtesting strategy and observed similar results. Initially, I thought there might be an issue with my script, but after reading your message, I decided to manually replicate the portfolio using the stocks shared here. I calculated the portfolio return from August 19 to September 16 (last month), and it only generated -0.45% returns, while the index delivered 5.3% in the same period. Based on this, and my earlier backtesting, it seems that the strategy is not able to outperform the index. It would be great if someone could double-check this.
Can also someone share their returns if they have invested a lump sum amount? If you’re using a SIP approach, then the comparison may not be accurate.
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You are comparing with which index? Coz stocks here are from smallcap universe, so you have to compare with smallcap 250 index and not nifty 500.
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I have compared it with the Nifty Smallcap 250 Index. It has given a 5.3% return from August 19 to September 16.
I combine both small cap 10 stocks and microcap 10 stocks and measure returns from 1st august to 1st sept. I got around 6% returns, whereas index gave around 3-4%
Its possible that in a particular month your set of stocks will underperform the index , because may be some other stocks in that index are performing better and your selected stocks start losing momentum…Over a shorter period this may be possible.
Thanks for the reply, I think irrespective of the Index (small cap or NSE 500) the returns seems to be same. I personally feel Shipping companies have created some negative impact to the portfolio (in my case Cochin and GRSE). I decided to wait for few more weeks. Will update when the PF turned positive.
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@gpharshas My suggestion would be to not look at the index directly, but compare with some mutual fund’s NAV that replicate the index.
The reason is basically that indices may have different weightage as compared to stocks in our pf. However, what is important is the profit / loss from the pf. With NAV, we get what we see. Hence, it is a better comparison always.
Motilal Oswal has got a Nifty 500 Index fund. You could compare the NAV over the period that you have invested and see the results.
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@avneesh As I wrote to @gpharshas in my previous message, it might be better to compare with the NAV of a MF that replicate the index that you are following.
For example: Motilal Oswal has a smallcap 250 index fund. When I compared the fund returns from 19th August to 20th Sept, NAV has returned a 3.5% growth while this pf has returned -3.73% over the same period. The results may be different over longer periods.
In the other pf that runs on Microcap250, while Motilal Oswal Microcap250 NAV has returned 2.40% over this period, our pf has returned 4.22%.
Over longer periods, I expect that the pf will return better than a MF.
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@Mudit.Kushalvardhan yes, you could at multiple options to fine tune the pf, but the problem will be back testing. Without backtesting, it is very difficult to conclude if the change we are proposing will work all the time or not.
What might work for one stock at this moment, might not work all the time for all stocks in the pf.
In any case, try to remove the human bias and make all decisions based on rules. You could make all the above as a rule and implement it.
Systemic decisions are easy to implement.
Cochin Shipyard - went up and came down significantly. In the last couple of days, it has gone up again. We may have exited it prematurely and lost some of the gains.
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@Mudit.Kushalvardhan You could introduce a third look back period of 1 month or 3 months. While I am not in favour of lower time periods, it could solve some of the concerns you have of locking in the gains.
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Update for entry on 23rd Sept 2024 (loopback dates: 22/09/2023 and 22/03/2024)
50EMA (17834) > 200EMA (15863); hence, we can continue without any change.
Based on ranking:
- INOXWIND
- GODFRYPHLP
- HSCL
- JUBLPHARMA
- PCBL
- MCX
- MOTILALOFS
- GLENMARK
- SUVENPHAR
- BIKAJI
- CONCORDBIO
- PPLPHARMA
- COCHINSHIP
- ERIS
- DOMS
- QUESS
- POWERINDIA
- CENTURYTEX
- SIGNATURE
- KAYNES
Based on A → Z for easy tracking:
- BIKAJI
- CENTURYTEX
- COCHINSHIP
- CONCORDBIO*
- DOMS
- ERIS
- GLENMARK
- GODFRYPHLP
- HSCL
- INOXWIND
- JUBLPHARMA
- KAYNES*
- MCX
- MOTILALOFS
- PCBL
- POWERINDIA
- PPLPHARMA
- QUESS*
- SIGNATURE
- SUVENPHAR
Exits:
GLS, NATCOPHARM and POLYMED make an exit.
Entries:
CONCORDBIO, KAYNES and QUESS make an entry.
Note: The index is being rejigged end of next week. There are going to be 38 changes in the index constituents. This will have an impact on some of the scrips in the pf also. Next week’s rebalance will take into account the new index constituents.
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Hi @visuarchie , One query…When I applied a filter of up days more than 50% in last 6 months, to smallcap 250 universe, the list of stocks got reduced by more than half, but I get good stable charts. So is it advisable to apply this filter? What has been ur experience?
@Mudit.Kushalvardhan applied a filter of up days more than 50% in last 6 months, to smallcap 250 universe
Can you please explain more
I meant that if I apply a filter where stock price of the selected stock should be in positive , going up 50% more than its down days. For example, in last 6 months ( 180 days) if Himadri specialty has gone up on more than 90 days and gone down less than 90 days, then that stock will be selected. The net effect of this filter will be, those stocks which are steadily going up , will be selected and those stocks which have suddenly gone up in 4-5 days, but overall gone down will be avoided. This will avoid volatile stocks and select stocks which are steadily going up.
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@Mudit.Kushalvardhan this is in line with what the great guru Andreas Clenow had talked about in his book on momentum strategy. He had included a chapter on how to create a portfolio.
This is a measure of volatility check. As we are using other methods like returns / SD (captured as momentum ratio), we need not use this parameter.
If you are going to use it, then you can apply this directly on daily price changes and ignore the momentum ratio parameter that we have in our sheet.
@Mudit.Kushalvardhan taking last week’s list or list from this week, can you please let us know which stocks are not present and which ones are getting added? Thanks.
In our regular screening number of stocks are 101 while when I apply positive days 50% for last 6 months , number of stocks reduces to 67.
In top 20 list, stocks that gets eliminated are
Godfrey Phillips
Sobha
Bombay Bumrah
First Source
In small cap, only these get dropped…
in Microcap universe in normal criteria , stocks are 92 and by applying positive days filter , stocks are 58 and stocks who get dropped are
sarda energy
zentec
So , you are right most remain same…only number of stocks reduces
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@VeeraBrahmam , Could you update the stocks list after index rejig? (Like you have done for microcap)