@Raghuvamsi_Y There are many ways of going about momentum investing.
What you have done by capturing the price changes only (over 1year or 1y + 6m or any other time frame) is basic momentum investing. This is supposed to give good returns but at the risk of higher drawdown.
People work on this basic price change and add several filters or conditions to reduce the drawdowns without compromising too much on returns. Volatility conditions are added to help in this process.
In the example you have quoted of ERIS, from 58 when we rank based on price change only, it improves to 19 when we add the volatility factor.
If you look at the construct of our sheet, there are some steps that people should be aware of.
- We start by getting the price change over 1y and 6m
- We introduce the volatility factor and calculate a value known as momentum ratio.
- We go one step beyond this. We do not directly use this value (though we could). To ensure that we compare across time frames (1year and 6m) with a level playing field, we calculate the Z score for both time frames. This captures the distribution or performance of a scrip as compared to its universe in each time frame. We then rank based on this.
There is no right or wrong here. We can choose the method that we are comfortable with.
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@Sandeep_Mehta1 I can. I do not have a specific thread for this, maybe, I can share it here itself.
I use the same method for all universe. In the case of midcap 150 pf, it a 15 stock pf with rebalancing done on 1st and 16th of every month. There is no relaxation on worst held and stock is removed if it falls below 15.
My next rebalance is on 16th Oct. I will update the sheet and then share the link.
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@sandeep17 It is gross. I did a calculation for transaction costs couple of months back and did not see a big difference (couple of % points only). At the same time, I have not factored the dividends that are received in the pf. It might actually even out.
STCG is different and I have not accounted for it.
@Mudit.Kushalvardhan One difference as compared to MFs is that the NAV of the MF will include the dividends received, while I have not accounted for it. But this might even out the transaction costs.
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You have read it wrong. Its not Nippon small cap fund where Lumpsum is stopped. What I have given returns of is Nippon small Cap 250 index which is the universe for this thread smallcap portfolio. If we are taking out 25 momentum stocks out of total 250 stocks of index, how much performance improvement we have, is what we are discussing.
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Ohh my bad… Yes in theory, top ones should give superior returns…Picking up those is like a derby race… 
Yeah I agree transaction costs will be mostly offset by dividends received. That leaves us with STCG which will be by far the biggest overhead ( especially if its a strategy with high churn rate).
Have you in any way tried to do a cost-benefit analysis of doing this DIY vs going for lets say the corresponding momentum index fund?
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I have tried to calculate it for different returns scenario. Not exact. But with current returns scenario, STCG tax may lower the retuns from 4% to 8% overall. My worry is that, if that much is the cost for STCG, then alpha over mutual funds ( I am talking about Momentum mutual funds) is lost totally.
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@sandeep17 I have not done any cost-benefit analysis of DIY.
However, there are still one or two points in favour of DIY. I have seen that in many cases, ST can be gains or losses as we move in and out. The nett result is not too bad in terms of taxation.
But more importantly, you are in control of what you are buying and selling.
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@sandeep17 We also have to remember in all our discussions that XIRR is adjusted for periodic inflow / outflow of cash. If we have to do a comparison with the NAV of an MF, we should also look at the NAV growth of the portfolio. There is some differences in this.
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What my analysis tells me is that if DIY outperforms the corresponding index by 3-4% annualised, you will outperform the index even with a blended STCG cost of 6% on gains every year. Having said that, the outperformance is not that significant. Over a 15 year period, DIY with 20% CAGR will give you a 13x return on initial capital. Index fund with 16-17% CAGR will give you a 9-10x return on initial capital.
So in 15 years, 1 CR becomes 13 CR in DIY and 9-10CR by being in an index fund. The index fund will give you that return with 0 effort while DIY needs you to be disciplined with your effort over a 15 year period. I think the extra 3-4% return is only worth it if your effort is towards leveraged capital ( i mean if you are doing this on other people’s capital for a share of their profit as well ).
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I think, the correct comparison will not be with index. If we are running DIY momentum portfolios, then its better to compare them with Momentum mutual funds. That would be comparison of apple with apples.
Also I didnot get your point of when DIY gets 3-4% more than index , how will it compensate with 6-7% of STCG taxes drawdown???
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One query
There is standard deviation used for the calculation.
However I feel that it does not indicate true volatility…
Say the values 3,7,5,8 gives STD as 2.22…
and values 3,5,7,8 also give same STD… However the second one is smooth in terms of time-series.
Any idea how to tackle this case? How can we ensure that the price has increased smoothly over the period. STD does not capture that essence.
I read that people calculate daily return, convert that to annualized one… Then take STD of those returns… That may resolve some aspect, but still it does not capture the time series aspect.
@Keyur_Joshi we are doing what you are suggesting actually. We are not taking SD of the prices. Instead, we are taking SD of the daily price change. This is very comprehensive and captures the volatility nicely.
hi sir,
your concept is very interesting and has intrigued me. thank you for sharing your wonderful strategy with us. would love to understand how to go about your strategy in the midcaps. do you have a link to the google doc you can share. can we start a seperate thread for midcap? thanks in advance.
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@swipeupinlife @Sandeep_Mehta1 based on your request, I have started a separate thread for my midcap pf.
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What you showed here is absolute returns annualized. But @visuarchie has given XIRR which is excellent.
Update for entry on 21st October 2024 (lookback dates: 20/10/2023 and 19/04/2024)
50EMA (18,061) > 200EMA (16,280); hence, we can continue without any change.
Based on ranking:
- GET&D
- ANANTRAJ
- BASF
- MOTILALOFS
- GLENMARK
- MCX
- SUVENPHAR
- JUBLPHARMA
- TECHNOE
- INOXWIND
- HSCL
- GODFRYPHLP
- CHOLAHLDNG
- PPLPHARMA
- DOMS
- NETWEB
- ABREL
- PCBL
- BIKAJI
- KAYNES
Based on A → Z for easy tracking:
- ABREL*
- ANANTRAJ
- BASF
- BIKAJI*
- CHOLAHLDNG*
- DOMS*
- GET&D
- GLENMARK
- GODFRYPHLP
- HSCL
- INOXWIND
- JUBLPHARMA
- KAYNES
- MCX
- MOTILALOFS
- NETWEB
- PCBL
- PPLPHARMA
- SUVENPHAR
- TECHNOE
Exits:
BLUESTARCO and SIGNATURE make an exit.
ERIS and NEWGEN stay within the top 25 and hence remain.
Entries:
CHOLAHLDNG and DOMS make an entry.
ABREL and BIKAJI cannot enter as there is no vacancy.
Note: TV18BRDCST has been removed from the index and replaced by AKUMS from 16th October 2024.
@visuarchie , Hi vishwanath ji, your overall guiding principle is 50 DMA above 200 DMA…can this be restricted to 150 DMA?
In Stocks on the Move by Andreas Clenow, he has mentioned that, he stops buying new stocks ( replacing the exiting stocks) when the universe goes below 200 day EMA. And start selling the individual stock if it goes below 100 day EMA… Can this also be made 150 day EMA?
In some other strategies involving Stage Analysis, Stan Weinstein and Minervini suggest that they dont buy a stock if its below 150 Day EMA…although they dont have any guiding principle about market, but it seems they consider market index below 200 day EMA as a market without momentum.
What r your thoughts on this?
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@Mudit.Kushalvardhan It is for us to define our rules. I have said several times previously also, I would like to remain invested at all times. I will not shift to cash (or gold). However, some people had apprehensions and for that I had suggested we could like at the index’s 50 and 200EMA. Instead of 200, we can choose 150 also; most strategies talk about 50 and 200 for checking market direction.
This week I checked between 150 and 200 DMA / EMA. There are no major differences in market direction based on the values. 50 EMA is 17,938. 200 EMA is 16,334 and 150 EMA is 16,902. Under both circumstances, our view would be to continue without any change.
We can follow Clenow’s suggestion when the market direction changes to a sell.
At the moment, we have used only price and SD as factors for ranking. We can add more factors (like its EMA) to shortlist scrips. Generally this will end up in reducing returns, but helping in reducing drawdowns also.
As I keep repeating, we should be comfortable with the system we have developed and we should sleep well without worrying too much.
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