In all the research papers that have been talked about, the most optimum time is between 6 months to 1 year for look back.
I have never faced any issue of liquidity. Please note that I am a small investor and my orders will hardly move the needle. Also, please remember that even though we are calling them microcaps or small caps they are in the NSE top 750 out of 3000 or 5000 stocks present in the market.
Question - given the bloodbath in the last 2 weeks and this week, is it better to exit the portfolio now and enter when the decline has bottomed out? Or better to wait? Asking because I entered big time 3 weeks ago and have seen strong dilution
The pf has taken a big hit because the smallcap index itself has taken a beating.
I have never gone to cash because it is very difficult to judge the market top and bottom. For me, it has been going through the journey withstanding such shocks.
I have seen very good perf in pf and hence able to take this loss. I know that it is difficult if one has just started.
My belief is that there is more money to be made in smallcaps and microcaps than any other segment of the market. Just that the risks are equally greater.
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so vishwanath…how do you read from the most of the analysts’ notes these days …all of them say “move to largecaps, there is valuation exuberance at small mid caps”
how the momentum approach may fare if the analysts are to be believed or can the momentum still be able to post +ve outcomes ?
one advantage i see to momentum approach is, its easy or may be quicker to cash out, since your approach does not involve deep dive, deep valuation and ofcourse emotional attachcment.
i am keen to understand or study, if there is a way to get +ve outcomes at mid/smallcaps when they are correcting !
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@LarryWink I am sure the same people will come back and say how largecaps have saturated and we should shift focus to midcaps and smallcaps.
With the type of nimble rebalancing that we follow, we will book our losses quickly and shift to the more stronger stocks in the index. With the standard deviation factor that I use, some of the stocks showing big changes are avoided.
I have told myself not to apply my mind to any decision; just follow the system. I have the comfort of holding the strongest stocks in the index at all points of time. If the index chosen itself is wrong, then nothing can be done. I have also tried to distribute the risk by investing in 20 stocks from smallcap index and 25 from Microcap. If someone wants to reduce the risk even further, the best way is to increase the number of stocks. I know of one smallcase manager offering 50 stocks in a smallcap index.
I am certain I will come out making more money in the long run.
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Retail momentum traders need not worry about this, even if most of the money goes to large cap, there will be some stocks that are relatively strong in the mid and small caps too, the return may not be as good as the past, but it could still me good. What happens after these are bought is a different question, they can fall if the indices continue to fall.
And if there are no opportunities, one can expand the search area, go beyond the indices, or include large cap too.
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Update for entry on 18th March 2024
Based on ranking:
- TATAINVEST
- BSE
- HUDCO
- SUZLON
- MRPL
- BSOFT
- MEDANTA
- EIHOTEL
- KALYANKJIL
- COCHINSHIP
- INTELLECT
- MCX
- NBCC
- MOTILALOFS
- SJVN
- BLUESTARCO
- IRCON
- SWANENERGY
- POWERINDIA
- INFIBEAM
Based on A → Z for easy tracking:
- BLUESTARCO*
- BSE
- BSOFT
- COCHINSHIP
- EIHOTEL
- HUDCO
- INFIBEAM
- INTELLECT*
- IRCON
- KALYANKJIL
- MCX
- MEDANTA
- MOTILALOFS*
- MRPL
- NBCC
- POWERINDIA*
- SJVN*
- SUZLON
- SWANENERGY
- TATAINVEST
Entry:
INTELLECT and MOTILALOFS make an entry.
BLUESTARCO, POWERINDIA and SJVN cannot enter as there is no vacancy.
Exit:
ITI and NAM-INDIA make an exit.
KAYNES, SOBHA and WELCORP stay within the top 25 and hence remain.
Note: I expect significant changes in the pf at the end of the month when the index is rejigged.
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Hello Vishwanath. I’m following sharpe based ranking on NSE500 universe. The simplicity of momentum and passive nature style of investing is what excites me towards momentum investing. With your experience, can you tell when is the best time to add capital in momentum portfolios?
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Thanks visuarchie for sharing the list. Could you please share how do you calculate a year and 6 months back prices? For e.g if today is 18th March 2024, which date will you pick for 12 and 6 months back and how?
@neo13 Hello. There is no best time as the pf is rebalanced at regular intervals.
I have been adding money progressively over the last one year. My strategy has been to add money when I have surplus to invest.
As I allow the winners to run there are times when the allocation across stocks in the pf is very different. When I add money to the pf, my first aim is to balance the allocation across ones where the weightage is low. If there is any money remaining after that, I allocate it equally across the pf.
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Hello.
As I do my calculations over the weekend and take Friday’s closing price, I go back a year ago to the nearest Friday.
Current price is Friday, 15th March 2024. Corresponding 1 year ago will be 17th March 2023 and 6 months ago will be 15th Sept 2023.
@visuarchie
Question - Is there a reason why you only look at the 250 Smallcap stocks and not the entire small cap universe?
a genuine multibagger which is a small-cap can be outside the index and will only come into the index after meeting certain criteria which can take long time to meet?
How much of equity allocation is in this strategy? Did you backtest with just smallcap stocks?
Don’t you think with such a high volatility, when small caps crash, all alpha will be gone and it takes a good amount of time before equity curve recovers?
@vkediaonline The reason I look at the index only is to minimise the risk. Smallcaps are known to be risky; one way of reducing risk is to remain in the Index. Someone else (NSE here) is doing the vetting process and we are sure we are fine with these companies.
With the index rejigging that NSE does regularly, the weaker ones are removed and hence over any period of time, the stocks in the index are the good quality ones.
I understand that some good smallcaps outside the index might be performing better, but this is a price I have to pay to ensure quality and a good night’s sleep.
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My allocation in this pf is in low single digit as part of my overall equity portfolio.
I have not done any backtesting.
Absolutely, agree. When they crash, it is all gone. But the gains are expected to be more than the losses. This has been my experience till now.
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Thank you so much for your prompt responses. Somehow the data is not matching for me. Is it possible for us to connect at tskambow@gmail.com?
Hi @visuarchie
Your strategies and backtest methods are great, just curious that apart from smallcap and microcap momentum portfolio, do you maintain any other portfolios.
The methodology of “Nifty 200 Momentum 30 Index” is very much identical to your strategy except that the rebalance is every 6 months and no of stocks are 30. It aims to pick stocks with high momentum score (returns+low volatility). Link is here https://www.niftyindices.com/indices/equity/strategy-indices/nifty200-momentum-30.
Have you had a chance to compare the returns of your strategy with this index? There are few etfs that replicate this index saving tons of analysis and manual work. Like to hear your views.
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