nitinku5021a's Portfolio

#23
Current status:

Net amount invested in equity : 66.04%
Net amount invested in FD : 30.39%
Net amount invested in NCD : 3.56%

PS* applied for Religare NCD.
Worst Hit till date.

Net loss: 19.79%

HDIL, Renuka, SBI, ICICI and rest of all are bleeding heavily.

Rough figure:
Net equity exposure : 45%
Debt exposure: 45%
Liquid instrument : 10%

Increasing investment in Fixed income products. Not touching or increasing equity portfolio. I can hold that for long term.
 
#24
Increasing investment in Fixed income products. Not touching or increasing equity portfolio. I can hold that for long term.
This is a fundamental mistake.

Stick to one asset allocation at all time. Suppose it is Equity: Debt (incl. NCD) at 70:30.

So ideally during boom times, Equity : Debt would move up to 90:10 etc. Here you book some profits and move to debt to make it 70:30 again.

Now in bearish faces, you have Equity : Debt reduced to 45:55. This is the time to ramp up equity by withdrawing FDs, to make it 70:30 again.

What this essentially does is, you are forced to book profits at market tops and buy at market bottoms.

Decide on your asset allocation and select quality stocks for the long term.
 
#25
This is a fundamental mistake.

Stick to one asset allocation at all time. Suppose it is Equity: Debt (incl. NCD) at 70:30.

So ideally during boom times, Equity : Debt would move up to 90:10 etc. Here you book some profits and move to debt to make it 70:30 again.

Now in bearish faces, you have Equity : Debt reduced to 45:55. This is the time to ramp up equity by withdrawing FDs, to make it 70:30 again.

What this essentially does is, you are forced to book profits at market tops and buy at market bottoms.

Decide on your asset allocation and select quality stocks for the long term.
The problem with this is:

1) You eventually end up catching a falling knife. The price at which the quality stocks were trading when i bought were good enough, but in the bearish sentiment no price is fair price and they keep on falling.
My ultimate aim is to create a fixed income asset which will give me enough income to retire without any financial worry.

So till the fixed income basket is good enough to give the adequate return, I will keep on increasing it.

Your point is valid one but I am not following the rule of keeping certain %age in equity or debt.
Keeping the above intention in mind, I am increasing my Fixed income investment and ignoring my temptation to buy more stocks.
 
#26
Update:

Portfolio flat. Net gain : 12%

The Net duration: May, 2011 - Feb, 2012

Reason: I feel the market may not sustain here. Too fast and too much up. and I am content with 12% in 9 months.

Will build again slowly when the prices look attractive. Till then FD / Debt Instrument is the my fav. place.
 
#28
As Peter Lynch showed in "One Up..." it always makes sense to remain invested in the market.

There are a few periods of supernormal returns within a large time span.

If one misses those periods, then his returns over the large time span may be drastically lower.

It is a good strategy to get rid of weaker stocks (poor fundamentals) in this rally and conserve the cash to invest in quality stocks later.

But I see no merit in exiting from quality stocks on the premise of entering them lower, you may not get that chance at all.
 
#30
What's wrong with that? If you are going to try and catch a knife, does it make any difference whether it's falling down or going up?
There is no problem with any model. It all depends what suits you and works best for you, should be adopted and followed. It's not like I haven't tried all those suggested by 'Prudent' above. It's just that over the time, I feel more comfortable playing safe and having a target without aspiring for astronomical returns.
 
#31
There is no problem with any model. It all depends what suits you and works best for you, should be adopted and followed. It's not like I haven't tried all those suggested by 'Prudent' above. It's just that over the time, I feel more comfortable playing safe and having a target without aspiring for astronomical returns.
There is nothing wrong with playing safe and going with a tried and tested model that works for you.

However in the allure of safety are you missing out on something ? The fixed income portfolios might not be the most suitable avenues to generate inflation beating real returns. Fixed income returns has mostly been negative if we consider the inflation adjusted figures.

The purpose of equity is not to chase astronomical returns, but a steady compounding at 12 to 15% can generate humongous amount of wealth which would be most useful to meet future capital requirements ( large expenses/ retirement etc.)
 
#32
There is nothing wrong with playing safe and going with a tried and tested model that works for you.

However in the allure of safety are you missing out on something ? The fixed income portfolios might not be the most suitable avenues to generate inflation beating real returns. Fixed income returns has mostly been negative if we consider the inflation adjusted figures.

The purpose of equity is not to chase astronomical returns, but a steady compounding at 12 to 15% can generate humongous amount of wealth which would be most useful to meet future capital requirements ( large expenses/ retirement etc.)
Okay let me explain few lines to get across my points right, since you have quoted equity returns.

First thing first, the return should not be seen individually. It is always seen with the risk taken. So It all boils down to what is your risk vs. return.

Coming to my strategy, I play short to medium term with large cap or quality stocks with very modest target. And a large amount of portfolio value is involved. So I prefer to keep the risk as low as possible and in the worst case hope for beating just the risk free return by 3-4% margin. I am quite happy with that.
So does that mean, I am very conservative and play safe always. No, I do trade with Options with significant exposure but again my aim always be to minimize risk and maximize return. It is NOT only to maximize return.
Now your line that if we keep quality stocks for very long term, the proven track record says, we will get 12-15% yoy basis. True. But how much is really long term? 10 years? 20 years? The research shows its generally 30 years. In between if something kind of deep recession comes then your one generation will pass before anyone can see any significant return from the portfolio.
So what we are left with?
1) Invest for very long term and hope for the best that in the next 30 years nothing real bad (like 1929) happens and we get good return for our retirement?
2) Keep playing short to medium term without taking much risk and safely get out when you feel uncomfortable.
3) Do intraday or play with purely derivative segment without locking your capital for long time.

I choose the option 2 and 3 and totally ignore the option 1. Please note that the executing the options become harder as we go from 1 to 2 and 2 to 3. That means, you need atleast some method or skill in you to go for option 2 & 3. If you don't have any, then I feel you are totally gambling your hard earned money. There is a lot of information asymmetry exist in the market. Brokers have superior information than you (Level 2 data etc.), insiders have specific information which is played in the market. Always remember, we are just the small fish in the market and those big guys have the power to move the market in the direction they want. If you don't believe me, just observe the market tick by tick for 15 days without taking break and you will know what i am talking about.
Anyway back to point. So it all boils down to if you could time the market. Well its an impossible task and perfect timing is impossible. But if we get atleast 60% time right (that means if we play randomly, our chance of being right is 50%, with some method you can increase to more than 50% and with limiting your loss, you can turn the game in your favour), we will become real wealthy.
To quote few numbers from research paper:
Perfect foresight: Jan 1926- Dec 1996
1) $1 in T-bill -> $ 14
2) $1 in S&P 500 -> $1370 (Not bad !!!)
3) Perfect timing ability on a monthly basis (Swap between risk free and equity): $1 -> $2,303,981,824 (Yes it's > $ 2 billion !!!)

So what everyone is aiming for is, even a small chunk of that return will make you really rich over the time. I hope this helps to understand my position.
I am keeping the log in this thread to help me make more disciplined. Will post my actually return till date with my strategy once I download all the ledgers.
Let the discussion follow. I would like to learn if you have something quite different experience.
 
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#33
Coming to my strategy, I play short to medium term with large cap or quality stocks with very modest target. And a large amount of portfolio value is involved. So I prefer to keep the risk as low as possible and in the worst case hope for beating just the risk free return by 3-4% margin. I am quite happy with that.
Playing in equities for short-medium term with a large amount can yield huge profits (Oct 2008, Mar 2009) or can prove to be suicidal ( Jan 2008, Nov 2010). Although you are playing for a small markup over risk free rate, but the play itself has a lot of inherent risk inherent.

Now your line that if we keep quality stocks for very long term, the proven track record says, we will get 12-15% yoy basis. True. But how much is really long term? 10 years? 20 years? The research shows its generally 30 years. In between if something kind of deep recession comes then your one generation will pass before anyone can see any significant return from the portfolio.
The Indian markets do not have a long term history like the US or elsewhere, but rolling returns for Sensex over any 5 year period is positive. If a sum of money steadily compounds for a span of 10-15 or 20 years, then it will be almost impossible that all gains are wiped off in one downturn. Kindly do the maths and let me know if you found on the contrary.


So what we are left with?
1) Invest for very long term and hope for the best that in the next 30 years nothing real bad (like 1929) happens and we get good return for our retirement?
2) Keep playing short to medium term without taking much risk and safely get out when you feel uncomfortable.
3) Do intraday or play with purely derivative segment without locking your capital for long time.

I choose the option 2 and 3 and totally ignore the option 1. Please note that the executing the options become harder as we go from 1 to 2 and 2 to 3. That means, you need atleast some method or skill in you to go for option 2 & 3.

If you don't have any, then I feel you are totally gambling your hard earned money. There is a lot of information asymmetry exist in the market. Brokers have superior information than you (Level 2 data etc.), insiders have specific information which is played in the market. Always remember, we are just the small fish in the market and those big guys have the power to move the market in the direction they want. If you don't believe me, just observe the market tick by tick for 15 days without taking break and you will know what i am talking about.
It is nice to have some definitive strategy in play. However 2 and 3 (in particular) are not ways of long term wealth accumulation per se. As you familiar with the vagaries of F&O you must be knowing how risky it is. One wrong trade can wipe out all accumulated profits.

I completely agree with you about information asymmetry in Indian markets and some segments profiting from that, but ignoring 1 completely and relying on 2 and 3 do not appear to be a great idea. It will be nice if you can illustrate with an example how this works or has worked for you.

Anyway back to point. So it all boils down to if you could time the market. Well its an impossible task and perfect timing is impossible. But if we get atleast 60% time right (that means if we play randomly, our chance of being right is 50%, with some method you can increase to more than 50% and with limiting your loss, you can turn the game in your favour), we will become real wealthy.
To quote few numbers from research paper:
Perfect foresight: Jan 1926- Dec 1996
1) $1 in T-bill -> $ 14
2) $1 in S&P 500 -> $1370 (Not bad !!!)
3) Perfect timing ability on a monthly basis (Swap between risk free and equity): $1 -> $2,303,981,824 (Yes it's > $ 2 billion !!!)

So what everyone is aiming for is, even a small chunk of that return will make you really rich over the time. I hope this helps to understand my position.
I am keeping the log in this thread to help me make more disciplined. Will post my actually return till date with my strategy once I download all the ledgers.
Let the discussion follow. I would like to learn if you have something quite different experience.
It is nice to assume that chance of getting it right is 50%, however with the information asymmetry and over dependance on hot money (FII) it is rather insanely difficult if not impossible to time the markets.

Overall it seems that leaving equities and moving to debt at certain points of time and doing the reverse may not be the prudent strategy. Sticking to a definitive asset allocation with dynamic re-balancing may prove more efficient in the long term.

However, different strategies may prove beneficial for individuals at time. The main challenge remains to repeat the performance over different time spans.

Let the discussion continue.
 
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#34
Hi all,

I will update my portfolio as and when some changes happen. The updates here will be for the purpose of tracking the overall return and errors.

I trade mostly in Options and some short term trading in equity. Rest of the time, I use bonds and FDs to store the Money.

I will be using 100 as my index to represent my portfolio.

December, 2010
============
Closed the index option sold and liquidated all holding.

1st Feb, 2011
========
Till now all money in liquid form and in short term FDs.

Net = 100
Net Position = 121.3

65% deployed in Risk free instrument (FD, Debt fund)
10% in MF
25% liquid cash.
 
#36
Not true.

Just one example
1st Jan 1994 - 3437
1st Jan 1999 - 3065

It should not be difficult to find more examples.
Study on rolling returns (pdf)

As it is evident from 5 years onwards the probability of negative returns goes down considerably. This is evident even with the short history of Sensex.

Moreover as the author rightly points out,

Finally an investment through SYSTEMATIC INVESTMENT PLAN (SIP) would have reduced even the negative returns that appear.
A new study from HDFC Mutual Fund, report is here

One can check rolling returns over any 5 year period between 03 Apr 1979 to 13 Feb 2011 using this.
 
#37
Study on rolling returns (pdf)

As it is evident from 5 years onwards the probability of negative returns goes down considerably. This is evident even with the short history of Sensex.
All I am disputing is your original statement 'rolling returns for Sensex over any 5 year period is positive' - that's not true. The rolling period is negative for the 5 year period I mention.

If you calculate the US S & P 500 from the peak of 2000, the 10 year rolling return will be negative.

And these are not isolated incidents - I am pretty sure, you will find more if you start checking the US stock market from the crash of 1929.
 
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