Technical Analysis of Indian Equities by Nooresh

Best Time for Advisory Services to show Alpha :) & sell Services/Equity Related Products

Since Nifty topped at 9000 odd levels in March 2015 the Index has had a nice ride to 6850-7000 and is now back to 8500-8600.

The last move from 6900 to 8600 has been fast and furious with Midcap and Smallcap Indices hitting new all time highs or 3-5 year highs. Its obvious with such highs a lot of portfolios would now be making a lot of Alpha to the Nifty.

So now you will start noticing the following things.

1) Value Investment Advisors showing their 1 year/3 year performance returns. ( because just around 3 years back we were at 5500-5800 Nifty with USD-INR at 65-68)

2) Technical Analyst Advisors showing monthly/quarterly/annual performance.

3) IFAs and AMCs pitching you SIP products and smallcap/midcap funds. PMS with smallcap stocks showing their big ALPHA to the Nifty.

4) New Breed of Geniuses calling themselves Value Investors/Quant Investors/Technical Traders/Day Traders and talking about great returns.

5) Quite a lot of people will sell you Mentoring Courses/Wealth & Money Workshops/SuperMind/Art of Investing Workshops.

6) A lot of presentations on how Equities have given Super Returns ( you might have seen that it was better to buy Maruti shares instead of Maruti Car)

7) A lot of Investors/Traders will become Investment Advisers. How many continue to stick around in the business for long is to be seen. ( M guilty too - Started in raging bull Market of 2006)

There will be early Bird Discounts , 20%/30% discounts , Buy One Service get other free. ( If the performance is good and future is better should you be increasing prices or giving discounts ? )

A lot of investors/traders jump in a little later than usual - Fear of Missing Out Syndrome. All advisers try to diagnose it with a product 🙂

You are and will continue to receive following things

E-mails with subjects like

1) How i made 40-100% in few months.Hidden Smallcaps and Multibaggers – Last few days to subscribe

2) Investing Secrets - Art of Investing etc

3) Power of Technical Analysis

4) Mentoring from Masters.

SMS

1) Our XYZ Call Option made 24 lakhs on 2 lakhs Capital.

2) Sure Shot Operator Calls.

Phone Calls

1) Kya aap equity market me trade karte hai ?

2) Monthly 20% Return mil jayega sir. Minimum Investment 50k sir bas. Charges 5k a month.

This is what a Bull Market does or rather a new high in Smallcap and Midcap Index does. Everyone boasts about their calls – The most used words - Maine Bola tha.

Also the performance reports are a good way to sell your product whether it will work or not in the future.

So think hard before you go for anything as we don't believe the Bull Markets are ending. There will be more choices then ever.

Next 6 months may not be like the previous 6 months but next few years there will be a lot of opportunities.

How to go about your Investment Decisions and Spending your Money is your choice.?

All i can say is give it an equal amount of time as you do while buying a New Phone.

( Its a fact we spend more time selecting Phones/Laptops/Gadgets which are going to be worth 50-70% lower than on investment decisions like equities,gold,real estate, fds,ppf or trading decisions or trainings which can increase in value of yourself and your money)

YOU WILL BE SURPRISED TO KNOW - MOST OF THE ABOVE WORDS ARE FROM AN ARTICLE IN OCTOBER 2014 -

http://www.nooreshtech.co.in/2014/10/best-time-for-advisors-to-show-performance-reportscagr-to-sell-their-services-part-1.html

Like we did the exercise of Random Portfolio in 2014 let us do it again.

The Random Portfolio

The Random Portfolio idea started with my discussions with Prashant Krish . This process has also helped me get a good benchmark for our own returns comparison and strategizing

The thought was about how a chance portfolio performs against benchmarks. ( Read this old post )

Random Portfolio Selection Filter

The workings on this exercise have been done by my our new team member - Harsh Doshi

•25 stocks selected randomly ( rand function) with an equal weightage of 4%.

•Time Period – 02 March 2015 to 29th February 2016 and 02nd March 2015 to 29th July 2016.

•No shuffling of stocks. Just buy and hold.

•No brokerage applied.

5 Random Portfolios created

So to get a decent average and range of returns.

Exercise 1 -  02nd March 2015 to 29th July 2016

This was basically to see even if u bought at a day or two before the Top at 9100 ( hindsight) what would the performance with Midcaps/Smallcap Indices at new highs since then.

Index Performance

Index  3/2/2015 7/29/2016
Nifty 50 8956.75 8638.5 -3.55%
Bank Nify  20008 18953.15 -5.27%
Nifty Smallcap  5775.7 6086.05 5.37%
Nifty Midcap  13322.2 14772.75 10.89%

Random Portfolio Performance

3/2/2015 7/29/2016
Portfolio Initial Equity End Equity %  Returns
Random Portfolio 1 1000000 1345182 34.52%
Random Portfolio 2 1000000 1221268 22.13%
Random Portfolio 3 1000000 1174632 17.46%
Random Portfolio 4 1000000 1187006 18.70%
Random Portfolio 5 1000000 1256082 25.61%

 

Average Returns  = 23.7%

The worst performing portfolio also beats all the indices by a big margin.

Excel Sheet for Reference ( Do point out errors or observations)

Exercise 1 -  02nd March 2015 to 29th February 2016

This was to see how much it would have hurt if you bought right at Index top and sold at Index Bottom.

Index Performance

Index 3/2/2015 2/29/2016
Nifty 50 8956.75 6987.05 -21.99%
Bank Nify 20008 13946.4 -30.30%
Nifty Smallcap 5775.7 4362.55 -24.47%
Nifty Midcap 13322.2 11558 -13.24%

Random Portfolio Performance

3/2/2015 2/29/2016
Portfolio Initial Equity End Equity %  Returns
Random Portfolio 1 1000000 972542 -2.75%
Random Portfolio 2 1000000 942388 -5.76%
Random Portfolio 3 1000000 881782 -11.82%
Random Portfolio 4 1000000 886545 -11.35%
Random Portfolio 5 1000000 1040295 4.03%

 

Average Returns = -5.5%

The worst performing portfolio also beats all the indices by a big margin.

Excel Sheet for Reference

My Learnings from the Exercise.

  1. A constant learning through all these exercises is that Selection is very important in a Concentrated Portfolio but in a Diversified Portfolio the Asset Allocation and timing plays the real tool. Consider if you had a lot of cash to put in February 2016 and had removed only 15-20% cash in Jan-March 2015. It could do wonders to the net Returns.
  2. In the debate of Concentrated and Diversified we forget the focus on Equity Allocation as part of Networth. ( You could be 5 % of your networth in Equities with a 3-5 Stock Portfolio and call yourself Concentrated. But does that change your networth )
  3. In a good environment for Midcaps/Smallcaps all you need to do is ride and hope to get a few winners. Across portfolios we saw 2-5 stocks out of 25 making the big difference.
  4. If you want to increase returns then look at increasing allocation by taking a few bets of 10-20% allocation and be convinced on your research and hope they work well.
  5. It is easy to beat the Nifty by buying a portfolio of midcaps/smallcaps/microcaps in good environments. Most AMCs, PMS thats why use Nifty as a benchmark.
  6. The Market is supreme and provides the returns to even Bad Processes in Good TImes. Be careful.

Conclusion

This is the best time for advisors to show their Performance. If you have got good returns then you might as well become an Investment Adviser 🙂 ( Pun Intended)

Sell Equity Related Products. ( You know there are some IFAs have more AUM then some small AMCs)

Use the best marketing and spamming techniques if you are in the business.

What are we Doing

  1. No new schemes.
  2. No New discounts.
  3. Rejecting more clients with lower risk tolerance and much lower capital.
  4. We had increased our prices in some schemes few months back.
  5. No Marketing ( Coz we dont have a marketing team.)
  6. Doing more training programs with Pay as Much as You want model to increase awareness.
  7. Fortunately with good environment our performance has been decent.

Would love your comments and suggestions. Can also mail to nooreshtech@analyseindia.com

Cheers,

Nooresh Merani

Article by Nooresh Merani

Nooresh has written 2601 articles.

You can follow Nooresh Tech on Facebook and Twitter here.


{ 2 comments… add one }
  • jigs August 2, 2016, 22:34

    Very good observation Nooresh on all 5 random portfolios beating Nifty Smallcap Index. The reason could be out-performance of all Microcaps (Below BSE Smallcap Index).
    You can also confirm it if you see BSE Advance Decline Line – Cumulative net advances starting from day 1.
    Secondly, Another great observation “Selection is very important in a Concentrated Portfolio”. No doubt, selection is going to be biggest challenge now onward when everything may go up :-).

    Reply
  • J R Ananth July 27, 2017, 15:47

    Very well done. Quite informative. I think it is nice if you take Random Portfolio performance vs. Nifty from peak to peak with both strong and weak market conditions.

    Reply

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