Technical Analysis of Indian Equities by Nooresh

Random Portfolio 2017-2018–Outliers,Wealth Destroyers,Alpha-yuck !!!

This is a long post with a lot of data and can get boring Smile But it was fun to write.

We have been doing the Random Portfolio Exercise for the last few years. This financial year 1st April 2017 to 31st March 2018 has been one interesting year ( lots of data later.)

Below is the list of posts on Random Portfolio in last 3-4 years. The very first post in the Random Portfolio was in October 2014 after a superb rally in 2013-2014.

1) October 2014 -  Best time for Advisors to show Performance Reports/CAGR to sell their services – Part 1

A year when Random Portfolio average was 133% !!

2) January 2015 - Now is the Best Time for Successful Investors to give Gyaan on Investing.

Random Portfolio Return of 85% in a year against 31% Nifty and 55% CNX Midcap

3) February 2017 - Double in 3 years and 10x in 10 years– Every Investor Wants? Is it going to be Difficult or Impossible ?

A nice quote from the post

I personally think the new Full Time Investors and IFAs who have built in 20-25% cagr into their excel sheets are in for a rude shock in terms of the lower than expected returns over period of time as well as the shocks and lumpiness with it.

4) July 2017 -  Doubled your Money in Last 3 Years ? Skill or Luck ?

3 year Random Portfolio Cumulative return of 132% average ( more than doubled)

“The Market is supreme and provides the returns to even Bad Processes in Good TImes. Be careful.”

5) 1st January 2018 - Diversified Random Portfolio beats the Benchmarks Yet Again.

not a single correction of more than 5% in the Nifty all through the year.

Random Portfolio Returns of 52-60% against Nifty 28.5% and Smallcap 57% Midcap 47%

Random Portfolio

We started looking at this interesting topic almost 3 years back and could make a template with the help of my friend Prashant Krishand now my team mate Harsh Doshi does the iterations for the last couple of years.

Random Portfolio Selection Filter

•The only filter was stock should be above 10 rs and listed on NSE. ( to remove unusual big movers or duds )

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

•Time Period – Last 6 months and Year to Date.

•No shuffling of stocks. Just buy and hold.

•No brokerage applied.

We created 5 random portfolios on the above selection criteria. We did 2 iterations.

All Excel Sheets

1) Statistics 2018

2) Random Portfolio Iteration 1  ( It has iterations for last 2/3 years as well.)

3) Random Portfolio Iteration 2  ( It has iterations for last 2/3 years as well.)

Financial Year 2017-2018 – 1st April 2017 to 31st March 2018.

Random Portfolio Iteration 1

Random Portfolio - Iteration 1 03-04-2017 28-03-2018  
Portfolio Initial Equity End Equity %  Returns
Random Portfolio 1 1000000 989638 -1.04%
Random Portfolio 2 1000000 1088726 8.87%
Random Portfolio 3 1000000 965685 -3.43%
Random Portfolio 4 1000000 1126386 12.64%
Random Portfolio 5 1000000 1097368 9.74%
Average Returns (%)   5.4%  
www.nooreshtech.co.in       

Random Portfolio Iteration 2

Random Portfolio - Iteration 2 03-04-2017 28-03-2018
Portfolio Initial Equity End Equity %  Returns
Random Portfolio 1 1000000 1235772 23.58%
Random Portfolio 2 1000000 1105965 10.60%
Random Portfolio 3 1000000 976275 -2.37%
Random Portfolio 4 1000000 1077997 7.80%
Random Portfolio 5 1000000 1287282 28.73%
Average Returns (%)   13.7%  
www.nooreshtech.co.in       

 

03-04-2017 28-03-2018
Nifty 50 9237.85 10114 9.48%
Nifty Midcap 100 17332.9 18757 8.22%
Nifty Smallcap 100 7072.2 7792 10.18%

 

So finally the Random Portfolio finds it difficult to beat Nifty and other benchmarks. As some of the random iterations also had a negative return.

The whole damage after a smooth CY 2018 was due to the drop in the last quarter of FY 2018.

We also tried to do the Random Portfolio Iteration for the last quarter of FY 18 – 1st Jan to 31st March 2018

Last Quarter – 1st January 2018 to 31st March 2018

Random Portfolio Iteration 1

Random Portfolio - Iteration 1 01-01-2018 28-03-2018
Portfolio Initial Equity End Equity %  Returns
Random Portfolio 1 1000000 902884 -9.71%
Random Portfolio 2 1000000 841224 -15.88%
Random Portfolio 3 1000000 825967 -17.40%
Random Portfolio 4 1000000 818366 -18.16%
Random Portfolio 5 1000000 869683 -13.03%
Average Returns (%)   -14.8%  
www.nooreshtech.co.in       

Random Portfolio Iteration 2

Random Portfolio - Iteration 2 01-01-2018 28-03-2018
Portfolio Initial Equity End Equity %  Returns
Random Portfolio 1 1000000 844874 -15.51%
Random Portfolio 2 1000000 893680 -10.63%
Random Portfolio 3 1000000 966568 -3.34%
Random Portfolio 4 1000000 841208 -15.88%
Random Portfolio 5 1000000 745783 -25.42%
Average Returns (%)   -14.2%  
www.nooreshtech.co.in       

On the downside too the Random Portfolio could not outperform the Nifty and other benchmarks.

 

The smoothness of Calendar Year 2017 was cleaned out by a good correction in Jan-March 2018.

Financial Year 2017-2018

The year of Outliers , Wealth Destroyers and Alpha-Yuck ( evaporation of the big Alpha over Indices.)

The Financial Year Statistics tell you the story as to why Random Portfolio could not beat the benchmarks.

( The data is only for Equity stocks and some may be missing as only EQ category NSE stocks taken as data is from a data vendor )

Financial Year 2017-2018

Apr 17 to Mar 18
% Change No. of scrips % of Population
(50) to (100)% 104 7.02%
(20) to (50)% 312 21.05%
0 to (20)% 294 19.84%
0 to 20% 276 18.62%
20 to 50% 251 16.94%
50 to100% 153 10.32%
100 to 500% 88 5.94%
More than 500% 4 0.27%
Total 1482  
Adv 772 52.09%
Decline 710 47.91%

 

  • Even though it was 10-18% year almost 48% of the stocks closed in the negative and 58% of them closed less than 20% up for the year.
  • 28% of the stocks had a drop of more than 20% and 7% had a drop of more than 50%
  • The outliers was in the fact that 33% of the stocks had a more than 20% up and 16.5% of stocks had a return of more than 50% !!

Last Quarter – 1st Jan to 31st March 2018

Jan 18 to Mar 18
% Change No. of scrips % of Population
(50) to (100)% 48 3.08%
(20) to (50)% 707 45.35%
0 to (20)% 595 38.17%
0 to 20% 166 10.65%
20 to 50% 33 2.12%
50 to100% 5 0.32%
100 to 500% 4 0.26%
More than 500% 1 0.06%
Total 1559 100.00%
Adv 209 13.41%
Decline 1350 86.59%

 

  • Almost 87% of the stocks closed in negative !! for the quarter.
  • 48% of the stocks had more than 20% drop !!
  • Only 2.5% of the stocks did a more than 20% move.

Quick Conclusions

  • This was not an easy year to have made a good 20-25% return which is a benchmark for most investors/traders. If you did make that irrespective of the lumpiness – Pat yourself.
  • There would be some who would have made a killing due to concentration to the outliers and some would have been killed by the Wealth Destroyers.
  • The so called Alpha suddenly might have turned Alpha-yuck.
  • The next year would be interesting if it turns out to be lumpy or another tough year.

Personally think it may test patience and perseverance of Investors/Traders to stick to their strategies with discipline and ride the course however bumpy and volatile it is !! Who knows the sentiments are not great but it can even surprise pleasantly or test your endurance. Hopefully the SHER AAYA story of Earnings Growth in India finally makes a come back in 2019 or 2020 Smile

Would love the comments on the post or via e-mail – nooreshtech@analyseindia.com

Happy Investing and Trading

Best Wishes

Nooresh Merani

Article by Nooresh Merani

Nooresh has written 2670 articles.

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{ 2 comments… add one }
  • Kshitiz Gupta April 6, 2018, 00:56

    Hi, Would it be possible to share the list of the 2.5% stocks that moved more than 20%.

    Reply
  • Tas April 6, 2018, 07:54

    Newbie, learning..

    Reply

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