Trading Performance September 2018

Trading Performance September 2018 

After a very disheartening trading performance in August 2018, September 2018 gave stupendous returns. This was due to an extremely sharp fall in the Bank Nifty, and an extremely sharp rise in bond yields. This behavior is not unexpected, but the correlation of bond yields and the Bank Nifty does lead some degree of correlation, which is not what was expected while diversifying to a new instrument. 

Unfortunately, I stopped trading commodities a few months ago, and I also reduced the position size on bond futures. The commodities was a conscious choice, because I wanted to refine my strategies and also see if existing strategies did have an ‘edge’. The bond futures position size reduction was a ‘fear’ thing. 

Nevertheless, the nice returns on the bank nifty in September were a nice bonus. It also meant that I have positive 1 year returns. And of course, since the inception of measurement, i.e., November 2016, it means a return of almost 200%.

As of now, there are 3 operating trading segments:

a) Trend Following on the Bank Nifty, which constitutes nearly 70% of the total position. This is on various time frames, with shorter time frames having 50% of the positions, and daily time frame having 50% of the position

b) Trend Following on Yields, to trade on bond futures

c) Mean Reversion Systems on individual stock futures

Currently, momentum trading on commodities is in suspension. Also, I very occassionally do options plays. In the beginning of October, I have also started trend following in individual stocks(taking delivery).

Portfolio Returns
Investment and Trading Performance Compared with Various Benchmarks

Investment Performance September 2018

Investment Performance- September 2018

September 2018 was not a good month for my investment performance. My portfolio fell by nearly 11% in a single month. The only saving  grace was that it did not underperform most benchmarks. The SBI Small Cap fund fell even more, and the Centrum PMS and Bank Nifty did almost as badly.

The Centrum PMS was 25% in cash by the end of September. As a ‘Buy and Hold’ Investor, one does not have the luxury of moving to cash.

But as I approach 5 years of active investing, and nearly 2 years since I have kept perfect records, one has to ask oneself hard questions. Since Nov 2016, my portfolio has significantly underperformed good mutual fund schemes. It may not have underperformed the average of all equity mutual fund schemes, but it has not outperformed such an average either. 

It is clear, from the record of 2 years, that something needs to change. I would question the need for me to study companies, look at balance-sheets, attend con-calls, and the like. Isn’t it better to spend my time in other pursuits, and invest in a few good mutual funds instead?

But of course, I also need something to do. And for that, I would question the validity of ‘Buy and Hold’ investing for the entire portfolio. In the next month, I intend to post a paper on the logic of doing trend following on individual stocks, and hope to post results of back testing such strategies over the last five years. I hope I can convince myself, and others, that price action in the markets, is much more critical for markets, than fundamental analysis. I have no doubt that fundamental analysis is a valid approach, but I do feel that it leaves out a valuable component of the investing process. And that is time. If markets don’t ‘discover’ the value stock, no matter how good the analysis and how correct the thesis, it can be a long time before the market assigns the stock the multiple it may ‘deserve’. And during this time, there may be another stock which fully deserves a look.

So for my incremental investing, I intend to stop investing on a fundamental basis. Incremental cash will go to a long/flat portfolio, where candidates are identified using trend-following methods. Fundamental analysis will be used to rule out investment in certain stocks, more in a negative sense than in a positive one.

Here is a figure which gives the investment performance for September 2018, along with a comparison with other benchmarks.

Investment Performace
Investment performance from November 2016 to September 2018 compared with various benchmarks.
Portfolio Returns
Investment and Trading Performance Compared with Various Benchmarks

Trading Performance July 2018

Trading Returns July 2018

Markets had sustained momentum in July 2018, which led to stellar trading returns for the month. The trading performance would have been better had I not stopped trading commodities in June. I am still heavily underwater in bond futures too, though bank nifty futures gave marvelous performance in July.

Here is a tabulation of the returns over different time frames:

Portfolio and Trading Returns
Investment and Trading Performance over different time frames, updated to July end 2018

Investment Performance July 2018

Investment Performance July 2018

After the last investment performance of June 2018, markets certainly performed better in July 2018. Consequently all of the benchmarks 5.4% to 8.8% for the month, but my portfolio rose a nice 15.4% for the month. Being mid and small cap oriented, my portfolio has almost been flattish over the last six months, but that compares well to mid and small cap funds or PMS, though not so well with Large Cap Oriented Funds.

Portfolio Returns
Investment Performance in comparison to various benchmarks

Here is information in the above graph in a easier to read tabulated form. 

Portfolio and Trading Returns
Investment and Trading Performance over different time frames, updated to July end 2018

Portfolio Disclosure August 2018

Portfolio as on August 14, 2018

The last portfolio update was from April 1, 2018. The previous one was from January 11, 2018. You can see the posts to see how the portfolio has evolved.

The period between April and August ranked as a very quiet period for the portfolio. In the backdrop of a market which saw a most significant drop in mid and small cap stocks, I have kept a steady mind and not added to my portfolio significantly. And I practically did not sell anything.

So even if stocks like Cummins and CanFin Homes don’t show up below, it is not because I have sold them, but it is because they have dropped significantly in price

Ticker%Holding%Gain
OBEROIRLTY9.92820109100.7389031
BAJAJFINSV6.477362098584.3156905
BALKRISIND4.827414464854.8102085
RELIANCE3.141373436145.4024903
NESCO2.99195037994.20803713
IDFC2.903468444-34.67711586
ECLERX2.7233901722.40189086
IDFCBANK2.646109761-15.16482853
PIIND2.55759000789.2116148
IBULHSGFIN2.351455379211.7275731
HINDPETRO2.313747893-6.682749521
BAJAJELEC2.226524619149.550775
DCMSHRIRAM2.216112597195.6455247
AARTIIND2.206118255295.4931729
INDHOTEL2.15943236558.86217483
MCDOWELL-N1.9862008193.622785379
AKZOINDIA1.91899612340.58223222
MUTHOOTFIN1.824528372-4.569865042
LT1.81937309112.31911761
BHARATFORG1.724144551251.7061113
TATAINVEST1.69913900750.33357316
OCCL1.655586215805.9310102
SPARC1.600213338159.6256163
GRINDWELL1.584730835293.9522669

Of my portfolio stocks, Oberoi Realty, IDFC twins, HPCL, DCM Shriram, KRBL, CanFin Homes underperformed the market significantly. On the other hand, Bajaj FinServ, Reliance, Balkrishna Tyres gave excellent returns during this period.

Portfolio Disclosure April 2018

Portfolio Dislosure April 2018

After the last portfolio disclosure in Jan 2018, there were quite a few changes to the portfolio, but only in the ones where the holding was small. There were really no core changes to the portfolio since the last disclosure:

Ticker%Holding%Gain
OBEROIRLTY10.62546011113.8797772
BAJAJFINSV4.730678304397.5568785
BALKRISIND3.88259142664.5134899
NESCO3.161791756104.3182081
HINDPETRO2.96784413419.16479847
PIIND2.886474972112.5913834
IDFC2.849247583-36.18255307
IDFCBANK2.825004433-9.832876109
ECLERX2.7386308337.732010409
DCMSHRIRAM2.50701572232.9641992
RELIANCE2.30075846178.93340345
IBULHSGFIN2.263550282198.7374152
BAJAJELEC2.258306071151.9853078
INDHOTEL2.24454951464.38836803
CANFINHOME2.1143087271056.600621
MCDOWELL-N1.9972582673.735481891
BHARATFORG1.957663073297.5622922
LT1.9115806317.48584183
AARTIIND1.882093914235.9019224
AKZOINDIA1.82380154251.84341855
MUTHOOTFIN1.818411293-5.313506663
IRB1.7159106467.8419657
OCCL1.63109147788.5515663
AJANTPHARM1.586038659157.8488374
SPARC1.576868608154.6983655
TATAINVEST1.57546252838.77017767
GRINDWELL1.575281193289.8586545
SHILPAMED1.557782875150.0245445
NMDC1.556485759-7.583080722
HMVL1.540433076.75067626
HINDZINC1.50401943361.28020634

The last portfolio update was at a time when the market was at an all time high. The portfolio has shrunk then, both as a result of market correction, as well as significant pruning of the portfolio. Among stocks that did well, I would include Bajaj Finserv and Bajaj Electricals. The IDFC twins and HPCL did poorly.

 

Trading Performance June 2018

Trading Performance June 2018

Here I am, back after an absence of 3 months, with another report.

The trading performance in the last 3 months has been poor. Banknifty trend following has been ok, but the commodity momentum trading as well as Bond Futures trend following and discretionary options has led to a net loss in the portfolio. With no gains from BankNifty trend following, and large losses in the other three segments, the last 3 months saw a loss of around 8% in the overall trading portfolio.

2018-19 has been a strange year for trend following traders. While the market has continued to make new highs, the way it gets to the new highs, 2 steps forward, 1.5 steps back has played havoc with most “fast response” strategies, and has been excellent for those strategies which respond slowly.

With Bonds, I think banks played a game for the quarter ending Mar 2018, where to make sure that had smaller MTM losses in their gilts portfolio, they forced yields down by massive buying of treasuries in the last week of March, which led to trend reversal signals. These signals promptly reversed. Unfortunately, for me, I also increased the position size at this time, which has led to a huge loss, which will take years to recover from.

With commodities, the problem was me and my lack of faith in the momentum strategy. I stopped trading the commodities after losses, and the strategies started performing again. Now I intend to follow the success of the strategies on paper before restarting.

Trading Peformance
Trading and Investment Performance over the last 18 months

 

Investment Performance June 2018

Investment Performace June 2018

Below is a graphical representation of my investment performance in relationship to various benchmarks. Below that is a table showing the investment returns over the last year and more for my investment account, my trading account and various market benchmarks, including indices and popular mutual fund schemes as well as a decent PMS scheme.

Since Jan 2018, the markets have given a rocky ride, especially to those portfolios which are small and midcap driven. In fact, my performance is worse than any of the benchmarks over the last 18 months and over the last 12 months. This underperformance is quite disappointing, and another couple years of that, and it will be clear that I am not cut out for the investment game and am better off investing through mutual funds or index funds.

My portfolio was down more than 15% in the last six months, a figure which is only exceeded by the SBI small and midcap fund. But overall over 18 months, there is huge outperformance of the SBI  Small and Midcap Fund.

Which were the stocks which performed the worst? I think KRBL, which got enmeshed in a scandal, IDFC Bank and IDFC Ltd. which just don’t seem to recover. Other stocks which did badly include CanFin Homes, Oberoi Realty (in absolute terms, rather than percentage terms), HPCL, DCM Shriram and EID Parry. The former because of rise in oil prices, and the latter two, due to the sharp downturn in the sugar cycle.

In the 3 months since my last report, my portfolio has been standstill, where I have not added or subtracted anything or bought or sold anything new.

 

 

 

Investment Performance in relation to various benchmarks
Graphical Representation of my Investment Performance till June 2018
Trading Peformance
Trading and Investment Performance over the last 18 months

Great Articles on Momentum and Trend Following

Great Articles on Momentum and Trend Following

This is a great article on the history and academic foundations on momentum and trend following. It gives a great explanation from behavioral science as well as information theory for why momentum works in markets.. Furthermore, it also integrates momentum and trend following, and explains why both are two sides of the same coin. The article is well grounded academically. A great read:

Two Centuries of Momentum

Trading Performance February 2018

Trading Performance February 2018

After a stellar performance in January, February 2018 did not turn out to be great from a trading point of view. This poor performance was also dictated by the fact that I behaved in a really stupid manner and in a discretionary way, I overrode my system for a considerable number of days. It was not very clever, and I think that the motivation was to protect the returns I made in January. However, the net effect, I believe was that it further depressed the results. I am not at all proud of this moment of weakness.

Here is a table of the trading returns for the month(Click to zoom in for a better view):

Trading Performance
Investment and Trading Performance in January 2018