Here is a graph showing my investment performance in May 2014. This investment performance should be seen in the context of the hedging that I had carried out, to protect myself on the downside in the case that the election results would be unfavourable to the markets. This is despite my being reasonably certain of the results. However, sometimes one believes what one wants to believe, and I think it was prudent to, when faced with an event that could cause a catastrophe in the markets, protect one self on the downside. What I did is that I purchased Mayend out of the money put options, with strike prices 5% to 10% lower than the Nifty and the Bank Nifty on the date of purchase. Why the Bank Nifty? Well, I have mostly small and midcaps in my portfolio, and in the case of an unfavourable result, the likelihood that my stocks would perform worse than the Nifty was a given. On the other hand, the Bank Nifty moves more closely to my portfolio, so I preferred to hedge with the Bank Nifty. I wish it was possible to trade in Midcap Nifty options, but those options are not enabled.
The portfolio performance below includes the cost of the options, which of course, given the sharp market upmove, expired without any value.
Portfolio performance cannot be assessed without understanding the risk the portfolio carries. This was one key takeaway for me from the book by Howard Marks, The Most Important Thing. In this case, the risk that I carried on May 16, 2014 (Election Results Day) was much lower than most other investors, who were not similarly hedged. Hence, if I had a lower performance than my benchmarks, I would not (or should not) have been unhappy.
With the caveat above, I present the graph below with my performance for the month.
As you can see, I had a blowout month. I far outperformed the Nifty, and the Kotak Classic Fund. I did much better than the SBI Magnum Midcap Fund.
This is also understood in the table below:
|Returns||My Portfolio||Kotak Classic||SBI Midcap||Nifty|
|Last 3 Months||38%||17%||17%||18%|
|Since Nov, 2013||55%||21%||39%||20%|
Since November 2013, I have returned 55% on my portfolio. The SBI Midcap Fund returned 39%, while the Nifty returned 20%. In May alone, I outperformed all 3 of my benchmarks by at least 10%, inspite of my portfolio being hedged.
Reasons to be proud. Whether this result is due to luck in the timing or particular choice of stocks, or some small ability, we will see in the long run.