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 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

Investment Performance February 2018

Investment Performance February 2018

February 2018 was not a good month for investment returns. In my view, four things led the market to crack:

  •  Imposition of LTCG on equity in the Union Budget. Totally unnecessary tax in my opinion, which was a huge sentiment burster for markets.
  •  A sharp rise in commodity prices, as well as a sharp drop in Unemployment in developed economies, which portends the return of inflation, rise in interest rates, and diversion of funds to debt markets from equity markets
  •  Loss of key byelections by the ruling party, which made the return path of Narendra Modi in 2019 somewhat hazier.
  •  The Nirav Modi-Mehul Choksi Scam which did so many things-it totally destroyed whatever faith was left in PSU Banks, it was a huge whammy for the reputation of the NDA regime, and a huge blow to middle class morale.

Whatever the narrative may be, and you can believe or not believe any of the above, markets nevertheless fell, and sharply. The Bank Nifty, which was up about 7.2% in January 2018, fell by more than 8% in February. Mutual funds like HDFC Top 200 fell sharply. A PMS like Motilal Oswal did not do so badly, since it was invested primarily in ‘quality stocks’.

My investment performance, like always fell somewhere in the middle. Nevertheless, if Iook at performance over a year, I outperformed all the benchmarks, except the SBI Small and Midcap Fund.

In portfolio changes, I again spent some effort to prune my portfolio. Again, the timing was quite wrong, and it still makes me wonder about my psychological strength in coping with market rises and falls. Again the net implications are small (less than 1% of portfolio size). Nevertheless, the timing is certainly off.

The investment performance is summarized in the graph and table below. Click on them for a zoom view.

Investment Performance
Investment Performance February 2018 compared to various benchmarks
February 2018
Investment and Trading Returns February 2018

Trading Performance December 2017

Trading Performance December 2017

My trading performance since August 2017 has been nothing short of disastrous. While I am still ahead for the year, at this point, had the same capital been invested in stocks, I might well be ahead. However, that is in the nature of the trading game. Most of the time, the returns are below the peak returns, and in addition, there are often sharp drawdowns in this business. This is where mindset, stoicism and capital come into play. I like to think that I have these in abundance. Then it is only a game of waiting. Markets will give you a sharp break on either side, which will develop into a nice trend to capture profits. It just requires the patience to hold on, till the ride comes along. But I can see why many people don’t succeed here.

Here is a table of the returns:

Trading Returns
Table of portfolio returns and trading performance for December 2017

Investment Performance December 2017

December 2017 was a great month for markets, especially in the small and midcap segment. The portfolio as a whole continues with its underperformance of the small and midcap space, and its outperformance of the large cap space. Financials did not have a great time in December, and given the high weight of financials in the portfolio, some level of underperformance was to be expected.

The SBI Small and Midcap Fund has a complete blowout. Even the Centrum PMS had a blowout month, with the result that its performance almost caught up with my portfolio returns.

Here is a graphical representation of the monthly returns:

Portfolio Returns
Graphical Representation of the portfolio returns in December 2017, relative to different benchmarks

Following is the same thing in the form of a table:

Trading Returns
Table of portfolio returns and trading performance for December 2017