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