Trading Performance-September 2017

Trading Performance-September 2017

The Yo-Yo of markets during the month was not at all good for performance of my trading activity in September. I use mostly trend following strategies, across different time frames, and sideways markets did not do much for the returns from trading activities, and in fact, there was capital loss.

I am still up for the financial year, and quite well. But the whole situation is testing my patience now. These are the periods when stoicism is valuable as a philosophy, and I am as stoic as they come. So we will continue the same, no matter what the state of my patience.

Here is a tabular representation:

Investment and Trading Performance
Comparison of investment and trading performance of my portfolio and trading activity relative to various benchmarks

Investment Performance- September 2017


Investment Performance-September 2017

September 2017 was a time when markets took a small pause. All indices took a small hit over the values of end-A

ugust 2017, and were even more down compared with end-July 2017. Midcaps and small caps till better than large caps.

Accordingly, my investment performance also suffered, though I still managed to eke out a postive return for the month. This is primarily due to the higher contribution of midcap and small cap stocks in my portfolio.

The SBI Small and Midcap Fund was the standout for the month, rising more than 5% in a month. So was the Centrum PMS. Both of these did better than my own investments. Centrum PMS came back to life after a nice break. The Motilal Oswal PMS continues to languish. September was also not a good month for the HDFC Top 200 fund.

Here is a graphical representation of the above. As time goes on, clearly, the men are getting separated from the boys.

Investment Performance
Graphical Representation of the investment performance compared to several benchmarks.

And for those who prefer numbers, here is the same data  in numerical format.

Investment and Trading Performance
Comparison of investment and trading performance of my portfolio and trading activity relative to various benchmarks

Investment Performance August 2017

The market turned distinctly weak in August 2018. All the major indices fell, with the Bank Nifty falling by more than 3%. Continued FPI selling, tepid results, GST related disruptions and continued geopolitical tension was somehow contributory to the relatively tepid movement.

Investment Returns
Investment Performance August 2018

Except for the SBI Small and Midcap Fund, all the other benchmarks, as well as my own investment performance had a negative performance for the month.

While my investment performance continues to trail the SBI Small and Midcap Fund (this stands to reason: Small and Midcap Stocks have outperformed the Large Caps, and while portfolio is geared towards Small and Midcap Stocks, I have several large caps, like Reliance, ITC, L&T, ICICI Bank in my porfolio. Naturally, my portfolio performance is a cross between the Small Cap Performance and Large Cap Performance), it does outperform all other benchmarks.

The performance of the PMS schemes is particularly distressful. I would imagine that PMS managers should outperform my own investment performance, or those of MF managers (who charge much less). But in fact, PMS schemes have clearly underperfomed this year. Now, it may be that some manager did outperform, it does not appear so for the average of all managers. And those who do outperform, don’t seem to do it consistently over a long period.

My portfolio continues to underperform a bit because of the drag from IDFC, IDFC Bank and EClerx, which are in my top five holdings. On the other hand, outperformance by Bajaj Finserv, HPCL, amongst other stocks, allows be to clock in respectable performance.





Trading Returns and Performance-July 2017

Trading Returns and Performance

July 2017 was a great month for my trading performance. Here is a table which shows the trading returns over the last nine months.

Portfolio Returns
Table of Returns for different time periods

As can be seen, my trading activity gave a return of 59% in July 2016 alone. This was in conjunction with a rise in the bank nifty of 8.15%. However, as I kept withdrawing capital from trading and deploying it in debt, I am not clear as to what the trading capital showed be considered. In any case, trading activity for me is a business which created income, not a wealth generating activity. Hopefully, wealth will get generated through my debt, equity and real estate portfolio. So I am far more interested in the absolute returns from my trading activity.

This month, I also started trading commodities in earnest. The total capital set aside for commodities is still a fraction of the total for the Bank Nifty. Hopefully, over a period of time, this shall rise.

Currently, I am trading Crude/Natural Gas, Gold/Silver, Zinc/Copper. I feel that trading a basket of instruments shall improve the stability of my trading performance. However, I am still not confident of increasing the position size of the commodity basket.  Over a period of time, I shall slowly increase this.

Below is my trading equity curve till July 2017.

Trading Performance
Trading Equity Line for the last nine months (Normalized to an arbitrary base)

What about drawdown? Well, in July 2016, there were several days where the trading equity was at the maximum, and there was no drawdown at all.

Here is the drawdown:

Trading Drawdown Curve (Normalized to an arbitrary figure)

All in all, a very satisfying performance in trading activity in July 2017.

Investment Returns and Performance-July 2017

Investment Performance in terms of returns

Below is a graphical representation of my investing performance upto July 2017. Further below is a table of returns.

Investment Returns
My investing performance relative to other benchmarks

First, some housekeeping. You will notice that this graph is different from earlier ones, where I had also mentioned my trading performance. The reason for this change is simple.  The trading performance in July was simply crazy. So if this line is also added to the above graph, then the range on the axis changes in such a manner that there is no possibility of distinguishing between the various investment benchmarks. In addition, there is difficulty in understanding what the exact trading capital is. As a result, it is best to look at trading and investing performance separately, and maybe, once a year or so, revisit a comparison. In any case, below, I also present a table which details the returns on trading along with investing benchmarks.

As can be seen from the graph above, and the table below, the trend established earlier still continues. The mutual funds outperform my investment performance, which outperforms the PMS schemes from Motilal Oswal and Centrum. All of them outperform index benchmarks, except the Bank Nifty Index.

My investment performance continues to be marred by underperformance of my biggest holdings-IDFC, IDFC Bank and Oberoi Realty. On the other hand, Bajaj Finserv continues to outperform, as to other stocks like Indiabulls Housing Finance.

In July, I also converted about 4% of my portfolio to cash. I also made a concerted effort to pare down the number of stocks in my portfolio (from around 100 to around 75). I will continue this exercise of bringing down the portfolio size to around 30-40 stocks over the next one year. Among my larger holdings, I have completely exited Muthoot Capital Services (and have partially switched to Muthoot Finance), Munjal Auto (and partially added to Munjal Showa), Alkyl Amines and Bayer Cropsciences (and have partially switched to PI Industries and also added Tata Chemicals). I have further exited IL & FS Investment Managers. I have also exited Tata Steel (and switched to Vedanta and Tata Investment Corportation). I have exited Sobha Developers and added to NESCO. I have exited Vardhman Acrylics and added to Vardhman Textiles. I have also exited JP infratech and JP Power and added to Jain Irrigation. I have further added to IRB infra and Pokarna. I continue to slowly accumulate Pharma Stocks (Sun and Dr Reddy’s). I have completely exited my small positions in Hindalco, EIH, IL&FS Transportation Networks, Federal Bank, Laxmi Vilas Bank. Finally, I have finally exited MPS ( a large holding) and added to EClerx.

All of these switches have been done more to reduce the number of stocks I want to track, than any fundamental reasons. In some instances (like MPS), I did not like the business prospects.  In some cases (Bayer or Munjal Auto), I just felt that the price had run ahead of the business.

Here is a table of my investment returns compared with various other benchmarks.

Portfolio Returns
Table of Returns for different time periods

Quotable Quotes

July 2017

“Every job looks easy when you’re not the one doing it” -Jeff Immelt, shortly after stepping down as CEO of GE  after 17 years

“Obviously you don’t make money if you’re wrong. What most people don’t realize is that you don’t make money if you’re right in consensus. Returns [or alpha] get arbitraged away. The only way you make money is by being right in non-consensus. Which is really hard.”-Former Benchmark Capital Partner Andy Rachleff

Performance of Trading and Investing-June 2017

Trading and Investing Returns-June 2017

It’s the 10th of the month again, and its time for another update on performance. Nothing really new to report, except that I started trading commodity futures in earnest in June, and had I not, trading performance would have been weak. This has only strengthened my conviction that diversification across uncorelated instruments is important while using trading systems.

The rest was more of the same. The mutual funds outperformed my own investment performance, which in turn outperformed the PMS benchmarks. Something for the PMS folks to think about.

Investment returns against various benchmarks
Trading and Investment Performance-June 2017

Trading and Investment Performance-May 2017

Trading Performance May 2017
Investment Performance May 2017


Again, after a haitus, I present my trading perfonmance and investment performance.

Here is a graph of my performance, both for trading and investment, in comparison with various benchmarks. The benchmarks I have included are the performance of the HDFC Top 200 and SBI Small and Midcap Funds, and two PMS’s I have invested in, the MOSL Value Strategy, and the Centrum Deep Value Strategy, in addition with 3 indexes.

Performance of trading systems and investment gains
Trading Returns and Investment Returns

As can be seen, the trading has had a great last few months. However, there is a caveat here. In my base calculation for capital employed (i.e., the 1000 figure in November), for trading, I have only included the actual capital employed in my brokerage accounts, and not the shares pledged as margin, or the reserve cash I hold. Still, all in all, a creditable performance.

My investment performance in the last seven months is also not bad, second only to the HDFC Top 200 Fund. I otherwise beat both the PMS’s and the indexes handily.

What risk did I take to get these stellar trading returns? Quite a bit. Please see below:

Trading Equity Line
Absolute trading equity line.

As can be seen, there is a deep drawdown in the months of October and November 2016. This corresponded to three external events, Brexit, Trump Election and Demonetization. Such deep drawdowns are what keeps one afraid of trading in futures. I have since changed strategies (more in another post), and hopefully, I can avoid such sharp drawdowns in the future.

Trading Equity Drawdown
Drawdown of Equity from Maximum Equity

Additional Quotes from “The Most Important Thing”- Knowing what you don’t know

Knowing where we stand and knowing what we don’t know


Previously, we discussed Marks’ thoughts on finding bargains and patient opportunism, contrarianism and psychological pitfalls in investing, market cycles, risk and attitudes to risk, and price and the relationship of price to value.

In the next two chapters, Marks’ discusses the value of knowing what you don’t know in markets, and having a sense of where we stand in terms of market behavior.

The Most Important Thing is ……….Knowing What you don’t Know

Awareness of the limited extent of our foreknowledge is an essential component of my approach to investing.

I’m firmly convinced that (a) it’s hard to know what the macro future holds and (b) few people possess superior knowledge of these matters that can regularly be turned into an investing advantage.

On the other hand, the more we concentrate on smaller-picture things, the more it’s possible to gain a knowledge advantage.

The important thing in forecasting isn’t getting it right once. The important thing is getting it right consistently. If you’re always an outlier, you’re likely to eventually be applauded for an extremely unconventional forecast that correctly foresaw what no one else did. But that doesn’t mean your forecasts are regularly of any value.

While we may know what will happen much of the time, when things are “normal”, we can’t know much about what will happen at those moments when knowing would make the biggest difference.

Most of the time, people predict a future that is a lot like the recent past. •   They’re not necessarily wrong: most of the time the future largely is a rerun of the recent past. •   On the basis of these two points, it’s possible to conclude that forecasts will prove accurate much of the time: They’ll usually extrapolate recent experience and be right.

Just as forecasters usually assume a future that’s a lot like the past, so do markets, which usually price in a continuation of recent history.

Once in a while, however, the future turns out to be very different from the past. •   It’s at these times that accurate forecasts would be of great value. •   It’s also at these times that forecasts are least likely to be correct. •   Some forecasters may turn out to be correct at these pivotal moments, suggesting that it’s possible to correctly forecast key events, but it’s unlikely to be the same people consistently. •   The sum of this discussion suggests that, on balance, forecasts are of very little value.

The key question isn’t “are forecasters sometimes right?” but rather “are forecasts as a whole—or any one person’s forecasts—consistently actionable and valuable?” No one should bet much on the answer being affirmative.

Most of the investors I’ve met over the years have belonged to the “I know” school. It’s easy to identify them. •    They think knowledge of the future direction of economies, interest rates, markets and widely followed mainstream stocks is essential for investment success. •    They’re confident it can be achieved. •    They know they can do it. •    They’re aware that lots of other people are trying to do it too, but they figure either (a) everyone can be successful at the same time, or (b) only a few can be, but they’re among them.

They’re comfortable investing based on their opinions regarding the future. •    They’re also glad to share their views with others, even though correct forecasts should be of such great value that no one would give them away gratis. •    They rarely look back to rigorously assess their record as forecasters.

Marks believes you can’t know the future; you don’t have to know the future; and the proper goal is to do the best possible job of investing in the absence of that knowledge.

No one likes having to invest for the future under the assumption that the future is largely unknowable. On the other hand, if it is, we’d better face up to it and find other ways to cope than through forecasts.

The biggest problems tend to arise when investors forget about the difference between probability and outcome—that is, when they forget about the limits on foreknowledge. Some of the biggest losses occur when overconfidence regarding predictive ability causes investors to underestimate the range of possibilities, the difficulty of predicting which one will materialize, and the consequences of a surprise.

The question of whether trying to predict the future will or will not work isn’t a matter of idle curiosity or academic musing. It has—or should have—significant ramifications for investor behavior. One key question investors have to answer is whether they view the future as knowable or unknowable. those who feel they don’t know what the future holds will act quite differently: diversifying, hedging, levering less (or not at all), emphasizing value today over growth tomorrow, staying high in the capital structure, and generally girding for a variety of possible outcomes.

Investing in an unknowable future as an agnostic is a daunting prospect, but if foreknowledge is elusive, investing as if you know what’s coming is close to nuts. Acknowledging the boundaries of what you can know—and working within those limits rather than venturing beyond—can give you a great advantage.

The Most Important Thing is…….Having a sense of where we stand

Market cycles are unpredictable, in terms of their extent, as well as their timing. The only thing we can predict about cycles is their inevitability.

Why not simply try to figure out where we stand in terms of each cycle and what that implies for our actions?

We cannot know how far a trend will go, when it will turn, what will make it turn or how far things will then go in the opposite direction. However, every trend will stop sooner or later. We may never know where we’re going, but we’d better have a good idea where we are.

Try to (a) stay alert for occasions when a market has reached an extreme, (b) adjust our behavior in response and, (c)  most important, refuse to fall into line with the herd behavior that renders so many investors dead wrong at tops and bottoms.


When I say that our present position (unlike the future) is knowable, I don’t mean to imply that that that understanding comes automatically. Like most things about investing, it takes work. Those who are unaware of what’s going on around them are destined to be buffeted by it. As difficult as it is know the future, it’s really not that hard to understand the present. If we are alert and perceptive, we can gauge the behavior of those around us and from that judge what we should do.

We must strive to understand the implications of what’s going on around us. When others are recklessly confident and buying aggressively, we should be highly cautious; when others are frightened into inaction or panic selling, we should become aggressive.

We can make excellent investment decisions on the basis of present observations, with no need to make guesses about the future.

Further Review of “The Most Important Thing”-On Finding Bargains

Finding Bargains and Patient Opportunism

Previously, we discussed the book contents in relationship to  psychological pitfalls in investing, cycles and the market pendulum, risk and attitudes towards risk, price and the relationship between price and value. The following two chapters deal are sort of “how-to” chapters, in the sense they inform us as to find bargains in the markets, and where to look for bargains, and they also tell us about the value of patient opportunism in markets.

The Most Important Things is…….Finding Bargains

The process of intelligently building a portfolio consists of buying the best investments, making room for them by selling lesser ones, and staying clear of the worst.

The first step is usually to make sure that the things being considered satisfy some absolute standards. It’s not unreasonable to want to emphasize assets that fall within a certain portion of the risk spectrum. In other words, there can reasonably be some places investors won’t go, regardless of price.

The starting point for portfolio construction is unlikely to be an unbounded universe. Some things are realistic candidates for inclusion, and others aren’t. The next step is to select investments from it. That’s done by identifying those that offer the best ratio of potential return to risk, or the most value for the money.

The process of investing has to be rigorous and disciplined. Second, it is by necessity comparative. Whether prices are depressed or elevated, and whether prospective returns are therefore high or low, we have to find the best investments out there.

Our goal isn’t to find good assets, but good buys.Thus, it’s not what you buy; it’s what you pay for it.  The tendency to mistake objective merit for investment opportunity, and the failure to distinguish between good assets and good buys, get most investors into trouble.

What is it that makes price low relative to value, and return high relative to risk? Unlike assets that become the subject of manias, potential bargains usually display some objective defect. Bargains are often created when investors either fail to consider an asset fairly, or fail to look beneath the surface to understand it thoroughly, or fail to overcome some non-value-based tradition, bias or stricture. Generally, the greater the stigma or revulsion, the better the bargain.

First-level thinkers tend to view past price weakness as worrisome, not as a sign that the asset has gotten cheaper.

A bargain asset tends to be one that’s highly unpopular. Fairly priced assets are never our objective, since it’s reasonable to conclude they’ll deliver just fair returns for the risk involved.

A good place to start is among things that are:   •   little known and not fully understood; •   fundamentally questionable on the surface; •   controversial, unseemly or scary; •   deemed inappropriate for “respectable” portfolios; •   unappreciated, unpopular and unloved; •   trailing a record of poor returns; and •   recently the subject of disinvestment, not accumulation.

The necessary condition for the existence of bargains is that perception has to be considerably worse than reality. Investment bargains needn’t have anything to do with high quality.

We’re active investors because we believe we can beat the market by identifying superior opportunities. It’s obvious that investors can be forced into mistakes by psychological weakness, analytical error or refusal to tread on uncertain ground. Those mistakes create bargains for second-level thinkers capable of seeing the errors of others.

The Most Important Thing is …… Patient Opportunism

There aren’t always great things to do, and sometimes we maximize our contribution by being discerning and relatively inactive.

Patient opportunism—waiting for bargains—is often your best strategy.

You’ll do better if you wait for investments to come to you rather than go chasing after them.You tend to get better buys if you select from the list of things sellers are motivated to sell rather than start with a fixed notion as to what you want to own. An opportunist buys things because they’re offered at bargain prices. There’s nothing special about buying when prices aren’t low.

This is one of the hardest things to master for professional investors: coming in each day for work and doing nothing.

It’s essential for investment success that we recognize the condition of the market and decide on our actions accordingly. The other possibilities are (a) acting without recognizing the market’s status, (b) acting with indifference to its status and (c) believing we can somehow change its status. These are most unwise.

investors needn’t feel pressured to act. They can pass up lots of opportunities until they see one that’s terrific. One of the great things about investing is that the only real penalty is for making losing investments. There’s no penalty for omitting losing investments, of course, just rewards. And even for missing a few winners, the penalty is bearable. Missing a profitable opportunity is of less significance than investing in a loser.

The motto of those who reach for return seems to be: “If you can’t get the return you need from safe investments, pursue it via risky investments.” You simply cannot create investment opportunities when they’re not there. The dumbest thing you can do is to insist on perpetuating high returns—and give back your profits in the process.

The truth is, there’s no easy answer for investors faced with skimpy prospective returns and risk premiums. But there is one course of action—one classic mistake—that I most strongly feel is wrong: reaching for return.

Trying to earn aggressive returns not only doesn’t ensure that you will achieve them but also increases the likelihood that by making increasingly risky investments you will incur losses and fall far short, exacerbating your problem.

High valuations can often go higher and last for longer than expected, continually frustrating disciplined and patient value investors. To wring high returns from a low-return environment requires the ability to swim against the tide and find the relatively few winners. High-return environments, on the other hand, offer opportunities for generous returns through purchases at low prices, and typically these can be earned with low risk.

The absolute best buying opportunities come when asset holders are forced to sell, and in those crises they were present in large numbers. Usually, would-be sellers balance the desire to get a good price with the desire to get the trade done soon. The beauty of forced sellers is that they have no choice. They have a gun at their heads and have to sell regardless of price. The difficulties that mandate selling—plummeting prices, withdrawal of credit, fear among counterparties or clients—have the same impact on most investors. In that case, prices can fall far below intrinsic value.

The key during a crisis is to be (a) insulated from the forces that require selling and (b) positioned to be a buyer instead. To satisfy those criteria, an investor needs the following things: staunch reliance on value, little or no use of leverage, long-term capital and a strong stomach.