Stay the Course with Equities. Volatility isn’t the Time to Sell.
The purpose of this article is to unearth, understand and explain the reason for sub-par performance of Vivekam advised portfolios, in the last three months, when compared to benchmark nifty. Vivekam strives hard to generate a higher return than nifty to all retail clients being advised through a solid scientific approach to investments, be it in assigning fair values, spotting growth stocks and helping clients pick the undervalued growth stocks.
However, at times, there could be a situation when the value buying model may not look very attractive. This happens when the sentiment looks too positive and a herd mentality develops in the market leading to chasing a few stocks that may have become already expensive. In such situations value buying takes a backseat and momentum buying takes centre stage. In such situations one has to be patient with their portfolios and their conviction of value buying. History is replete with examples when such a momentum led surge in prices eventually paves way for value buying sooner than later.
Back tested results of the model built by Vivekam have displayed this phenomena on two occasions in the past where the outperformance of model portfolios was questioned for a quarter or two. When senses return to the market and investors, value buying takes centre stage and the model portfolios begin to outperform. We undertook a study to identify such situations of sub-par performance by Vivekam’s models and ascertain the reasons or signals that may have emerged before such development.
In our analysis of the past data and the portfolios created on each and every day possible from 2007 to 2015, we noticed that the sub-par performance arises whenever there were three or more bad months in a period of four months. A bad month is one in which the success rate of recommendations of Vivekam’s model (in that month) is less than 70%. When index’s peak growth between a given day and end of month is more than that of a stock for the same period, we consider it a failure. If the stock’s peak growth is more than Index, we call it a success.
Out of 98 months analysed by our team, there were 16 months during which the success rate of our recommendations was less than 70%. In percentage terms, bad months accounted for 16.33% while 83.67% months were good. However, there are only two periods during which more than two bad months came together. This happened in September 2008 to November 2008 period and again from October 2014 to January 2015. The outperformance of back tested portfolios suffered during both these time spans.
|
2007 – 2009 |
2010 – 2012 |
2013 – 15 |
|||
|
Month |
Success |
Month |
Success |
Month |
Success |
|
Jan-07 |
88.89% |
Jan-10 |
85.56% |
Jan-13 |
82.73% |
|
Feb-07 |
84.38% |
Feb-10 |
63.89% |
Feb-13 |
97.00% |
|
Mar-07 |
73.50% |
Mar-10 |
90.53% |
Mar-13 |
90.53% |
|
Apr-07 |
56.67% |
Apr-10 |
93.68% |
Apr-13 |
61.58% |
|
May-07 |
88.42% |
May-10 |
82.00% |
May-13 |
92.61% |
|
Jun-07 |
91.00% |
Jun-10 |
87.50% |
Jun-13 |
45.50% |
|
Jul-07 |
76.50% |
Jul-10 |
92.38% |
Jul-13 |
71.36% |
|
Aug-07 |
75.50% |
Aug-10 |
99.50% |
Aug-13 |
82.00% |
|
Sep-07 |
50.00% |
Sep-10 |
85.79% |
Sep-13 |
78.50% |
|
Oct-07 |
50.00% |
Oct-10 |
83.50% |
Oct-13 |
73.00% |
|
Nov-07 |
96.00% |
Nov-10 |
82.00% |
Nov-13 |
79.00% |
|
Dec-07 |
94.12% |
Dec-10 |
83.00% |
Dec-13 |
94.29% |
|
Jan-08 |
78.57% |
Jan-11 |
78.89% |
Jan-14 |
79.55% |
|
Feb-08 |
85.26% |
Feb-11 |
84.44% |
Feb-14 |
77.89% |
|
Mar-08 |
71.25% |
Mar-11 |
55.00% |
Mar-14 |
91.90% |
|
Apr-08 |
81.11% |
Apr-11 |
94.71% |
Apr-14 |
84.71% |
|
May-08 |
82.63% |
May-11 |
86.50% |
May-14 |
92.86% |
|
Jun-08 |
76.32% |
Jun-11 |
75.50% |
Jun-14 |
92.38% |
|
Jul-08 |
61.43% |
Jul-11 |
84.00% |
Jul-14 |
89.52% |
|
Aug-08 |
77.89% |
Aug-11 |
86.00% |
Aug-14 |
86.32% |
|
Sep-08 |
61.58% |
Sep-11 |
85.00% |
Sep-14 |
88.18% |
|
Oct-08 |
56.11% |
Oct-11 |
62.94% |
Oct-14 |
60.00% |
|
Nov-08 |
44.12% |
Nov-11 |
83.33% |
Nov-14 |
71.11% |
|
Dec-08 |
87.37% |
Dec-11 |
84.00% |
Dec-14 |
65.45% |
|
Jan-09 |
71.05% |
Jan-12 |
75.79% |
Jan-15 |
50.50% |
|
Feb-09 |
82.22% |
Feb-12 |
91.58% |
Feb-15 |
86.67% |
|
Mar-09 |
72.94% |
Mar-12 |
84.50% |
|
|
|
Apr-09 |
83.75% |
Apr-12 |
87.78% |
|
|
|
May-09 |
87.89% |
May-12 |
91.82% |
|
|
|
Jun-09 |
87.50% |
Jun-12 |
90.00% |
|
|
|
Jul-09 |
86.67% |
Jul-12 |
74.76% |
|
|
|
Aug-09 |
86.50% |
Aug-12 |
68.10% |
|
|
|
Sep-09 |
90.56% |
Sep-12 |
89.50% |
|
|
|
Oct-09 |
83.33% |
Oct-12 |
92.00% |
|
|
|
Nov-09 |
88.42% |
Nov-12 |
87.00% |
|
|
|
Dec-09 |
91.50% |
Dec-12 |
86.00% |
|
|
The success rate of recommendations in February 2015 stood at 86.67 indicating the likely return of value buying into the market. However, since many portfolios may have a backlog of stocks identified and invested during bad months (October 2014 to January 2015), the outperformance may take a little longer. It is heartening to note that there have been hardly any instances (less than 2% of total portfolios) that displayed sub-par performance by the end of one year period. Given this set of strong indications suggesting a course correction of portfolios, when supported by value buying principles, retail investors may not have any reason to worry at this time.
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