How It Works
This strategy picks 20 stocks from the Nifty Large Midcap 250 universe. Notice the change in universe here, that makes a considerable difference. The scanner checks the momentum rankings every Thursday and I share any buy or sell signals based on that, so that you can act on Friday. It’s that simple.
The key here is that we stay in the safe territory – large caps and midcaps only. No wild smallcap or microcap roller coaster here compared to the Maverick Momentum Model. Think of it as the “sensible sibling” of momentum strategies.
The Science behind this Model
I borrow this idea from the paper titled “‘Long’ Factors, not ‘Short’ Change : Long Only Factor Portfolios in India” by Raju Ranjan and Anish Teli , especially the universe selection.
The model is designed to be the steady performer. Since we focus on larger companies, the day-to-day fluctuations are much more manageable. You won’t see those crazy 10-15% single-day moves that smaller companies can throw at you.
However, there’s the trade-off. When markets become absolutely volatile (as in 2021 or 2017), this strategy will likely be left behind by small caps and micro caps by a significant margin. Those tiny companies can double or triple while we’re chugging along with our “boring” large and midcaps.
However, here’s why it’s worth considering, when the party ends and markets crash, we don’t fall as hard. We make up for those missed explosive gains by not losing as much when things get ugly.
During the 2008 crisis, this strategy dropped 25-35%. That means if you had 100 rupees, it would have become 65-75 rupees at the worst point. Not fun, but at least you’re not dealing with the 45-50% drops that more scary.
Even in normal times post-2008, we’ve seen drops of 25-30%. So you need to be okay with seeing your money decrease by a quarter to a third sometimes. But the key difference is that the volatility – the day-to-day ups and downs – is much smoother than strategies that play with smaller companies.
Who Should Consider This?
If you want momentum-based returns but don’t want to deal with the extreme volatility of small and microcaps, this could be your sweet spot. It’s for people who want decent returns without having to check if their portfolio for a big drop overnight because some small and microcap companies crashed.
Conclusion
As with any investing strategy, this one also is effective only if you can stick with it for at least five years and do not compare it with small and micro caps. The returns can be fairly solid over long periods of time.
A weekly review/rebalancing keeps us in the best momentum stocks, but by staying in larger companies, we get a smoother ride. It’s a tortoise approach – steady, consistent, and likely to win in the long run, even if it doesn’t make for exciting dinner party stories.
How to invest?
Click on “View smallcase” button and follow through.
Investments in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BSE and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.
Reach out to us at info@sandeeprao.co for any clarifications.
