How It Works
This strategy picks just 30 stocks from the entire Nifty 750 universe. That’s it – just 30 stocks based on which ones have the best momentum right now. I use a proprietary modification of the Sharpe ranking, along with a lookback period, to determine the top momentum stocks. Basic trend-following filters are also applied to ensure that I am not invested in non-trending stocks.
Every Thursday, I review the momentum rankings to see if any adjustments are needed. If there are any buy or sell signals, I share them so you can act on Friday. It’s that simple.
The Science Behind It
Momentum is a well known and scientifically validated factor. Look up this paper by Jagadeesh and Titman where they talk about the concept of momentum.
This approach to investing has been tested and validated for Indian markets as well. There is a team of researchers at Indian Institute of Management Ahmedabad who have published work in this space.
But let me be straight with you – this thing is quite volatile. Since it includes small-cap and micro-cap stocks, you’re going to see some crazy swings. These smaller companies can move 10-15% in a single day sometimes.
But here’s why it’s worth considering: the returns have been pretty impressive over the long run. This volatility is not just on the down side, it also works on the upside. That’s where the out performance comes from.
Who Should Consider This?
If you’re the type who checks your portfolio every day and panics when you see red, this isn’t for you.
During the 2008 crisis, this strategy dropped 45-50%. That means that if you had 100 rupees, it would have become 50-55 rupees at the worst point. That’s tough to stomach.
Even in normal times post-2008, we’ve seen drops of 30-33%. So, you need to be okay with seeing your money decrease by a third sometimes.
Conclusion
This strategy is robust and effective if you can adhere to it for at least for five years. The returns speak for themselves, but you’ve got to ride through some rough patches.
The weekly rebalancing/review keeps things fresh and ensures we’re always holding the stocks with the best momentum. However, remember that momentum can change quickly, which is why we check it every week.
How to invest?
Click on the “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.
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