Indexing

Bogleing with TF overlay.

I am totally intrigued and fascinated by the slow churn, long term trend following system on INDEX. The reason of this fascination is the FACTOR of transaction cost and Stress cost.

Returns also need to be calculated on basis of stress per unit. (Prof Bakshi’s analogy). And if one can get decent returns without the menace of Draw-down, then the slowness is actually a HUGE Positive. Needless to add, slowness is rewarded by the Tax system of the country.

Lets be honest, we partake stress (lower the timeframe) only to increase our return or reduce our drawdown. There is NO third reason. (Actually there is, disguisedly unemployed people seek thrill in markets by gambling away their money)

MWM is a great product to capture a bull run, however I received feedback stating that weekly review is too much for a person who has “Other things to do”. And as we detailed in previous blog, a Barbell strategy combining High risk high churn with slow trend following on Index can be a potent weapon and one can decide the mix as per their risk profile.

Even standalone, Trend following on Index is better than buy and hold or FD hands down and is a MUST in every retail portfolio.

In our continual process of bettering the previous benchmark and look for a holistic and comprehensive solution please find below an Interesting Trend following strategy on the Index.

Here are the details for your perusal.

 

Buy and hold Graphs

Instrument: Nifty Junior.

Start date: 20/Feb/2006

End date: 01/Feb/2019

Starting capital :50,00,000

Ending capital: 23006380

Return: 360.13%

CAGR: 12.51%

Drawdown: 68.70%

 

Now in Contrast, have a look at bogling with trend following overlay.

Trend following Overlay System. (Monthly Review)

Instrument: Nifty Junior.

 

Start date: 20/Feb/2006

End date: 01/Feb/2019

Starting capital: 50,00,000

Ending Capital: 27839501

Return: 456.79%

CAGR: 14.18%

Max DD: -22.53%

No. of trades in this period: 11.

 

 

 

 

 

 

(These return figures DO NOT include the money you would earn as dividends in LIQUID BEES)

And Now most importantly, have a Look at DRAW DOWN figures.

I urge the retail to NOT LET ANY (incentive bias driven ) Advisor to tell you that you need to withstand a 70% drawdown. It is NOT human to go through that shit.  No amount of Nudging will change your mind to puke your guts out at that kind of carnage.

With this data, we can safely assume that Trend following saves you from severe drawdowns and on the flip side underperforms the indices in case of a uni-directional bull run.

With this its ALL COMING TOGETHER. We started our discussion with Momentum Rotation Vs buy and hold. We moved on to trend following on indices and in Next blog we shall talk about the third important factor. Asset Allocation.

When we posted our research on twitter, we received critical and valid feedback stating that It is difficult if not impossible to allocate 100% of one’s corpus into GOLD. (As per rotation)

and therefore asset allocation is an important ingredient which needs to be incorporated in any successful strategy. For retail, life decisions are NEVER Black and White, EITHER/OR Scenarios.

To add 03rd dimension to our portfolio we shall ADD Asset diversification. But that’s for the next blog….

 

Comments are welcome

 

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