When you are dealing in any financial products, there is a disclaimer that warns investors about its future returns that you would have read almost all the time dealing in them. The disclaimer reads something like, “… investors are advised that past stock performance is no guarantee of future price appreciation.”

Well, that statement just opens up my eyes and I start imagining that how risky is investment business where there is no guarantee of repeating your performance. Skill and luck plays very crucial role in whatever you do. There are few things in the world where skill will not help you in anyways to change the end results, like playing roulette in casino. Similarly, there are few activities like, marathon runner or chess or tennis player where luck plays very little role in changing the end results and skill dominates.

So, in the activity like investments, what is the proportion of skill and luck plays to get the end results of your desire? If you don’t know what you are doing then buying a stock is similar to flipping a coin and expecting it to turn up as ‘heads’ all the time. My personal opinion is that luck plays bigger role in the investments than skills, especially if it is for the very short term period. But in a very long term, if you had gained skills to identify what best performing stocks look like, then you need a very little luck on your side to beat the average returns (market returns). If you don’t have those skills to identify best stocks and when to buy them, then there is very little chance for you to beat the average returns even if the luck is on your side.

After BREXIT and central banks meetings, many investors and analysts were expecting a sluggish performance in the stock market. But things turned up other way and NSE 500 (index that we follow in Indian market) had given a return of 5% in the last month. Below is also the performance of our portfolios:

  % change in July 2016
NSE 500 5%
Portfolio One 5.96%
Portfolio Two 6.39%
Portfolio Three 6.38%

 

All of the three portfolios had outperformed market returns in the last month.

We started this activity in the middle of the down trend in the stock market, in the starting of this year where we thought that market will reverse its trend. We just picked up five good quality stocks at that time which were trading below our calculated fair values at different levels. After two weeks we realised Indiabulls Housing Finance is trading at steep discount and wanted to add that in our portfolio. So we decided to sell Castrol from our portfolio and replace it with Indiabulls Housing Finance. That is how Portfolio One and Portfolio Two came into existence. Later after a month we found that JK Bank looks very weak stock (as per our research) and we wanted to get rid of it from our portfolio. So we sold Jk bank, and this is how the Portfolio Three came into existence.

We found many bloggers following very closely our portfolios and we thought to make this exercise look real and investors can relate with their investing journey. So here are the ground rules for all the portfolios:

Portfolio One

We can relate this person who has not enough time to keep track of what price its stocks are trading on day – to – day basis. This person picks up 5 stocks every year as per our stock selection rules (Buying only quality stocks (A1, B1 & A2) when they are trading at cheaper price and future prospects look great for the business and its earnings). And revisit to its portfolio and rebalance it on every 1st of January of the year. So he is not worried about one or two quarters disappointing results or even if any stock had halved in its price during that period.

Portfolio Two

Portfolio Two relates to a person who is similar to Portfolio One personality, but the only difference is that this person rebalances its portfolio every quarter and replaces stocks if he finds better opportunity to invest with and gets rid of weaker stocks from the portfolio. So Portfolio Two gets rebalanced every year on 1st May, 1st August, 1st November and 1st February of the year.

Portfolio Three

Portfolio Three person is the active investor and who rebalances its portfolio every 1st of every month. If he doesn’t find any good quality stock at his price, he prefers to keep his account in cash and wait for the opportunity. Not like Portfolio One and Two who needs to stay invested with all of their money all the time, Portfolio Three person can sit on 100% cash in its portfolio.

So here are the standings of all the portfolios before rebalancing them, and tomorrow we will share with you on how they look after rebalancing. This whole article and this activity is purely for the subscribers on this blog. You just have to register with your email address on our blog to access exclusive content by just login with your username and password. If you haven’t yet registered on our blog then click here to register.

Portfolio One:

Name Quantity Purchase Price Current Price Total money invested Current position Standing
Axis Bank 511 INR 391.10 INR 546.15 INR 199,852.10 INR 279,082.65 39.64%
JK Bank 2985 INR 67.00 INR 67.25 INR 199,995.00 INR 200,741.25 0.37%
Castrol 533 INR 375.00 INR 442.40 INR 199,875.00 INR 235,799.20 17.97%
TCS 90 INR 2,226.60 INR 2,619.30 INR 200,394.00 INR 235,737.00 17.64%
coal India 660 INR 302.85 INR 328.00 INR 199,881.00 INR 216,480.00 8.30%
cash INR 31,542.75
Total INR 999,997.10 INR 1,199,382.85 19.94%
NSE 500 INR 5,833.40 INR 7,330.00 25.66%

 

Portfolio Two:

Name Quantity Purchase Price Current Price Total money invested Current position Standing
Axis Bank 360 INR 391.10 INR 546.15 INR 140,796.00 INR 196,614.00 39.64%
JK Bank 2985 INR 67.00 INR 67.25 INR 199,995.00 INR 200,741.25 0.37%
Indiabulls housing 398 INR 686.44 INR 764.45 INR 273,203.12 INR 304,251.10 11.36%
TCS 75 INR 2,226.60 INR 2,619.30 INR 166,995.00 INR 196,447.50 17.64%
coal India 660 INR 302.85 INR 328.00 INR 199,881.00 INR 216,480.00 8.30%
cash INR 93,109.80
Total INR 999,997.10 INR 1,207,643.65 20.76%
NSE 500 INR 5,833.40 INR 7,330.00 25.66%

 

Portfolio Three:

Name Quantity Purchase Price Current Price Total money invested Current Position Standing
Axis Bank 360 INR 391.10 INR 546.15 INR 140,796.00 INR 196,614.00 39.64%
Indiabulls housing Finance 400 INR 686.26 INR 764.45 INR 274,504.00 INR 305,780.00 11.39%
Coal India 660 INR 302.85 INR 328.00 INR 199,881.00 INR 216,480.00 8.30%
TCS 75 INR 2,226.60 INR 2,619.30 INR 166,995.00 INR 196,447.50 17.64%
cash INR 259,716.05
Total INR 999,997.10 INR 1,175,037.55 17.50%
NSE 500 INR 5,833.40 INR 7,330.00 25.66%

 

So all the three portfolios were started with Rs 999,997.10 and the above is their standings as of 31st July 2016.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise you to take professional advice before going ahead with our views.