We have been doing Random Portfolio exercises for the last few years. We started looking at this interesting topic almost 3 years back and could make a template with the help of my friend Prashant Krish and now my team mate Harsh Doshi does the iterations for the last 1 year or so.
Every time we have a fantastic year we do this exercise to tone down the emotions which come along with a great year.
Random Portfolio Selection Filter
•The only filter was stock should be above 20 rs and listed on NSE. ( to remove unusual big movers or duds )
•25 stocks selected randomly ( rand function) with an equal weightage of 4%.
•Time Period – Last 6 months and Year to Date.
•No shuffling of stocks. Just buy and hold.
•No brokerage applied.
We created 5 random portfolios on the above selection criteria.
Recommend reading the Previous posts on this Topic.
1) Best time for Advisors to show Performance Reports/CAGR to sell their services – Part 1.( Oct 2014)
3) Now is the Best Time for Successful Investors to give Gyaan on Investing.
4) Doubled your Money in Last 3 Years ? Skill or Luck ?
The calendar year started on a good base after a drop from 8950 to 8200 in the last 3-4 months of 2016 which was a flat year with Nifty barely managing a 5% return in CY 2016.
Apart from it being a great year there was not a single correction of more than 5% in the Nifty all through the year.
Nifty up 28.5%
Sensex up 28%
BSE Small-Cap Index up 59.5%
BSE Midcap Index up 47%
S&P BSE 500 Index up 36%
S&P BSE 100 Index up 31%
Nifty Midcap 100 up 47%
Nifty Small 100 up 57%
Lets look at returns of Random Portfolio for CY 2017. ( Also have added Fy18 )
1st Iteration
1/2/2017 | 12/29/2017 | ||
Portfolio | Initial Equity | End Equity | % Returns |
Random Portfolio 1 | 1000000 | 1417911 | 41.79% |
Random Portfolio 2 | 1000000 | 1512804 | 51.28% |
Random Portfolio 3 | 1000000 | 1580712 | 58.07% |
Random Portfolio 4 | 1000000 | 1681879 | 68.19% |
Random Portfolio 5 | 1000000 | 1450591 | 45.06% |
Average Returns (%) | 52.9% | ||
nooreshtech.co.in |
Click to Download - Excel Sheet - Random Portfolio 1 -
2nd Iteration
1/2/2017 | 12/29/2017 | ||
Portfolio | Initial Equity | End Equity | % Returns |
Random Portfolio 1 | 1000000 | 1646863 | 64.69% |
Random Portfolio 2 | 1000000 | 1613824 | 61.38% |
Random Portfolio 3 | 1000000 | 1400716 | 40.07% |
Random Portfolio 4 | 1000000 | 1748309 | 74.83% |
Random Portfolio 5 | 1000000 | 1598099 | 59.81% |
Average Returns (%) | 60.2% | ||
nooreshtech.co.in |
Click to Download – Excel Sheet – Random Portfolio 2
NSE all stocks Performance
We also did an exercise on the Returns in all the liquid stocks listed on NSE in calendar year 2017.
- There were almost 1683 stocks listed in Equity Segment as on 1st January.
- Out of these 182 had no trade data for many days. So we excluded them.
- Not included the new listings. May have missed a few demerger calculations.
- Final list of 1501 stocks.
Another big myth is that there are 5000 plus listed companies in India. The reality is 2500-3100 stocks get traded on BSE and 1500-1800 on NSE which are also mostly listed on BSE. So the real liquid universe is between 1500-2500 stocks half of the assumed number.
nooreshtech.co.in | ||
% Returns | No. of Scrips | % of total population |
Above 400% | 20 | 1.33 |
100 to 400% | 289 | 19.25 |
50 to 100% | 327 | 21.79 |
10 to 50% | 474 | 31.58 |
Upto 10% | 121 | 8.06 |
0 to -10% | 76 | 5.06 |
-10 to -50% | 167 | 11.13 |
-50 to -100% | 27 | 1.80 |
Grand Total | 1501 | 100.00 |
nooreshtech.co.in |
Click to Download – Excel Sheet – NSE All Returns
- 42% of the stocks gave a return of 50% or more.
- 19% of the stocks gave a return of 100-400%. ( 1 out of 5 stocks doubled this year )
- 82% of the stocks gave a positive return.
Conclusion
- A diversified random portfolio would have given a return of 52-60% which is much higher than the Nifty/Sensex/BSE 500/Midcap etc and almost close to the BSE Smallcap/Nifty Smallcap even though the universe is almost all listed stocks.
- A little more concentrated portfolio would have given much more higher returns.
- A constant learning through all these exercises is that Selection is very important in a Concentrated Portfolio but in a Diversified Portfolio the Asset Allocation and timing plays the real tool. Consider if you had deployed more cash in Demonetization – Nov/Dec 2016 would it really matter what stocks you selected ?
- In such times it becomes easy for advisers, analysts, pms and mutual funds to show how superior their returns are to the benchmark – Nifty. If 42% of the stocks went more than 50% there is a good chance every smallcap/midcap pf made that sort of return as there will definitely be some outliers which went up 100% ( 1 out of 5 stocks doubled up )
- The above exercise clearly tells us to be thankful to the market for being so kind in giving returns irrespective of whether it was luck or skill.
Wish you a Healthy and Wealthy New Year
Nooresh Merani
January 1, 2018
Simply superb. Honest confession by a professional. I salute your genuine approach.
January 10, 2018
Excellent analysis