Investing when markets are at all-time highs is a good strategy: Team Marcellus

Discussion in 'Must-Read Interviews, Articles & News Items' started by Arjun, Jan 17, 2021.

  1. Arjun

    Arjun Chief Executive Officer (CEO) Staff Member

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    Saurabh Mukherjea and his Team Marcellus have dealt with the apprehension of many investors that because the markets have run up in the past few months, the probability of the markets delivering negative returns in the future is now higher.

    Because of this apprehension, they are avoiding investing at present.

    The Team has pointed out that the past twenty-one years (2000-2020) of data suggests that there is no significant correlation between returns delivered in the previous six months and the next six months by the Nifty (R-squared of 1.3%) or the Bank Nifty (R-squared of 1.9%).

    In fact, the data shows that an investor who bets (by not investing) on the Bank Nifty delivering a negative return over the next 6 months because it had delivered a positive return over the previous six months only has a 33% chance of being right. The investor’s odds fall further to 26% when the Bank Nifty has delivered a return of greater than 45% over the previous 6 months (similar to Bank Nifty’s 46% returns during 1st July, 2020 to 31st Dec, 2020), as the Bank Nifty has then gone on to deliver a positive return in the next six months in 74% of cases!

    On the other hand, in the case of an investor who invests in an equal weighted portfolio of five Kings of Capital stocks every time the Nifty hits an all-time high, the median 5-year returns for such an investor end up being 26% on a CAGR basis!

    Team Marcellus has established this proposition by a meticulous assessment of date.

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    It is stated that as equity markets are upward trending in nature in the long run, unlike a gambler betting on a coin toss, the odds remain in favour of an investor betting on the fact that equity markets will deliver a positive return in any given period irrespective of the returns in the previous period.

    A six-month period of high returns has been usually followed by another six-month period of positive returns. During the six months ending 31st Dec, 2020, the Nifty and Bank Nifty have delivered an absolute return of 36% and 46% respectively. The Nifty, Bank Nifty and 5 stock KCP portfolio have in the past delivered a 45% or higher six month return in 4%, 8% and 15% of the 4,979 rolling six-month observations during CY2000 to CY2020. After delivering a 45% or higher return in the preceding six months, the Nifty, Bank Nifty and 5 stock KCP portfolio have delivered an average return of 3%, 9% and 15% respectively in the next six months and a positive return in the next six months in 71%, 74% and 70% cases respectively, it is stated.

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    Last edited: Jan 17, 2021
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