Some inner reflections on market and Portfolio performance
Just wanted to document certain on going thought process for future reference for self and also to share some learning hoping that it can help those who are on the similar situations, positioning and circumstances.
Since Oct’2021, the market behavior is very erratic and unpredictable and has taken away sizable gains from many portfolios slowly and in staggered manner leaving investors clueless about when to take actions to circumvent losses on PF level. Very difficult scenario in last 15 months but it looks things will improve from here now onward in 2023. Time and price correction has played its major role as of now.
I am not qualified to recommend any aspect on the stock per se but I think I can add some pointers towards portfolio construction based on my experience.
- Lets say that we are critically analyzing the equity portfolio performance then according to me it is not the exercise to be done in isolation.
- To me portfolio assessment should be done taking into accounts Equity plus Debt together.
- Also what % of Net-worth is invested in Equity and Debt is important before analyzing.
- What stage of journey one is positioned in investing i.e. accumulation phase or near withdrawing phase.
- Compute the overall portfolio performance vis-a-vis Index and then take a call for adjustments, re-balancing within equity, asset allocation across asset class.
I think some illustrations from my own experience will add some value to the current thought process for better decision making:
A) For me I am almost done with my accumulation phase i.e. I wont be adding any meaningful capital in Equity to my existing portfolio. My asset allocation is in the ratio of Equity: Debt = 80%:20%
B) Debt part consists of Gold, FD, EPF, PPF, NPS
C) Equity allocation distributed across all market cap and spread across meaningful sector like Finance, Consumer, Chemical, Pharma.
Most of the core holdings has been beaten down 30-50% from High like Divis, Asian Paints, Dmart, Relaxo. TCS didn’t moved an inch and is 10% down in YTD, entire HDFC group stocks became step brother for the market. The impact on portfolio in positive terms is not great but not at all disastrous. Because over a period of last 7-8 years I designed my PF in such a way that it should trail and exceed Index most of the time. So last year PF performance vis-a-vis Index is lag of only 2% on relative basis. And PF fall from All time High is also not so significant compared to Index.
Re-balancing within equity is very important. Sector allocation and churning is equally important which require deep study and research. If we get sector rotation right and slightly ahead of the curve then the overall PF performance would be better than average. Investment in Gold is giving good returns currently and can be used to move capital from Gold to Equity now which I am doing presently.
D) Some KPI which I designed for my PF is under periodic tracking are as follows:
i) X = No. of times AUM w.r.t. Annual expense
ii) Index Fall from ATH
iii) PF fall from ATH
iv) Annualized return of PF vis-a vis Index
v) PF Beta, PF covariance w.r.t. Index
vi) Average PF gain/loss per unit of Index
vii) Excess gain/loss w.r.t. Risk free return of 6%
viii) Average Gain/loss in AUM per year
ix) Opportunity cost w.r.t. Index Investing
x) Individual stock weighted between 5-7% on cost basis
Here is last year PF performance link for reference.
In summary, Individual stock bad performance has hardly any negative impact on overall PF provided it is well diversified and not highly concentrated. On average market beating return on a longer period of time is good approach towards achieving financial goal with peaceful sleep.
Happy investing!
VK
| Subscribe To Our Free Newsletter |
