Smallcap momentum portfolio

@Mudit.Kushalvardhan Answers to your questions.

1. I have chosen the number of stocks in the pf based on the market capitalisation and size of the universe. I have 10 stocks in Nifty 50 and Next 50; 15 in Midcap 150; 20 in Smallcap 250 and 25 in Microcap 250. This gives a total of 80 stocks in a Nifty 750 equivalent. Typically, people advocate the top decile (10%) of the universe for inclusion in the pf. Therefore, if I had taken the universe at N750, then I should have gone with 75 stocks (instead I have 80 stocks now). I feel this is fine and with different rebalancing frequencies, I feel more comfortable than having one pf only.

2. I keep increasing my contribution and is normally done in a lumpsum manner whenever I have investible surplus. The lower single digit were the size of the microcap and smallcap pfs. While this continues to increase in size, my overall allocation in the momentum pfs that I maintain is close to 10%.

3. I do not look at any other strategy – fundamental or technical while investing. I follow the system completely. I feel addition of any other parameter will dilute the returns. Even today, I look at price action and volatility. Some people might suggest just price action is sufficient to set up a momentum pf and the volatility factor (or Sharpe) actually will lower the returns. However, I feel better with the volatility factor in place and that is why I am continuing.

4. I have not applied any circuit criteria for entry or exit. I have not been able to buy or sell just about twice in all this time.

One last point. Whatever, system you choose to build (with conviction), follow it thoroughly. Please do not bring in your discretion and keep changing it.