Smallcap momentum portfolio

@Mudit.Kushalvardhan Trust you are back with full vigour after your meditation.

1. We are clearly momentum investors. Even though we rebalance on a weekly basis, our look back periods are 1 year and 6 months. There are several scrips that are part of the pf for over 4 months now. CHOICEIN has been in the pf since Jan 2024. We are not short term traders.

2. The number of stocks in the pf are influenced greatly by the universe and the rebalancing frequency. A typical large cap pf can manage with just 10 stocks, but as we start going down the market capitalisation, number of stocks have to increase to manage volatility. Several points that we need to ponder.

• A typical number of the top decile is normally recommended.
• Rebalance frequency – with large caps you can go with monthly RBs, while for lower market caps, it is better off with weekly.
• Worst Rank Held (WRH). This is an important part of the pf maintenance. You can choose double the number of stocks as you worst rank held. The number of pf churns will be largely governed by this. Example: If your number of stocks in the pf is 20, you can choose to have 20 as WRH, you will have large number of churns. If you choose to have 40 (2x the number of constituents in pf), you will have low churn, but might miss out on some of the winners.

So, in summary, my views on your specific queries,

• we are not following anyone rules; we are setting our rules. These are totally flexible and suited for the universe and the RB frequency.
• we can invest in any number that we think is appropriate. This is more related to market cap.
• I have not reduced the number of stocks in lower market cap categories. In fact, I have actually increased in my journey. Smallcap – I went from 15 to 20 and Microcap – I went from 20 to 25. We are already considering volatility in our pf selection by using this parameter called momentum ratio. This will make sure we don’t capture stocks that have sudden high spurts.
• Yes, every additional stock will help to reduce your risk.

I would suggest you do not reduce the number of stocks in your pf. If anything, I would ask you to increase.