@gpharshas Good to hear that you have started.
This is a typical issue we have when designing the system. Whatever you mentioned has happened to me several times. A stock goes out this week and the following week it is back. I just follow the system.
You have used 1.5x as WRH, whereas I am even more strict. It is less about the universe size and more about churns / returns. For my smallcap pf, for 20 stocks, I exit if it falls below 25.
Many people advocate using 2x as the WRH.
I will give below an illustration using stocks from this pf itself.
| Rank | 1y / 6m | Avg | |
|---|---|---|---|
| 20 | BLUESTARCO | 130% / 39% | 84.5% |
| 25 | GODFRYPHLP | 107% / 78% | 82.50% |
| 30 | NAM-INDIA | 120% / 39% | 79.50% |
| 40 | Exide | 85% / 47% | 66.50% |
If you continue to drop down to 2x, ie 40th rank, the average returns falls down from 84.5% → 66.5%
We are allowing the performance to deteriorate so much before we drop it.
If we allow 1.5x, ie 30th rank, average returns falls from 84.5% → 79.5% before it is dropped.
Of course, I have been very simplistic in my assumption of looking at average returns. We could study the same using recent data also to see the impact of drop in performance before replacement.
However, key factor here is returns and level of churn (+ cost of churn) we are comfortable living with.
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