Alphamultiple Shuffle Portfolio

In our quest to reduce human bias from investing, we have come up with a high risk – high return strategy. This strategy makes up the Alphamultiple Shuffle Portfolio which consists of 15 stocks. The portfolio follows a Buy and Hold approach.

Alphamultiple Shuffle Portfolio Strategy

  • Market Cap of companies: Rs 300 Crores and higher
  • Number of stocks: 15
  • Holding period: 1 Year
  • Start Date: 1st working day of June
  • Cash Holding: NIL

We churn the portfolio only once a year. The expected returns are 15% p.a. and higher over a 5 year period.

Rationale

We look to buy decent businesses at cheap valuations. The markets are known to mis-price stocks and create bargain opportunities. A basket of 15 stocks creates a diversification that is neither too concentrated nor too diluted. While not all stocks deliver positive returns, the overall portfolio performance delivers good returns. However, the draw-downs in the portfolio are relatively sharp. The stocks are ranked on the basis of their earnings, return ratios and valuations.

Performance

Alphamultiple Shuffle Portfolio

10 Year Performance

 

The Alphamultiple Shuffle Portfolio performance is as follows:

  • Positive returns in 3 out of 10 years
  • 10 Year CAGR at ~ 20.5% p.a.
  • Lowest 3 year returns: -0.63% p.a. (June, 2010 – June, 2013)
  • Highest 3 year returns: +46.68% p.a. (June 2013 to June 2016)

Who should invest?

Investors who:

  • Have a time frame of 5 years and more
  • Expect ~ 15% p.a. over a 5 year period
  • Can sit through phases of high volatility and drawdowns
  • Age group: 60 and lower (Suggested)

We suggest investors to invest less than 20% of their portfolio in the Alphamultiple Shuffle Portfolio.

How it Works

Once you have access to the portfolio, you can execute the transaction in just one click through the Smallcase platform. Every year, our team will review the portfolio and rebalance it. We will send you regular updates about the portfolio’s performance along with other reports.

To invest, checkout our advisory plans.


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Nifty50 Investment Strategy – Low Valuation Stocks

A solid investment strategy can make you a lot of money. One popular investment strategy is investing in low valuation stocks as they offer a higher margin of safety and can give higher risk-adjusted returns. We have back-tested an investment strategy that invests in select Nifty 50 stocks ranked on the basis of lowest valuations. The strategy has been back tested for September 2010 to September 2018.

The strategy is simple:

i) Take the EV/Ebitda of every Nifty 50 company as on 1st September of every year

ii) Rank the companies in terms of lowest to highest consolidated EV/EBITDA ratio (Lowest ratio gets rank 1 and so on)

iii) Remove companies with negative ratios

iv) Invest an equal amount in every stock

v) Hold for 1 year and then shuffle the portfolio

If 1st of September is a market holiday then we consider the next working day.

Results

We tried out this strategy for portfolios with 5, 10, 15 and 20 stocks to see if diversification made any difference and we compared the returns with the total returns index (TRI) of the Nifty 50. The results are as follows:

Investment Strategy performance when Rs 10,000 is invested

Investment Strategy performance between Sep’ 10 to Sep ’17 performance

Conclusions

As you can see, this investment strategy has worked the best  when the portfolio has been invested in 20 stocks. The strategy has resulted in a loss when invested in just the top 5 stocks. The top 20 portfolio has had the lowest drawdown in terms of year-on-year returns.

However, the Nifty total returns index has out-performed even the top-20 strategy! What could be the reason?

  • Misses on the top performing stocks like Bajaj Finance, HDFC bank
  • Misses on companies with higher earnings growth
  • Mostly consists of Oil market companies, public sector companies, etc

Therefore, this backtest shows that low valuation should not be the only reason to invest in a stock because the market is usually assigning a premium to stocks that deliver higher returns.


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