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Measuring Portfolio Returns in Equity Shares



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Welcome to the continuation of the topic *Portfolio measurement*

In our previous lesson, we took the example of Motherson sumi and CNX 100

We have learnt as to how to measure if Motherson Sumi performed compared to the index.

After comparing for 30 days, we compared for 45 days and later for 60 days over a one year period

Later in telecom example, we tried to see if the telecom stock or the telecom sector is the under performer.

Based on this analysis we should decide about retaining the telecom stock or removing it from our portfolio.

First step is:

Compare portfolio with cnx 100

Then identify which stock underperformed

Compare the stock performance wth cnx 100

It will of course be bad

Now, we identified the stock that is dragging us

To confirm that the stock is bad but sector is good, we need to find out the returns of the bse telecom sector

Understood ?

Now, if we find that the telecom sector itself is under performing then we are in bad stock and bad sector

If in profit, exit from the telecom stock and sector

If in loss, continue cost averaging as per rule and exit it at minimum profits

And after exiting, search for a different sector

that outperforms the index

This is how we have to build a portfolio that outperforms the index.

All the tests should be done with different time periods and different sets of dates.

At least for 3 data sets.

This is the first method of portfolio measurement and optimization.

Got it?

Can we continue to the next topic?

For long investing, we will notice that our investments have slowly grown in size over time.

Remember, in our summary sheet, we have a column called "Age"

That column is used to determine if our investment age is less than a year or more.

The benchmarking method yesterday is also called point-to-point returns.

i.e between to dates. usually within a year.

For investments that are over 1 year old, we need to use another method.

It is called Compound Annual Growth Rate or CAGR

CAGR method is applicable on all type of investments - equities, mutual funds, bonds, debenture, gold etc.

The CAGR method involves some math.

Shall we enter into it?

Or shall we take it tomorrow?

Hmm. Lets take it tomorrow.

Coz, my hands are paining typing. lolz

Also, some of our other friends might be missing the topic.

For now, understand that, for investments less than 1 year of holding are to be measured using Benchmarking method as discussed above.

And for investments over 1 year, CAGR is to be used.

Hey, do not worry.

Do ur assignments and practise.

Lazy hearts will always lose money in the markets.

Read and re-read the session text again

And make all the theory a habit.

If you make it a habit, decision making during market hours will not be difficult.

If you do not make it a habit, you are bound to make wrong decisions and silly mistakes and you may loose opportunity or capital.

In actual practise, retail investors like us hardly hold investments for over a year.

Unless of course we forget the investment.

People get tempted to exit and enter stocks every now and then without any reason.

This is why CAGR is not that popularly measured by individuals like us.

However, institutional investors like Mutual funds, LIC etc. use CAGR every day.

Any questions you have from this, or any topics earlier?

We need to select Stock very carefully

Yes. Also, even after careful selection and investing, if it dosent outperform, we need to replace the stock and the sector as well.

Are the lessons going on a faster pace?

Shall we take lessons on alternative days?

So u can do your practice at leisure and with live data?

For now, feel free to attend tomorrows session at 2 PM on CAGR.

If you cannot make it, we will look for a different date / time.

"Amongst thousands of persons,

hardly one strives for perfection;

and amongst those who have achieved perfection,

hardly one knows me in truth."

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