After making all time high post the epic crash of covid 19 investors especially retail investors are feeing jittery. They are worried of a market correction or crash which may take away their profits. At the same time the way markets are making new heights daily, they are not willing to get out of it completely. Market has its own way of dealing with our investments. At times market surprises us with its bull run and we have FOMO (fear of missing out). Finally, we enter the market (unfortunately when it’s at euphoria) only to see it crashing down. We finally book losses and move out of market and vow to never come back. Some of us are sharp enough to call markets as gamble. Well for a minute let me agree with you on this. But why only markets anything which is done without proper training and experience is gambling only e.g. driving a car. This why retail investors make money only in bull (because almost every stock will rally) run only to give it back in the crash. So what can be do to make sure that we don’t lose money in crash? Invest heavily and pray to god that there should be no market crash? Nahh this is what is called gambling.
Like after every summer we have rains and followed by winter same happens with markets. After every bull we have bear and sideways market. The cycle repeats. So instead of praying to god that we should not have winter better keep some woolen cloths. That’s all you need to ace the markets. Bottom-line is instead of wasting time in predicting when this will happen we should focus on things which are in our control.
Now the “How” part. How to accomplish this?
We at prudentcap use our propriety developed machine learning (AI) algorithm based on past 1-year data of stocks to create a portfolio which has risk of around 60% of market risk for bear markets. This means that if the bear run starts and market falls by Rs 100 our portfolio is designed to fall around Rs 50-60. On the other side if we are in a bull run with no major correction and market goes up by Rs100 the portfolio should move up by Rs 95-120. This makes sure that the portfolio beats the market in long (1 year+) run by good margin. We periodically rebalance the portfolio which is roughly once a month to remove the stocks which no more fit in our objective. The whole idea of this “momentum with safety portfolio is to protect your capital during market crash and at the same time provide you with good capital appreciation. Now let me give you some live examples of what actually happened.
Let’s consider both bull and bear scenario of this year
|Period||Market direction||Nifty||Momentum with safety portfolio|
|Feb 28 2020- April 3 2020||Market crash||-27.80%||-13.80%|
|Nov 12 2020 – Dec 12 2020||Market rally||6%||10.50%|
|last 6 months from 12th Dec 2020||Big bull run||36.48%||38.60%|
For more information on covid 19 crash and our portfolio please visit our earlier blog post. This is the portfolio design framework enabled with artificial intelligence and although chances result on the expected lines are high but the outcome cannot be guaranteed. This portfolio service is provided on small case platform so please visit prudentcap.smallcase.com to explore more.