Lazy Investing: Five Test Stock Portfolios Sep 2018 Update

Readers may be aware that from June 2018, I have started testing five stock portfolios based on NSE indices.  Their current status is reported in this post. Three of them are based on smart beta (active + passive) indices and two on a passive index.  The main aim is to find out (after the lapse of a few years) how effective a lazy investing stock picking strategy is.

There are two important warnings.

I have no skin in the game. These are purely imaginary portfolios created at Value Research. I have nothing to lose here. If the portfolios work, I will write a post about it. If they fail, I will write a post about it.

These are NOT stock recommendations. They are experimental portfolios and I am running a test. I invite you to study them with me. Do not put your money based on these posts alone. Please carry out due diligence.

Lazy Investing: Five Test Stock Portfolios Sep 2018 Update Readers may be aware that I have been covering Nifty active and passive index performance from time. Although I recommend index investing (in Nifty Next 50) only for less than 25-year-olds, many readers of all age groups have taken to it. If you are just joining in, I strongly recommend that you read the following posts before proceeding

 

Watch my talk on index investing: Can we get higher returns with lower risk?

List of Index Mutual Funds and ETFs in India: What to choose and what to avoid

Index Investing: advantages and disadvantages of being a passive investor

How new stock investors can quickly start investing using NIFTY Multi-Factor Indices

Are Nifty Smart Beta (strategic) Indices better than the Nifty Next 50?

Warning! Nifty Next 50 is NOT a large-cap index!

Nifty 50 Equal Weight Index vs Nifty 50: Does equal weight result in more returns?

Nifty Next 50: The Benchmark Index That No Mutual Fund Would Touch?!

What is the best way to invest in Nifty Next 50 Index?

Let us dive into the five test portfolios

1  NIfty Low Volatility 50 (top 10)*

The NIfty Low Volatility 50 is a set of 50 stocks (from top 300 stocks by market cap) with least fluctuations in monthly returns considered over the last one year period (trailing). So in June 2018, I looked at the monthly factsheet and invested in the top 10 stocks (one stock each) by weight (least volatile stocks occupies more weight).

Why? Because choosing low volatility stocks is a simple, yet rewarding way to beat market cap based indices at lower risk (see links above).

Rules from now on

1: Get the Nifty Low Vol 50 factsheet published each month end along with the full list of stocks in the index (see links below). This list will not have weight information.

2: Check if the stocks currently held are in the top 10 (by weight) as mentioned in the fact sheet. If not, check if there are in the full list.

3:  As long as an existing stock in the portfolio is present in the index (full list), buy one more. * I changed this rule so that sell transactions are minimised (from July to June 3-5 stocks have moved out of the top 10) So we started with the top 10 in June 2018 and will continue to hold them as long as they are part of the index. If they are removed from the index, we will replace them with a stock from the top 10 (with the highest weight).

4: The portfolio will always have 10 stocks only. The STCG or LTCG paid will be accounted for at the end of each FY.

5: The portfolio will be updated each month.

This is the current status:N50LV Sep 2018 - Lazy Investing: Five Test Stock Portfolios Sep 2018 Update

 

2  Nifty 100 Low Volatility 30 (top 10)

This picks the 30 least volatile stocks from the NIfty top 100 index. We started with the top 10 in June 2018 and will follow the same rules as above.

Why? Same reason as above. It is quite possible that this portfolio will have significant overlap with the Top ten from Low Vol 50.

Rules

1: Get the Nifty 100 Low Vol 30 factsheet published each month end along with the full list of stocks in the index (see links below) and follow the same rules as above.

Current Status:N100LV30 Sep 2018 - Lazy Investing: Five Test Stock Portfolios Sep 2018 Update

 

3 NIFTY Alpha Quality Value Low-Volatility 30 (top 10)*

NIFTY Alpha Quality Value Low-Volatility 30 Index consists of 30 stocks selected from NIFTY 100 and NIFTY Midcap 50 and reflects the performance of a portfolio of stocks selected based on
the top combination of Alpha, Quality, Value and Low-Volatility.  You can read more about its performance in the links above.

Why?   Best of all worlds – Growth investing + Value investing + low volatility.

Rules

1: Get the NIFTY Alpha Quality Value Low-Volatility 30 factsheet published each month end along with the full list of stocks in the index (see links below) and follow the same rules as above.

Current Status:NAQLV30 Sep 2018 - Lazy Investing: Five Test Stock Portfolios Sep 2018 Update

 

4 Nifty Next 50 (Top 10)*

The Nifty Next 50 (NN50) is the bottom 50 of the top 100 stocks arranged by market cap. So we get the index weights and after a bit of processing end up with this table. Notice the huge difference in market cap as we go down the index. A literal reason why I keep saying NN50 is not a large-cap index.

nifty next 50 composition Sep 2018

Why top 10? I see it as a lower risk, lower reward variant of the NN50.

Current StatusNN50 top Sep 2018 - Lazy Investing: Five Test Stock Portfolios Sep 2018 Update

5 Nifty Next 50 (bottom 10)*

The idea here is to have a mid-capish portfolio with higher risk and possibly higher reward than the NN50. 

NN50 bottom Sep 2018 - Lazy Investing: Five Test Stock Portfolios Sep 2018 Update

It takes about ten times less to buy the NN50-bottom-10 compared to the NN50-top-10. This huge spread in market cap is again the reason for its special nature.

What is the plan now?

1: Post updates each month.

2: Periodically compare with respective indices and some active mutual funds.

Let us see what happens. So far so good I think.

Lazy Investing Resources Aug 2018

The full list of stocks: Nifty Low Volatility 50

The full list of stocks: Nifty 100 Low Volatility 30

The full list of stocks: Nifty Alpha Value Quality Low Volatility 30

The full list of stocks with weights: Nifty Next 50

Factsheet: Nifty Low Volatility 50

Factsheet: Nifty 100 Low Volatility 30

Factsheet: Nifty Alpha Value Quality Low Volatility 30

Factsheet: Nifty Next 50

All documents are sourced from the NSE.

Want to conduct a sales-free "basics of money management" session in your office?
I conduct free seminars to employees or societies. Only the very basics and getting-started steps are discussed (no scary math):For example: How to define financial goals, how to save tax with a clear goal in mind; How to use a credit card for maximum benefit; When to buy a house; How to start investing; where to invest; how to invest for and after retirement etc. depending on the audience. If you are interested, you can contact me: freefincal [at] Gmail [dot] com. I can do the talk via conferencing software, so there is no cost for your company. If you want me to travel, you need to cover my airfare (I live in Chennai)

Connect with us on social media


Do check out my books


You Can Be Rich Too with Goal-Based Investing

My first book is now available at a 35% discount for Rs. 258. It comes with nine online calculators. Get it now.  The Kindle edition is only Rs. 199.

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

My second book is now only Rs 199 (Kindle Rs. 99) Get it or gift it to a youngearner

The ultimate guide to travel by Pranav Surya

Travel-Training-Kit-Cover This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step.  Get the pdf for ₹199 (instant download)

Create a "from start to finish" financial plan with this free robo advisory software template


Free Apps for your Android Phone

All calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.

4 thoughts on “Lazy Investing: Five Test Stock Portfolios Sep 2018 Update

  1. Once you have about 6 months worth of history, would you consider graphing the portfolios – investments made and current value?

  2. Hi Pattu, Anees here.

    Some questions:

    -Any specific back-testing data on choosing only the top 10 stocks from a 30/50 stock index? Is the performance higher / lower than the actual index?

    -Since you are buying a full stock, your weighting will not be in line with the index weighting. Any comments on how this will play out?

    -Have you considered using the gold standard of algo investing – Greenblatt’s Magic Formula?

    You are right, this is playing out very interesting!

    Anees

    1. Hi Anees, I have been wanting to implement the Greenblatt’s Magic Formula in my screeners but not here. The weights are going to be a problem. I will have to find a way out next time. We cannot backtest using top 10 as historical weights are not available.

Leave a Reply

Your email address will not be published. Required fields are marked *