Mi MT Allcap – Flexible Allcap Core Strategy for Long Term Wealth Creation

Mi MT Allcap is an absolute momentum strategy which aims to generate market beating returns aiding gradual wealth creation for its users. This product is suitable for use in all stages of the market cycles as it is designed to either remain invested in the strongest 20 stocks or go to cash in weak markets

The Purchase Price of the Stock isn’t important

Let us consider the case of YESBANK. The stock was indeed in the middle of a tremendous momentum run from 2013 onward & we’re sure everyone would be itching to participate in the great wealth creation story. The blue dots showcase the potential entry points of the strategy. Now the question here is how does one decide what is a good price at which one can purchase the stock ?

Our simple thesis (a part of Bhav Bhagwaan Che philosophy) is that the purchase price isn’t really important. What’s more important is

• When exactly do you enter ?
• How much do you allocate ?
• When do you exit ?
  

Traditionally, investors are quite apprehensive about purchasing stocks around their all time high levels but as soon as a stock breaches all time high it continue to move higher and higher as there is literally no resistance left. The idea we are trying to drive home is that the purchase price of the stock does not matter much. What really matters is at what point in time do you enter, what is the position sizing applicable to the overall system & how do you manage the exit.

Now let us see a usual journey of an investor having invested money in YESBANK

If he bought the stock at say Rs 100 around Apr 2014, he would have been a witness to a spectacular run all the way till around Rs 393 in Aug 2018. The stock has now returned a whopping 293% and he is very confident that this stock shall define his wealth going forward.

One month later in Sep 2018, YESBANK drops to about Rs 320 and he assumes this may be some kind of a profit booking and doesn’t let this fall affect him in any possible way.

Two more months later in Nov 2018, he sees the stock go through a free fall currently at Rs 180. Though he may be unhappy that the stock has fallen 45% from peak, he is thinks this may be a great to start averaging as the stock may rise again.

Three and a half years later, he is angry , disappointed but continues to wait having lost more than 90% of his money. If the investor had a proper exit plan in mind, he may not have been subject to this kind of pain. Between Apr 2014 to Apr 2022 (a period of 8 years), how efficiently could this capital have been utilized ? What is the opportunity cost in this case ?

How Momentum would’ve treated this Stock ?

Let us assume the same entry point of Rs 10 in Apr 2014 as we saw the stock hit a fresh all time high thus indicating strong upward momentum. The stock went on to make a high of Rs 375 and then corrected by about 25% to drop to Rs 300 indicating weakness. Momentum portfolios would have made exits from any stock at the very first sign of weakening momentum. In this case, we would have made a stupendous 200% gains on YESBANK and allocated the money to another promising stock thus ensuring best use of capital.

Here – we not only booked gains in the stock but also avoided the brutal 90% plus fall which saw the stock being removed from Nifty too.

Drawdowns are Hazardous !

The most important objective here is to try and ensure we do not allow the portfolio to slip into big drawdowns. How do we achieve that ?

• By being very quick with getting rid of stocks where momentum is drying up (having a nimble exit plan)
• By moving to cash during extremely weak scenarios thus taking a smaller blow compared to the benchmarks.

We wrote a detailed blog post on this subject if you wish to get a detailed perspective on the same

Introducing Mi MT Allcap

This is weekly rebalanced absolute momentum strategy that picks 20 trending stocks from the universe of all stocks above 1000 Crore market cap. The objective of this strategy is to achieve outperformance in all kinds of market scenarios

• Mi MT Allcap can be a good core strategy for your long term financial goals
• This is a Medium Risk strategy that can be good for all kinds of markets
• The strategy will exit stocks that do not perform – Survival of the fittest
• In deep drawdowns of the market, strategy will move to cash
• It attempts to out perform when markets go up or down

Performance during Bull Markets

When you consider the period of Mar 2020 to Oct 2021, CNX 500 index went up by 154% while Mi MT Allcap returned a superb 272%.

Performance during Bear Markets

During the covid fall – you can see how the strategy managed to go through a lower drawdown (24% on Mi MT Allcap compared to 38% on CNX 500 index) by staying in CASH thus effecting a quicker recovery back to a fresh high too. You can notice a flat line between Apr 2020 to Jun 2020 which denotes presence of a high percentage of CASH component.

Performance during Choppy Markets

Momentum strategies can end up losing some grounds during choppy market scenarios due to the inability to ride on strong momentum.

Mi MT Allcap Yearly Performance

Markets are cyclical in nature. Expecting a linear performance from the stock markets can lead to disappointments and hence requires one to have a long term perspective when it comes to equity investing. As you can see from the chart above, Mi MT Allcap had two good years in FY 17 & FY 18 while FY 19 and FY 20 were poor. FY 21 and FY 22 were outstanding thus signifying the importance of remaining invested for long periods (at least 4+ years) to extract the best out of any strategy of ours.

Absolute Return Metrics

Across a period of 6 years and 3 quarters, Mi MT Allcap has done remarkably well to clock an absolute return of 616% comparted to 166% on CNX 500 index while the CAGR stands at a solid 33% as against 15.6% on it’s benchmark.

The point to note is the outperformance during COVID resulting in much lower max drawdown of 28% compared to 38% on CNX 500 index.

Rolling Returns Comparison

The 3 year absolute return during the bottom of covid fall in Mar 2020 was still at a healthy 43% compare to (-12%) on CNX 500 index thanks to the swift movement to CASH when markets went weak & we can also see consistent outperformance across both 3 & 4 year periods.

CAGR Metrics

The CAGR at any given point in time never dipped below signaling the the kind of stellar performance this strategy has put on display.

Other Performance Metrics

Stock Stories from Mi MT Allcap

To Summarize . .

Mi MT Allcap can be a superb core strategy for your long term financial goals.

• 20 trending stocks from the universe of all stocks above 1000 crore market cap
• Tries to outperform when the markets trend on the upside thus extracting alpha while keeping the drawdowns minimal when the markets trend on the downside.
• Superior performance & significantly lower drawdowns compared to CNX 500 index

Come in with a mindset to stay for as long as possible (preferably 4+ years) and have a phenomenal journey !Hope to see you in WeekendInvesting Family soon.